With a federal estate tax rate of 40%, estate planning conversations often start and stop with the relatively high federal exemption (currently $15 million for individuals and $30 million for married couples). That can make estate tax exposure feel remote. In practice, however, many taxpayers may face a different reality at the state level.
For example, states such as New York impose their own estate tax, with a significantly lower exemption (currently $7.35 million). New York’s so-called estate tax “cliff” can create an unexpected result: if a taxable estate exceeds the exemption by more than 5%, the entire estate—not just the excess—may be subject to estate tax. When factoring in a residence, retirement accounts, investment portfolios, and other assets, some estates can approach or exceed that threshold more quickly than anticipated.
