Should New Yorkers Be Worried About the Proposed Estate Tax Changes?

Over the past several days, our office has received a number of worried calls from clients after seeing headlines about a proposal from New York City Mayor Zohran Mamdani to dramatically lower New York’s estate tax exemption.

The short answer for most families: there is no reason to panic, and no need to change your estate plan right now.

While the proposal has generated attention, it is important to understand both what is being discussed and who actually has the authority to change New York’s estate tax laws.

The Mayor Cannot Change the Estate Tax

Estate tax law in New York is determined at the state level, not by New York City.

Any change to the estate tax would have to be passed by the New York State Legislature and signed by the Governor of New York. The mayor of New York City does not have the power to change estate tax rules. 

At most, the mayor can advocate for policy ideas as part of broader budget or political discussions in Albany.  As of now, the proposal circulating in the news is not legislation and has not been introduced as a bill.

Because of the political and economic implications of such a dramatic change, most observers view it as unlikely to become law in its current form.

What the Proposal Suggests

The proposal being discussed would significantly restructure New York’s estate tax by:

• Lowering the exemption from over $7 million to roughly $750,000

• Increasing the top estate tax rate, potentially as high as 50%

Lowering the exemption to that level would dramatically expand the number of estates potentially subject to tax—particularly in high-cost real estate markets like New York City.

A Hypothetical New York City Family

To understand why the proposal has attracted attention, consider a common situation:

• A family home worth $1,000,000

• Retirement savings and other assets of $400,000

Total estate: $1.4 million

Under Current New York Law

New York’s estate tax exemption is currently over $7 million, so this family would owe no New York estate tax.

Under the Proposal Being Discussed

If the exemption were reduced to $750,000, roughly $650,000 of the estate could be taxable.

If tax rates were as high as 50%, the estate could owe hundreds of thousands of dollars in estate tax.

Because the primary asset in many New York estates is the family home, heirs may not have enough liquid assets to pay the tax bill.

As a result, children inheriting the home could be forced to sell the property in order to pay the estate taxes. In some cases, adult children may have expected to keep the home in the family—or even continue living there—only to find that the tax liability requires a sale.

This concern is one of the main reasons the proposal has drawn criticism in a city where even modest homes frequently exceed $750,000 in value.

That said, it is important to emphasize that this scenario is entirely hypothetical and depends on a proposal that has not been enacted and is not currently pending legislation.

If You Made a Plan Recently, You Are Likely Already Well Positioned

For clients who created or updated an estate plan with our firm in the past several years, there is generally no need to revisit your plan because of this proposal.

Planning Strategies That Are Always Worth Considering

While there is no need to react to headlines, certain estate planning strategies can be beneficial regardless of future tax changes.

Lifetime Gifting

Making gifts during your lifetime can reduce the size of your taxable estate. Many families take advantage of annual gifting opportunities to gradually transfer wealth to the next generation.

Life Insurance Trusts

An Irrevocable Life Insurance Trust can allow life insurance proceeds to pass to beneficiaries outside of the taxable estate, providing liquidity for heirs if needed.

Spousal Lifetime Access Trusts

A Spousal Lifetime Access Trust (SLAT) allows one spouse to make a gift to a trust for the benefit of the other spouse and family members, potentially reducing the taxable estate while maintaining flexibility for the family.

These strategies are not new and are often incorporated into thoughtful estate planning regardless of political proposals.

The Bottom Line

Recent headlines about potential estate tax changes have understandably caused concern. However, several key points should reassure New York families:

• The proposal is not law

• The New York City mayor cannot change estate tax rules

• Any change would require action by the New York State Legislature and the governor

• Families with modern estate plans are generally already well protected

For now, this proposal should be viewed as part of an ongoing policy conversation—not an imminent change to the law.

If you have questions about your estate plan or strategies such as gifting or trust planning, it is always worthwhile to review your planning periodically with your estate planning attorney.

Out in the Community

Please join Michael in two presentations this spring:

CLE for BARBRI Professional Education (formerly known as Strafford)

Medicaid and Estate Planning: Strategies, Conflicts, Trust and Power of Attorney Issues, and Tax ConsequencesThursday, April 23, 1 PM via webinar

This CLE course will provide elder law attorneys with guidance on navigating challenges and avoiding missteps between Medicaid and estate planning. The panelist will discuss the inherent differences between Medicaid planning and estate planning, common mistakes in drafting trusts, tax consequences, accounting for multiple income sources, and other issues for elder law attorneys.

Registration details coming soon. 

Adult Education through the Roslyn School District

Estate Planning & Elder Law: Protecting Your Assets

Wednesday, May 13th, 7:00 – 8:30 PM, Roslyn NY High School

Topics to be addressed include what needs to be done in order to pass assets to children free of estate taxes, how you can protect your home from future nursing home costs, how you can avoid in-laws from gaining access to your family’s estate, and how to avoid problems that may arise out of the probate process. 

MORE INFO