Changes in Gift and Estate Tax
By Louis W. Pierro, Esq., Founding Partner
I write this article having just hosted an episode of Life Happens Radio, “How to Make Smart Adjustments to Your Trust”, during which we had several callers who asked great questions on tax issues that our clients face every day.
There are taxes that everyone must be concerned with- income, capital gains, property, sales – and others that take different forms such as Tariffs, Tolls and user fees. When creating your estate plan that involves Trusts, tax considerations must be factored in, which will be covered in our next article.
Three taxes that I will address here are Gift, Estate, and Generation Skipping Transfer Tax (GSTT).
If you own assets- a home, Retirement Accounts, savings, investments, a business- and you plan to pass assets to loved ones, the 2026 federal and New York State estate and gift tax rules could directly affect you. Understanding the current exemption amounts can help you make informed decisions about gifting, updating your estate plan, and avoiding unnecessary income, estate and capital gains taxes. This is especially important for New York residents, where state estate tax thresholds are far lower than the federal limits and can catch families off guard without proper planning.
2026 Federal Estate Tax Exemption
The Trump-backed One Big Beautiful Bill Act (OBBBA) permanently increased the federal estate tax exemption to $15 million per individual, meaning that estates valued below this amount generally will not owe federal estate tax. This is up from $13.99 million per individual in 2025.
Spouses together can shelter an astounding $30 million, which applies to Gift and GST tax as well. While the law reduces federal estate tax exposure for most Americans, New York State maintains its own estate tax system with a much lower exemption outlined below, making careful, proactive planning just as important as ever.
2026 Federal Gift Tax Exclusion
The annual federal gift tax exclusion remains at $19,000 per recipient for 2026. That means you can give up to $19,000 to as many individuals as you like during the calendar year without reporting the gift or dipping into your $15 million lifetime exemption. Married couples who elect gift splitting can combine their annual exclusion amounts, effectively gifting up to $38,000 per recipient. This is in addition to the lifetime gift, estate and GST tax exemption of $15 million per individual for 2026.
Gifts between U.S. citizen spouses are generally unlimited. For spouses who are not U.S. citizens, the annual gift exclusion increases to $194,000 in 2026 (up from $190,000 in 2025).
New York State Estate Tax: Lower Threshold and the Perils of the Cliff
Unlike the federal system, New York State imposes its own estate tax with a much lower exemption amount and a unique “tax cliff.” Under current guidance from the New York Department of Taxation and Finance, the New York estate tax basic exclusion amount for decedents dying in 2026 is $7,350,000. Although New York does not impose a gift tax, any gift made within 3 years of death is “clawed back” into the estate and added to the tax calculation. Estates with a taxable value at or below $7.35 million will generally not owe any New York estate tax. One important distinction: New York’s estate tax does not offer “portability” between spouses, so careful planning is needed to fully utilize the $7.35 million exemption available to each spouse.
Lurking in the shadows of New York estate tax law is “the cliff”, which comes to light when the value of the taxable estate exceeds approximately 105% of the exemption amount, which in 2026 equals $7,717,500. New York State takes away your entire exemption at that level, and the full value of the estate, not just the excess, is subject to New York tax. This dramatic increase caused by the “estate tax cliff” is a trap for the unwary.
Because New York does not have a separate state gift tax, the door is open to lifetime planning that can reduce the size of the estate. For taxable gifts made within three years of death, the value is added back into the state estate tax calculation, making advance planning necessary.
Planning Takeaways
- State estate tax risk: Because New York’s exemption is significantly lower than the federal level, a New York resident’s estate may be subject to state estate tax even if it pays no federal estate tax.
- The impact of the “tax cliff”: The cliff effect can dramatically increase New York tax liability if your estate’s value is only modestly over the exemption, but lifetime planning can eliminate the tax.
- New York and federal capital gains and income taxes are now a threat for more people, and the increased state and federal estate tax exemptions open the door to sound planning that can reduce the overall tax burden.
- Not just taxes: A comprehensive estate plan also ensures your assets transfer according to your wishes, names guardians for minor children, updates health care directives, and provides for beneficiaries with special needs.
- Life changes matter: Major life events, like marriage, divorce, births, or changes in wealth, can warrant updates to your plan.
How Can You Maintain Changes in Your Estate and the Law?
The Professional Advisors Lifetime Management System (PALMS) is a unique program offered to Pierro, Connor & Strauss clients designed tosimplify and organize your legal and financial life. Recognizing the common challenge of scattered documents and disconnected advisors, PALMS offers a secure digital platform called Inheralink where clients can centralize and manage all their critical financial and estate planning documents. Members receive an annual comprehensive review with an attorney, ensuring their estate plan remains current with changing life circumstances and regulations. The program provides a dedicated support team and includes up to two hours of direct attorney consultation, offering clients peace of mind through streamlined document management, professional oversight, and easy access for trusted family members and advisors.
Bottom Line
If you wait until later this year to react, you may lose opportunities that will never come back. The combination of historically high federal exemptions, New York’s unforgiving estate tax cliff, and complex add-back rules means the difference between preserving your wealth for your family… or watching a significant portion go to taxes unnecessarily. That’s why it matters who you work with. Pierro, Connor & Strauss tax planning lawyers have guided thousands of New Yorkers through these exact issues, building strategies tailored to your family, your assets, and your goals. We know the traps, we know the timelines, and we know how to protect what you’ve built—before the window closes.
With the federal estate tax exemption set at historic highs for 2026, you have opportunities to maximize what you pass on tax-free, but in New York State, thoughtful planning is still critical. Scheduling a free consultation to update your estate plan can help you protect your legacy and give you confidence that your wishes will be honored.
