For individuals and families with significant wealth, a strategic estate plan must account for the potential tax liabilities that arise from transferring assets. One of the most valuable tools currently available is the elevated federal gift and estate tax exemption; however, this advantageous exemption is scheduled to be reduced after 2025. As the deadline approaches, the attorneys at Eghrari Wealth Training Firm urge New York residents to prepare for the 2026 lifetime exemption rollback by taking steps to reduce the potential tax burden.
Federal Gift and Estate Tax Overview
The federal government imposes taxes on the transfer of wealth, whether those transfers occur during life through gifts or after death via estate bequests. The estate bears responsibility for paying any tax due before assets are distributed to heirs. While New York does not have an inheritance tax, it does impose its own estate tax, with exemptions and rules separate from the federal system. Federal tax laws are especially impactful for high-net-worth individuals, given the flat 40 percent tax rate on assets exceeding the exemption amount.
The Lifetime Exemption and Its Temporary Expansion
To shield taxpayers from this burden, the Internal Revenue Code offers a “lifetime exemption,” which allows a certain amount of transferred wealth to pass tax-free. In 2018, the Tax Cuts and Jobs Act (TCJA) significantly increased the exemption to over $11 million per person, adjusted annually for inflation. For 2025, the exemption has reached $13.99 million per individual and nearly $28 million for married couples. This high threshold presents an extraordinary opportunity to transfer wealth with minimal tax consequences; however, the increased exemption is temporary and will expire at the end of 2025 unless Congress acts to extend the increase or make it permanent. Once the temporary increase sunsets, the exemption will return to pre-TCJA levels, expected to be approximately $6.8 to $7 million per person.
Anti-Clawback Regulations: Protecting Gifts Made Today
A common concern among those considering large gifts under the current exemption is whether these gifts might later become taxable after the exemption is reduced. The IRS has clarified that gifts made under the elevated exemption will not be “clawed back” into the estate, thanks to anti-clawback regulations. This means you can take advantage of today’s higher limits without concern that the benefit will be reversed later.
Steps to Take Before the Exemption Reverts
With a limited window of opportunity remaining, careful planning is essential. There are several strategies New York residents can consider implementing now to make the most of the current exemption, such as:
- Use Irrevocable Trusts for High-Value Assets: By transferring assets into an irrevocable trust, you remove them from your taxable estate. These trusts are particularly effective for assets that are expected to appreciate significantly. Once inside the trust, future gains are shielded from estate tax, helping preserve long-term family wealth.
- Transfer Wealth Before the End of 2025: Large gifts made before the exemption rolls back can secure today’s tax benefits. Transferring assets such as business interests, investment portfolios, or real estate now locks in the higher exemption and removes future appreciation from your estate. Vehicles like grantor retained annuity trusts (GRATs), charitable lead trusts, or irrevocable life insurance trusts (ILITs) can be particularly effective.
- Maximize the Generation-Skipping Transfer Tax Exemption: In addition to the lifetime exemption, federal law provides a separate exemption for transfers made to grandchildren and other beneficiaries two or more generations below you. When used properly, this exemption enables tax-efficient transfers across multiple generations. Trusts structured for this purpose can help ensure your legacy endures.
- Coordinate Estate and Financial Planning: Estate planning should be aligned with your financial goals. Work closely with your legal and financial advisors to ensure that liquidity is available for tax obligations, that trust structures do not conflict with investment strategies, and that your estate plan remains consistent with your long-term objectives.
- Review Wills, Trusts, and Beneficiary Designations: An updated estate plan ensures that all documents accurately reflect your current wishes. Confirm that trusts, Wills, and beneficiary designations are coordinated to prevent unintended tax consequences or gaps in asset distribution.
- Consider the Impact of New York Estate Tax: Unlike many other states, New York imposes its own estate tax, with an exemption currently set at $7.16 million for 2025. If your estate exceeds that amount, even slightly, it may become fully taxable under New York’s “estate tax cliff.” Proper planning can reduce exposure to both federal and state taxes.
An experienced New York estate planning attorney can help you evaluate your current plan and take the necessary steps before the exemption is reduced.
Can We Help You Prepare for the 2026 Lifetime Exemption Rollback?
For more information, please join us for an upcoming FREE seminar. If you would like assistance preparing your New York estate for the upcoming 2026 lifetime exemption rollback, contact the Long Island estate planning attorneys at Eghrari Wealth Training Firm by calling us at 631-265-0599 to schedule your appointment.
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