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In 2025, the New York estate tax exemption is $7.16 million per individual. Estates below this threshold are not subject to an estate tax. However, New York law includes a “tax cliff.” This means that if an estate exceeds 105% of the exemption amount (estates in excess of $7,518,000), you “fall off the cliff” and the entire estate will be taxable. New York residents with total assets near or slightly above this threshold should consider this tax cliff and implement a robust estate plan to avoid falling off the edge.
What is the Santa Clause?
Enter the “Santa Clause”: a charitable savings plan that can be added to your estate planning documents to ensure your estate will meet the exclusion threshold. The Santa Clause directs that a charitable gift be made from an estate, provided that bequest will reduce the amount of estate tax due by an amount greater than the bequest itself, helping to leave more for the beneficiaries. In other words, if your estate falls within this cliff range, the portion of your estate that falls over the cliff is donated to charity.
This bequest reduces the taxable estate, and brings the total estate down to (or below) the threshold amount. While the overall estate value is reduced, the beneficiaries will ultimately receive a greater sum, since the estate no longer has a tax liability.
How Does the Santa Clause Work?
The Santa Clause is a conditional bequest, and only triggers if it will reduce the estate tax liability to below the cliff threshold. For example, if your estate is valued at $7,550,000.00, the Santa Clause allows your executor to make a gift of $390,000.00 to your charity of choice rather than subject the estate to a tax liability of $712,000. However, if your estate is valued at $7,000,000.00, the Santa Clause will not apply, and no charitable bequest must be made.
Get Help Shielding Your Estate from Taxes
Stay informed of the threshold value for New York estate taxes, as the exemption value changes annually. Unlike the federal exemption, New York does not allow for portability (that is, the ability of a surviving spouse to use a deceased spouse’s unused estate tax exemption). If your assets are near the threshold, it is imperative to discuss your estate plan with an experienced attorney who will implement the right strategy to preserve your assets. With the help of the Santa Clause, you may be able to save on taxes while contributing to a cause you believe in.
By Britt Burner, Esq. and Frank Oswald, Esq.
Britt Burner, Esq. is the Managing Partner at Burner Prudenti Law, P.C. focusing her practice areas on Estate Planning and Elder Law. Frank Oswald, Esq. is an associate attorney at Burner Prudenti Law, P.C. focusing his practice areas on Trusts and Estates. Burner Prudenti Law, P.C. serves clients from New York City to the east end of Long Island with offices located in East Setauket, Westhampton Beach, Manhattan and East Hampton.
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