Estate Planning and Taxes: A Practical Guide for Individuals and Families

Estate planning is about protecting people, not only assets. A well-designed plan can help your family avoid unnecessary delay, conflict, and cost, while also reducing common tax exposures that appear during life (gifting, retirement planning, real estate decisions) and after death (estate administration, beneficiary distributions, asset sales).

This guide outlines general tax considerations that often intersect with estate planning, with an emphasis on issues that frequently affect New York families.

1) Start with the right question: “Which taxes could apply?”

Most families assume “estate tax” is the only concern. In practice, several different tax categories may be relevant:

• Federal estate tax (applies only above certain thresholds)

• New York estate tax (often relevant sooner than federal for New York residents)

• Gift tax reporting considerations (primarily about reporting and lifetime exemption tracking)

• Income tax consequences for beneficiaries (especially capital gains and retirement account distributions)

A strong estate plan coordinates ownership, beneficiary designations, fiduciary appointments, and distribution terms with these tax realities.

2) Understand the federal framework at a high level

For 2026, the federal basic exclusion amount is $15,000,000 per person (generally $30,000,000 for a married couple with planning), and amounts above that may be subject to federal estate tax.

Even if your estate is below the federal threshold, federal concepts still matter because:

• Asset values change over time.

• Life insurance, business interests, and certain transferred assets can still be included in a taxable estate depending on structure.

• Planning for a surviving spouse and children often involves tax-sensitive decisions.

3) New York estate tax: the planning issue many families miss

New York maintains a separate estate tax system. For dates of death in 2026, the New York basic exclusion amount is $7,350,000.

Two New York-specific points frequently drive planning conversations:

1. The “cliff” effect
   For New York residents, if the taxable estate exceeds 105% of the exclusion amount, the estate may lose the benefit of the exclusion and New York estate tax can apply to the full estate value.
2. No “portability” in New York
   Federal rules may allow a surviving spouse to use a deceased spouse’s unused federal exclusion in certain circumstances. New York does not provide that portability concept in the same way, so married-couple planning can be especially important for New York residents.

4) Lifetime gifting: useful, but timing and reporting matter

For 2026, the federal annual gift tax exclusion is $19,000 per recipient (generally $38,000 per recipient for married couples who properly “split” gifts).
Additionally, the annual exclusion for gifts to a non-U.S.-citizen spouse is $194,000 for 2026.

Gifting can be an effective long-term strategy, but it should be coordinated with:

• Your overall estate plan and liquidity needs

• Recordkeeping and possible gift tax reporting (Form 709 in some situations)

• New York estate tax rules, including “addback” considerations (below)

5) New York’s three-year “gift addback” rule

New York requires certain federally taxable gifts made within three years of death to be included in the New York gross estate under state rules (subject to legal nuances and exceptions).

The practical takeaway is simple: last-minute gifting without coordination can create unintended New York estate tax results. If gifting is part of your plan, it should be discussed early and documented carefully.

6) Income tax is often the bigger surprise for heirs

Many estates do not owe federal estate tax, but beneficiaries can still face meaningful income tax consequences, including:

• Capital gains exposure when inherited real estate or investments are later sold

• Taxable retirement account distributions to beneficiaries

• Administrative decisions during estate settlement that can change tax outcomes

Estate planning is often where tax-efficient transfer strategy and practical family goals meet.

7) The most common planning problems we see (and how to avoid them)

Outdated beneficiary designations
 Retirement accounts and life insurance typically pass by beneficiary designation, not by will. If those forms are outdated, the estate plan may not control the outcome.

Asset titling that conflicts with the plan
 Joint ownership, transfer-on-death designations, and entity ownership can change what happens at death and how administration proceeds.

A plan that does not match the family reality
 Blended families, minor children, disabled beneficiaries, or strained relationships often require more than a “simple will.”

Retirement accounts treated as routine assets
 These accounts can be highly tax-sensitive. Beneficiary choices and trust provisions may have real tax consequences.

Business succession left unaddressed
 A business interest can be the largest asset in an estate and the hardest to transfer cleanly without planning.

8) A practical checklist to prepare for an estate planning discussion

Document and asset inventory

• Real estate (including out-of-state)

• Retirement accounts and beneficiary designations

• Life insurance policies and ownership/beneficiary details

• Investment accounts and approximate cost basis (if known)

• Business interests and any shareholder/operating agreements

• Major personal property and collectibles

People and decision-makers

• Who should serve as executor, trustee, and agent under power of attorney

• Guardianship preferences for minor children

• Special circumstances (beneficiary needs, creditor concerns, family dynamics)

Tax and administration questions to raise

• Is New York estate tax exposure a concern given current asset values?

• Does the plan account for the New York “cliff” risk?

• Are lifetime gifts part of a long-term strategy, and are they documented properly?

• Are retirement accounts coordinated with the plan?

9) How O’Connell & Aronowitz can help

O’Connell & Aronowitz assists individuals and families with estate planning designed to be clear, durable, and aligned with real-world needs. If you are updating documents, planning for a major life change, or trying to understand how New York and federal tax concepts may affect your plan, our attorneys can help you evaluate options and build a strategy that fits your goals.

To discuss your estate planning needs, contact O’Connell & Aronowitz to schedule a consultation at 518-462-5601 or online here.

Disclaimer

This guide is provided for general informational purposes only and is not legal advice. It also is not tax advice, and it should not be relied upon as a substitute for advice from a qualified tax professional regarding your specific situation. Tax laws and thresholds can change, and outcomes depend on individual facts. Reading this guide does not create an attorney-client relationship. For legal guidance regarding estate planning, trusts, wills, and related planning strategies, contact O’Connell & Aronowitz.