A New York family office is sitting on a familiar decision. The family's estate is substantial, a large portion of the wealth is tied to real estate or a closely held business, and the partners are debating whether to move assets into trust now, wait for Congress, or redesign the plan around New York's separate estate tax rules. The question isn't, “What's the estate tax lifetime exemption?” It's how much exemption should the family use, how quickly, and through which structure.
That distinction matters in 2026. The federal threshold is higher, but New York's system operates on its own terms. Portability can preserve a deceased spouse's unused federal exclusion, but it doesn't solve every state planning problem. A trust may remove future appreciation from an estate, but it can also reduce control, affect income-tax basis planning, and create administration that outlives the original tax concern.
The right response is neither panic nor complacency. Families should model the federal and New York consequences together, decide which assets can leave comfortably, and use the simplest structure that solves the actual problem.
Why the Estate Tax Lifetime Exemption Matters Now
Consider a New York family with a $40 million estate deciding whether to transfer $5 million to an irrevocable trust this quarter. One partner wants to act while the federal exemption is favorable. Another prefers to wait for clearer legislative direction. The family's counsel is also focused on New York's estate tax cliff, which can make state exposure materially different from the federal result.
That family shouldn't begin with the headline exemption. It should begin with three questions:
- What can leave without damaging liquidity or control?
- Which assets are likely to appreciate outside the estate?
- What happens under both federal and New York law if the family does nothing?
The federal estate tax lifetime exemption has changed repeatedly. The IRS summary of estate and gift tax changes records an increase from $5,000,000 in 2011 to $5,490,000 in 2017, followed by a rise to $11,180,000 in 2018 after the Tax Cuts and Jobs Act took effect. Inflation adjustments brought the amount to $13,990,000 in 2025 and $15,000,000 in 2026, with a married couple potentially reaching $30,000,000 when federal portability is properly used.
The number is important, but it's only a planning capacity. A gift consumes part of the same federal transfer-tax pool that may otherwise shelter assets at death. A trust can use that capacity to move future growth, while an outright gift may provide less protection and less governance. Holding everything may preserve a basis step-up opportunity, but it leaves later appreciation inside the taxable estate.
Advisor's position: A higher exemption removes some pressure to make a rushed transfer. It doesn't eliminate the need to choose deliberately between gifting, control, liquidity, and basis.
New York adds a separate layer. Its estate tax does not mirror the federal system, and federal portability doesn't transfer a deceased spouse's unused New York exclusion. A federal plan that looks efficient on paper can therefore leave a state-level gap.
The working rule for 2026 is straightforward: model the family's exposure under current federal law, a lower federal baseline, and New York's independent rules. Then decide whether the family should use exemption now, preserve flexibility, or combine both approaches through staged transfers.
How the Lifetime Exemption Works
For a successful family, the federal estate tax lifetime exemption is a unified transfer-tax credit, not a separate allowance for gifts and another for inheritances. It applies across taxable lifetime gifts and transfers at death. A taxable gift covered by available exemption generally does not create an immediate estate or gift tax bill, but it reduces the exemption available for later transfers.
Consider a hypothetical couple with $12 million who gives $4 million outright to descendants and transfers another $4 million to an irrevocable trust. Those transfers do not necessarily create a current tax liability. They are recorded against the couple's federal exemption, leaving less shelter for future gifts or transfers at death. Reporting, valuation, allocation, and trust-tax consequences still require professional review.
The federal calculation
For 2026, the federal exemption is $15 million per person, according to the Congressional Research Service discussion of the federal exemption. A married couple may have $30 million of combined federal capacity when portability is elected correctly and the broader facts support that result.
Prior taxable gifts reduce the amount remaining. Gifts to a spouse or charity can receive different treatment. Trust transfers can also raise valuation, retained-interest, generation-skipping transfer tax, and income-tax basis questions. The headline exemption therefore tells you only how much capacity may be available, not whether a particular transfer is wise.
The New York calculation
New York applies its own estate tax framework. Its exemption does not match the federal amount, and New York does not provide the same portability treatment between spouses. A credit shelter trust or another carefully drafted structure may be needed to preserve state-level planning opportunities.
The practical rule is clear: using the federal exemption is not the same as paying federal estate tax. It is a cumulative accounting process. Advisors must track prior gifts, filed returns, trust transfers, valuation positions, and assets still held personally before calculating the remaining shelter. For a New York family office, the right question is how quickly to use federal capacity while avoiding a state-tax gap and preserving flexibility.
How the Federal Exemption Has Evolved
A family office planning a large transfer in 2026 cannot treat the federal exemption as a fixed promise. Its history shows why the decision is timing: use available capacity now, preserve flexibility, or wait and accept legislative risk. The IRS estate and gift tax update records the basic exclusion amount rising from $5,000,000 in 2011 to $5,490,000 in 2017, then reaching $11,180,000 in 2018. It was $13,990,000 in 2025 and became $15,000,000 in 2026, with inflation adjustments continuing under current law.
| Year | Exemption Per Person | Planning Implication |
|---|---|---|
| 2011 | $5,000,000 | Basic credit shelter and liquidity planning covered more estates. |
| 2017 | $5,490,000 | Inflation adjustments expanded available shelter without making it permanent. |
| 2018 | $11,180,000 | The increase brought larger trust transfers, dynasty trusts, and valuation planning into reach for more families. |
| 2025 | $13,990,000 | Families had to decide whether to use a historically high threshold before a possible law change. |
| 2026 | $15,000,000 | Current law offers a higher, inflation-adjusted baseline, subject to future congressional action. |
What each change altered
Earlier exemption levels kept planning centered on credit shelter trusts, liquidity, and straightforward lifetime gifts. The 2018 increase changed the scale of the conversation. Families that once needed to preserve every dollar of exemption could evaluate larger transfers to dynasty trusts, intentionally defective grantor trusts, or family entities holding appreciating assets. The Congressional Research Service analysis describes the shift to a $15 million 2026 exemption and continued inflation indexing under the current regime.
The key question is not whether the exemption is high. It is whether the family should use it before the law changes, and which structure justifies its administrative and tax complexity. A gift to a trust may remove future appreciation from the taxable estate, but it can also affect control, basis, valuation, generation-skipping transfer tax, and income-tax administration.
Planning implication: Treat the exemption as available capacity, not a permanent entitlement. A future law can reduce the threshold, while a completed and properly documented gift generally gives the family more flexibility than an unmade decision.
For 2026, run two projections. The first applies current federal law. The second tests a lower exemption and different treatment of prior transfers. Then weigh those results against New York estate-tax exposure, portability limits, asset growth, and the family's need for control. That analysis is more useful than building an entire strategy around one projected number.
Portability and the DSUE Election
Portability is one of the most valuable federal estate-tax tools for married couples, and one of the most frequently mishandled. The surviving spouse may use the deceased spouse's unused exclusion, known as DSUE, but the transfer isn't automatic. The executor must file a timely federal estate tax return and affirmatively elect portability.
The Wisconsin State Bar explanation of portability and the DSUE election emphasizes the central operational point: the executor must file the federal return and make the election even when the first estate owes no federal estate tax.
A practical example
Suppose one spouse dies with a $10 million estate, and the estate doesn't use all of that spouse's available federal exemption. The executor files Form 706, reports the relevant assets and deductions, and elects portability. The surviving spouse may then have her own federal exemption plus the deceased spouse's unused amount, subject to the technical calculation and later changes in the law.
The surviving spouse doesn't receive a separate account that can be ignored. The IRS must be notified of the DSUE amount through the filed return. Future gifts and the surviving spouse's estate must then account for the portable amount, prior taxable transfers, and any subsequent statutory adjustments.
Why New York changes the answer
Federal portability doesn't carry over to New York's estate tax system. A surviving spouse may have additional federal capacity while still lacking the equivalent state-level benefit. That's why a New York estate plan often needs a credit shelter trust, a formula clause, or another structure designed specifically for state exposure.
An outright marital bequest may defer tax, but deferral isn't the same as permanent shelter. If all assets pass outright to the survivor, the first spouse's state exemption may go unused, and the surviving spouse may later own an estate large enough to create a New York problem.
Form 706 filing can make sense even when the first estate is below the federal filing threshold. The return preserves a documented DSUE amount and gives the surviving spouse a clearer federal planning position. Relying on informal assumptions is a mistake, particularly where the first spouse held business interests, real estate, partnership assets, or hard-to-value property.
A recorded video can help families visualize the sequence, but it doesn't replace an executor's deadline management:
Executor's rule: Ask about portability before the first estate closes. By the time the family discovers that no election was filed, the most useful planning window may have passed.
Gifting Strategies and Trust Structures Worth Considering
Not every well-crafted structure deserves a place in a 2026 plan. The best strategy usually transfers the right asset, preserves the right amount of access, and creates no more administration than the family can manage.
| Structure | Best Use | New York Caveat |
|---|---|---|
| Outright gift | Simple transfers where control and asset protection aren't central | The recipient receives the asset directly, which may undermine governance or protection goals. |
| Split-gift strategy | Coordinated transfers by spouses who want to combine their available gifting capacity | Documentation and gift-tax reporting must be handled correctly. |
| SLAT | Moving assets out of both estates while preserving indirect access through a beneficiary spouse | Divorce, death, or other changes affecting the beneficiary spouse can remove practical access. |
| Dynasty trust | Multi-generational wealth, family governance, and asset protection | Trust location alone doesn't eliminate New York resident estate-tax exposure. |
| GRAT | Transferring appreciation from selected assets while retaining a defined payment stream | Success depends on asset performance, drafting, valuation, and administration. |
| Charitable lead trust | Wealth intended to support charity before any remainder returns to family | It's inappropriate when the family needs the assets or income for core financial security. |
Start with the asset, not the trust
An outright gift can be right when the family wants simplicity and the recipient is financially mature. It's usually the wrong choice when the family wants creditor protection, divorce protection, centralized management, or restrictions on transfers.
A SLAT can address the access problem by naming one spouse as a beneficiary of a trust funded by the other. That can work well for a married couple with genuine trust and stable objectives. It also creates a built-in vulnerability. Divorce, the beneficiary spouse's death, or a breakdown in the relationship can leave the donor without the expected access.
A dynasty trust earns its complexity when the family has durable multi-generational goals, strong governance, and assets that should remain protected over time. It shouldn't be created merely because the phrase sounds advanced.
Match the transfer technique to appreciation
A GRAT can be useful for an asset expected to appreciate, particularly where the family wants to retain a payment stream and transfer only the growth above the required return. A charitable lead trust belongs in a different category. It makes sense when charitable giving is a genuine objective and the family can accept that the charitable interest comes first.
Families may also consider discounts for minority interests or lack of marketability in LLC and partnership transfers, but those positions require defensible valuations and careful business-purpose analysis. A discount isn't a planning shortcut.
New York residents also need to reject a common misconception: moving a trust to another state doesn't automatically remove New York estate-tax exposure. Residency, retained interests, asset ownership, and the governing structure matter more than the trust's mailing address.
My view is direct. In a changeable environment, an underused exemption deployed through a simple trust that solves a real control, protection, or appreciation problem is usually better than a clever arrangement with unnecessary moving parts.
Common Misconceptions New York Families Still Carry
New York families often carry planning assumptions that once made sense but no longer fit their balance sheets. Challenge those assumptions before signing a new trust document.
“The 2026 sunset already happened”
It did not. As covered above, the federal exemption is now set under current law with inflation adjustments, following the legislation that replaced the prior temporary framework with a permanent rule. The legislative path matters because permanence reduces the need for emergency drafting, not the need for review. Congress can still amend transfer-tax law, and asset values may rise faster than the family's projections.
The planning question is how quickly to use available exemption, not whether a deadline has already passed. Use the time to select assets, trustees, and access terms deliberately.
“We'll wait until the law changes”
Waiting should follow a measurable trigger, not a hope that Congress will clarify the rules. Set a liquidity threshold first. If a proposed gift would leave the family below the cash and borrowing capacity required for taxes, operating commitments, and planned spending, postpone or reduce it. If that threshold remains satisfied and the asset is expected to appreciate substantially, take the transfer proposal to counsel now.
The model should also test a sale, refinancing, business transaction, or other event that could change liquidity. A family office needs a decision rule that can be revisited when facts change.
“New York has portability too”
Federal portability and New York planning answer different questions. A surviving spouse may receive federal DSUE after the required federal filing, while New York exemption can remain unused unless the estate plan sends assets through a structure designed for the state tax system.
Portability is not a substitute for coordinating both systems. Model the federal result and New York result separately, then examine how the trust plan affects each.
“Our will handles everything”
A will controls probate assets. It does not automatically resolve valuation, business succession, life-insurance inclusion, trust administration, basis planning, or New York estate-tax exposure. An irrevocable life insurance trust may keep a policy outside the estate when properly designed and administered, but it still requires coordinated ownership, premiums, beneficiaries, and liquidity.
Annual exclusion gifts can help when made consistently and documented properly. They do not replace a larger transfer plan for valuable real estate, operating businesses, concentrated investments, or assets with significant expected appreciation.
Better question: Which assets should leave first, who should control them, what access does the family need, and how will the federal and New York rules interact?
Your Next Planning Conversation
The next ninety days should produce decisions, not another binder of unreviewed documents. Start by assembling the information your advisors need to model both the federal and New York outcomes.
Immediate document collection
Pull the current net-worth statement first. Include real estate, private-company interests, investment accounts, insurance, carried interests, partnership holdings, personal property, and liabilities. Then gather prior Form 709 gift tax returns, existing irrevocable trust agreements, amendments, trustee reports, life-insurance ILIT documents, and prior estate tax returns for deceased spouses.
The prior estate tax returns deserve special attention. They may show whether portability was elected, the DSUE amount reported, the assets included in the first estate, and the valuation positions that later returns may need to respect.
Use a shared document list rather than separate requests from the CPA, attorney, and insurance specialist. Fragmented collection creates gaps, especially when one advisor assumes another already has the file.
Decisions to pressure-test
Ask counsel and the tax team to model these decisions together:
- A 2026 gift: Should the family transfer appreciating assets before a possible legislative reduction, or preserve them for liquidity and basis planning?
- Federal and New York coordination: How much exemption is available under each system, and where does the family face a state-level exposure?
- SLAT or GRAT design: Would access, appreciation, and expected cash flow justify the structure's complexity?
- Existing Crummey powers: Do the notices, withdrawal rights, and trust administration still serve the intended funding strategy?
- Insurance ownership: Does the current ILIT structure coordinate with the family's liquidity needs and broader estate plan?
- Formula clauses: Do existing documents operate sensibly under the current federal exemption?
Schedule one coordination call with the CPA, estate attorney, wealth advisor, and insurance specialist. A family office shouldn't accept four disconnected recommendations when the transfer may affect income tax, estate tax, control, liquidity, and family governance at the same time.
Six questions for the meeting
Bring these questions in writing:
- What is our combined federal and New York estate-tax exposure today?
- Which assets should be gifted now, and which should remain available for liquidity or basis planning?
- Did every deceased spouse's estate file Form 706 and elect portability when appropriate?
- Does New York's separate system require a credit shelter trust or another corrective structure?
- Would a SLAT, GRAT, dynasty trust, or outright gift solve a specific problem better than the alternatives?
- What documents, valuations, notices, and tax returns must be completed to implement the recommendation?
Blue Sage Tax & Accounting Inc. provides estate and gift tax exposure analysis, projections, annual gifting strategy, and coordination with estate attorneys as part of year-round tax planning. Visit Blue Sage Tax & Accounting Inc. to arrange a planning conversation focused on your family's federal exemption, New York exposure, and next transfer decision.