To The Community

Photo of attorneys John Gettinger, Gregory Monteleone and Steven Waldinger
  1. Home
  2.  → 
  3. Estate Planning
  4.  → Understanding New York’s “clawback” rule

Understanding New York’s “clawback” rule

On Behalf of | Nov 15, 2022 | Estate Planning

New York is one of a number of states with an estate tax. That means if someone dies with enough assets located in the state, that estate is taxed by the state of New York in addition to the federal government. 

As of 2022, the federal exemption limit is $12.06 million. The state limit is just over half that — $6.11 million. That means any amounts above those are subject to taxation. 

Estate taxes can eat away at the wealth you’ve worked hard to build or to manage and grow after inheriting it yourself. There are numerous strategies for minimizing estate taxes for your heirs and other beneficiaries while still allowing them to benefit from them. 

What you need to know about gifting assets

A popular strategy is gifting. Some people give money, real estate, jewelry, art and other assets to loved ones to get below that exemption limit. Sometimes they set up a lifetime gift so that the recipient gets a particular amount each year. 

Fortunately, New York doesn’t have a gift tax. Therefore, you don’t have to worry that the recipients of your largesse will have to pay taxes on it.

How the clawback rule works

New York does, however, have a three-year “lookback” rule. It’s sometimes referred to as a “clawback” rule, which might seem like a more accurate description to some people.

That means that if a person is still alive three years after they gave a gift, the amount they’ve gifted is considered returned or “clawed back” into the estate and can be subject to the state estate tax just as if they hadn’t given it away.

However, there’s another exclusion amount you need to know about. As long as you don’t gift more than $16,000 to any one person each year, you don’t need to worry about that clawback rule. You can give as many gifts worth $16,000 to as many people as you like annually.

With careful estate planning, you can operate within these and other laws and rules to help your family and others benefit from your wealth and preserve as much as possible for them after you’re gone.