The One Big Beautiful Bill proposes raising the federal estate tax exemption to $15 million. This change preserves historically high exemption thresholds and prevents the exemption from dropping to around $7 million at year-end.
Yet, families in high-tax states, such as New York, may still face substantial state-level tax obligations despite this federal relief. In 2025, for example, New York’s estate tax exemption is $7,160,000 and includes a “cliff” provision that eliminates the entire exemption if the estate exceeds 105% of the exemption ($ 7,518,000).
Understanding how federal and state estate tax laws interact can help high-net-worth families and individuals make one of their most important financial decisions: how to transfer wealth while preserving assets and securing a lasting legacy.
Strategies to Address the Federal-State Divide
The One Big Beautiful Bill’s proposed expansion of federal exemptions creates new opportunities to revisit wealth transfer strategies. With federal concerns potentially reduced, families can focus more specifically on managing state-level exposure through targeted approaches.
These strategies can help limit state tax liability, maintain asset accessibility, and support smoother wealth transfers. Updating estate plans to reflect this new dynamic can protect family legacies as tax laws continue to evolve.
Spousal Lifetime Access Trusts (SLATs)
A SLAT allows one spouse to transfer assets into a trust benefiting the other spouse, effectively removing those assets from the taxable estate. Because New York does not impose a gift tax, lifetime transfers through SLATs, if timed correctly, can shift assets outside the state estate tax base while still providing access to funds for the beneficiary spouse.
Irrevocable Life Insurance Trusts (ILITs)
ILITs are valuable tools in high-tax states like New York, providing heirs with dedicated funds to pay estate taxes. Because the trust owns the life insurance policy, its proceeds are excluded from the taxable estate, providing liquidity to beneficiaries, without increasing estate tax liability.
State-Specific Bypass Trusts
Unlike federal law, many states with separate estate tax systems do not allow a surviving spouse to use their deceased partner’s unused state exemption. For example, New York applies a “use it or lose it” rule, making bypass trusts especially valuable. A properly structured bypass trust ensures that both spouses’ state exemptions are fully utilized, preserving more assets from state taxes while also taking advantage of the higher federal exemption levels.
Strategic Lifetime Gifting
While trusts remain powerful vehicles for aligning assets with long-term family goals, lifetime gifting is another important strategy that supports wealth transfer planning. Lifetime gifts can significantly reduce the taxable estate, keeping it under state thresholds while shifting appreciating assets to heirs sooner. Combining lifetime gifting with the expanded federal exemption helps families transfer more wealth before those assets grow further in value.
Taking Action
Regarding legislative changes, high-net-worth families in high-tax states should take proactive steps:
- Review existing estate plans to align trust structures with both current and proposed exemption rules.
- Evaluate timing opportunities for wealth transfers, particularly before asset appreciation pushes estates over state exemption limits.
- Consider state-specific strategies tailored to unique jurisdictions.
- Work with experienced advisors to develop comprehensive approaches that address both federal opportunities and state-level challenges.
Proactive planning now can help minimize state estate taxes and protect family wealth.
Plan with Confidence
The evolving estate tax landscape demands state-specific strategies for high-net-worth families. Grassi’s Private Client and Trust & Estate Services teams deliver customized guidance to help preserve wealth and protect your legacy in high-tax states and beyond.
Contact Grassi today to explore how the One Big Beautiful Bill and other changes may impact your estate plan — and to develop solutions that reflect your family’s unique goals.
