The “Santa Clause” and the New York Estate Tax Cliff

In 2026, New York’s estate tax exemption is approximately $7.35 million per individual. Estates that exceed 105% of that threshold — roughly $7.72 million — may lose the exemption entirely, subjecting the full estate to New York estate tax at rates reaching 16 percent.

This structure creates a disproportionate risk for estates hovering near the exemption line. A modest increase in value can produce a materially higher tax burden.

The planning technique sometimes referred to as the “Santa Clause” addresses this exposure directly. Through a formula-based charitable provision, the estate is reduced only to the extent necessary to preserve exemption treatment or mitigate cliff exposure.

Because charitable bequests are deductible for estate tax purposes, a precisely calibrated gift can prevent the loss of the exemption and avoid an outsized state tax result.

This strategy is most relevant where asset values are volatile — including concentrated market positions, closely held businesses, or appreciating real estate. In those circumstances, valuation drift alone can trigger the cliff.

The “Santa Clause” is not a seasonal concept. It is a structural adjustment — a disciplined mechanism that converts tax inefficiency into intentional legacy planning.

For estates approaching the New York exemption threshold, it remains one of the most precise corrective tools available.