Q: A Santa Clause for adults? Who is he, and how do I fit him into my estate plan?
A: In 2025, the New York estate tax exemption is $7.16 million per individual—estates below this threshold are not subject to estate tax. However, New York law includes a “tax cliff.” This means that if an estate exceeds 105% of the exemption amount (estates in excess of $7,518,000), you “fall off the cliff,” and the entire estate becomes taxable. New York residents with total assets near or slightly above this threshold should consider this tax cliff and implement a robust estate plan to avoid falling off the edge.
Enter the “Santa Clause”: a charitable savings plan that can be added to your estate planning documents to ensure your estate meets the exclusion threshold. The Santa Clause directs that a charitable gift be made from an estate, provided that the bequest will reduce the amount of estate tax due by an amount greater than the bequest itself—ultimately helping leave more for beneficiaries. In other words, if your estate falls within this cliff range, the portion of your estate that exceeds the threshold is donated to charity.
This bequest reduces the taxable estate and brings the total estate down to (or below) the exemption threshold. While the overall estate value is reduced, the beneficiaries will ultimately receive a greater sum, since the estate no longer has a tax liability.
The Santa Clause is a conditional bequest and only triggers if it will reduce the estate’s tax liability to below the cliff threshold. For example, if your estate is valued at $7,550,000, the Santa Clause allows your executor to make a gift of $390,000 to your charity of choice rather than subject the estate to a tax liability of $712,000. However, if your estate is valued at $7,000,000, the Santa Clause will not apply, and no charitable bequest must be made.
Stay informed of the threshold value for New York estate taxes, as the exemption amount changes annually. Unlike the federal exemption, New York does not allow portability (the ability of a surviving spouse to use a deceased spouse’s unused estate tax exemption). If your assets are near the threshold, it is imperative to discuss your estate plan with an experienced attorney who can implement the right strategy to preserve your assets. With the help of the Santa Clause, you may be able to save on taxes while contributing to a cause you believe in.
By Britt Burner, Esq. and Frank Oswald, Esq.