The $15 million exemption is the wrong number for multi-state clients

The federal estate tax exemption is $15 million per person, which is why planning conversations about taxable estates tend to stay in Washington; the bills that catch families are set in state capitals at far lower numbers. New York's estate tax cliff begins at $7.35 million for 2026, Oregon's exemption is $1 million, and most states, California among them, levy no estate tax at all, according to Financial Planning's reporting on the federal-state gap, so two clients with comparable balance sheets can face very different state bills depending on where they live.

New York's structure deserves a closer read, because the state taxes the amount by which an estate exceeds the $7.35 million starting point rather than granting a flat exemption. The state's rate runs from 3.06% to 16%, and the top of the published range is $7,717,500 for 2026, leaving $367,500 between the bottom of the cliff and the top. That is a narrow band. Ordinary asset growth or a single strong year in a taxable account can move a client across the line, and an advisor who tracks the federal exemption to the exclusion of the state number is watching the wrong figure for anyone with a New York abode.

The federal exemption dominates because it applies everywhere, is the same for every client, and is the number that makes headlines. State rules change with legislation and turn on facts the client controls, which is precisely why they reward attention. Lawrence D. Mandelker, a New York-based partner at Venable who advises high-net-worth individuals on estate planning, told Financial Planning that clients and advisors tend to focus on the federal exemption more than the state-level rules, and that staying current on those rules is important.

The deciding question, as Mandelker described it, is domicile, a subjective test in which the state is trying to establish where the client intended to be. He cautioned that clients attempting to change domicile need to be very careful about how they go about it, and that advisors should routinely ask about the major life changes — a vacation home purchase, a relocation — that put the question in play.

A state does not have to win the domicile argument to reach the estate: Kevin Matz, a New York-based partner and co-leader of the family office industry group at ArentFox Schiff, told Financial Planning that New York's tax authorities may seek estate tax from someone who kept a permanent abode in the state even without being domiciled there for more than a certain number of days. The reporting does not put a figure on those days, but it establishes that abode and domicile are separate tests, and clearing one does not clear the other — which is why a question about a second home carries more weight than an answer about where the mail goes.

Married clients face a delayed version of the same problem: if a couple lives in New York and one spouse dies, the estate tax marital deduction can move assets to the survivor without a state tax bill, but what the survivor does next decides whether the state takes a second look. A spouse who in fact relocates before death is in a different position from one who only intends to, and Matz framed the constraint exactly: a plan resting on the certainty that the surviving spouse will live long enough to establish a new domicile is a plan resting on probabilities and possibilities, and if the move is planned but death comes first, New York estate tax applies.

The exemption is the wrong anchor for any client with property or time in more than one state, and a better federal projection will not fix it. What New York or Oregon or any other state buys with its domicile test is evidence of intent, and evidence of intent has to be gathered while the client is alive and moving between addresses, not reconstructed by an executor from a brokerage statement. Advisors who leave the question to the estate attorney are arriving at the end of a process that needed to start at the beginning; the defensible answer for this client segment is a residency file kept alongside the balance sheet and reviewed annually, updated whenever the client's living arrangements change. That is a duller deliverable than a federal tax projection, and it is the one that answers the state's question.

This publication made a version of this argument in September, when a California bill awaiting Governor Newsom's signature would have treated certain out-of-state shell companies as state residents and put collector-car title planning back on the table. The statutes differ, but both rest on the same theory: a state that doubts where its taxpayer lives works backward from the record the taxpayer left. The advisor who has kept that record has a defensible position; the one who has not is arguing intent from memory.

Mandelker's practical instruction — ask about the vacation home, ask about the move — belongs in the annual review rather than the estate plan, because the answer changes with the year and the client may not connect the event to the consequence. For 2026, the two numbers worth keeping on the desk are $7.35 million and $1 million, and the client to call is the one with a second home in a state that taxes estates.