Wealth Management in New York

The estate tax cliff

Start with the rule that surprises the most families. New York has its own estate tax, separate from the federal tax, and the threshold is far lower. An estate under the state’s exemption owes nothing to New York. An estate that is just over the line can owe tax on its full value, including the part under the line, because the exemption phases out as the estate approaches a level slightly above it. That is the cliff, and it means a few hundred thousand dollars of extra value can cost many times that in tax.

Wealth managers and estate attorneys work around it with several tools. A married couple can use a trust so each spouse uses an exemption. Lifetime gifts, which are generally not taxed by New York if the donor survives three years, can bring the estate under the line. Charitable bequests reduce the taxable estate. Life insurance owned by a trust stays outside it. The thresholds change, so confirm current figures with an estate attorney. Our estate planning guide explains the documents.

Who taxes you: residency

New Yorkers who split time with another state need to understand residency. A person is a New York resident for income tax if the state is their domicile, which is their permanent home, or if they maintain a permanent place of abode in New York and spend more than 183 days in the state, a rule called statutory residency. New York City adds its own resident tax on top of the state tax.

This matters for people who own an apartment in the city and a house elsewhere, retirees who move to Florida and keep a New York home and executives who work in the state while living in another one. The state audits residency claims, especially when someone moves just before a large gain or retires and leaves. Evidence includes where you vote, hold a license, keep your family, doctors and prized possessions and how many days you spend in each place. A wealth manager coordinates with your CPA to document the move and to time large sales after it is complete.

Wall Street pay and equity compensation

According to the U.S. Census Bureau, 2020 to 2024 American Community Survey, the median New York household earns about $85,974 and about 40.2 percent of adults hold a bachelor’s degree or higher. The households that seek wealth management often work in finance, law, media, technology, health care or real estate, where pay arrives in uneven waves. A banker may receive a large year-end bonus, part of it in stock that vests over several years. A partner at a law firm takes distributions and has capital in the firm. A technology employee holds restricted stock and options.

A wealth manager treats that pay as a calendar. It sets a monthly draw for living costs, reserves taxes at every payment, plans when to sell shares as they vest and watches for the alternative minimum tax on option exercises. Because New York taxes capital gains as ordinary income, there is no state reward for waiting, though a federal holding period of more than a year lowers the federal rate. Our tax planning guide covers how those pieces fit.

Real estate: co-ops, condos and landlords

Housing is the largest asset for many New York households, and it comes with unusual features. According to the same Census survey, only about 54.3 percent of homes in the state are owner occupied, and owners with a mortgage pay a median of about $2,555 a month. Co-op shareholders own shares in a corporation, pay monthly maintenance, may face assessments for building projects and need board approval to sell. Condo owners pay common charges and transfer taxes, and sellers in New York City face a transfer tax and, for higher-priced homes, an additional tax known as the mansion tax on the buyer.

Landlords of small buildings face rent regulation rules, property taxes and repair costs, and an exit often means a large capital gain with depreciation recapture. A wealth manager models whether to sell, exchange into another property or hold, and how the home or building fits into a plan for retirement. For heirs, co-op shares and rent-stabilized buildings raise special questions that an attorney should address.

Business owners and professional practices

New York has family companies in construction, restaurants, wholesale, real estate and services, and professional practices run by physicians, dentists, accountants and lawyers. Owners often keep most of their wealth in the business. A wealth manager helps compare a sale to a competitor, a private equity buyer, an employee buyout or a transfer to family, and models the after-tax proceeds. It also builds retirement plans for the owner and staff, such as a profit-sharing plan or a cash balance plan, and plans for the money after a sale.

Taxes at state and city level

New York’s income tax rates rise in steps with income, and high earners face the top state rates. New York City residents pay a separate city income tax, and the combined burden for a high earner is among the highest in the country. Social Security is exempt from state tax, and government pensions are exempt, while private pension and retirement account withdrawals are partly taxed, with a limited exclusion for people who are 59 and a half or older. These rules push people toward careful timing of withdrawals and Roth conversions and make a move out of state a serious option for some retirees. Residency rules, as above, determine whether the move works.

Retirement for New Yorkers with complex pay

High earners in finance, law and medicine often retire later and with more moving parts: a large 401(k), a profit-sharing plan, deferred compensation, stock and a pension from a public job or a union. A wealth manager lays them out on a timeline and decides which to draw first. Because New York taxes most retirement withdrawals but exempts Social Security and government pensions, the order matters, and so does the decision about where to live. Retirees who leave New York need to complete the move and document it before taking large distributions, or the state may still tax the income. Our retirement planning guide explains the general sequence.

Trusts, gifts and giving

Because of the estate tax cliff, many New York families use lifetime gifts and trusts. Annual gifts to children and grandchildren fall under the federal annual exclusion, and larger gifts use part of the lifetime exemption and require a return. New York adds back taxable gifts made within three years of death in computing the estate tax, so timing matters. A charitable remainder trust or a donor-advised fund can reduce income tax now and support a cause, and bequests to charity lower the taxable estate. A wealth manager coordinates the gifts with the portfolio so that the right assets go to each purpose.

What the engagement looks like

What the engagement looks like

Expect an intake covering accounts, tax returns, trusts, business documents, property deeds and insurance. The advisor writes a plan, builds the portfolio and reviews it on a schedule, often quarterly, working with your CPA and attorney.

Fund fees, trading costs and commissions come on top, so ask for a single yearly total.

Registration and credentials

Investment advisers in New York register with the Attorney General’s Investor Protection Bureau or, for larger firms, with the SEC. A registered investment adviser owes you a fiduciary duty on its advice, while a broker is overseen by FINRA and is usually paid commissions. Check the firm and the person on the SEC adviser database and FINRA BrokerCheck, and read Part 2 of the Form ADV. Our investing basics guide explains how portfolios are built.

Questions to ask before you hire

1. Which person at the firm looks after my account?
2. What would a full year cost with fund fees and commissions added?
3. Will you put your fiduciary status in a signed statement?
4. What have you done on the New York estate tax, residency questions or co-op ownership?
5. Do you sit down with my CPA and attorney?
6. Which custodian holds my money?

Frequently asked questions