Estate Planning for Real Estate Owners in New York

New York real estate is both the crown jewel and the greatest complication in most local estate plans. A Brooklyn brownstone bought for $200,000 in the 1990s is worth $3 million today. A pair of rental buildings in Queens represents decades of work, income, and equity. A Manhattan co-op is a family's home and their most valuable asset. Getting the estate planning right for these properties means the difference between an efficient, low-cost transfer to your heirs and a 24-month probate nightmare that consumes tens of thousands of dollars in attorney fees, taxes, and court costs.

I've seen both outcomes. The families who planned properly received their parents' properties quickly, privately, and at minimal cost. The ones who didn't spent years in Surrogate's Court, sometimes fighting among themselves. This guide covers every major tool and consideration for New York real estate owners building an estate plan.

Why Real Estate Demands Attention in Your Estate Plan

Three features of real estate make it uniquely important to plan around:

It doesn't pass automatically. Unlike a retirement account with a beneficiary designation, real property sits in your name and must go through probate when you die — unless it's held in a trust or titled with survivorship rights. Probate for a New York City property can take 12 to 24 months or longer.

It can't be easily divided. A $2 million Brooklyn property left equally to four siblings creates four co-owners who all have to agree on every decision. Management, maintenance, rental income, sale decisions — all require consent. When siblings disagree, the result is a partition action lawsuit that can cost $50,000+ and often forces a sale at less than optimal timing.

The value is enormous and the tax basis is often very low. Most long-held New York properties have accumulated gains of hundreds of thousands — or millions — of dollars above their original purchase price. How and when you transfer that property determines whether your heirs pay massive capital gains taxes or inherit it essentially tax-free via the stepped-up basis.

The Stepped-Up Basis: Why Holding Until Death Often Wins

This is the foundational tax principle in real estate estate planning. When you inherit real property, your cost basis is "stepped up" to the fair market value on the date of the original owner's death. You don't inherit the original owner's low basis from decades ago — you start fresh at current value.

Consider a concrete example. A client bought a Flushing rental property in 1988 for $120,000. In 2026, it's worth $2.1 million. If she transfers it to her children today as a gift, their basis is $120,000. When they sell it in five years for $2.3 million, they owe capital gains tax on roughly $2.18 million of gain. At federal long-term rates (20%), state rates (up to 10.9% in New York), and the Net Investment Income Tax (3.8%), they could owe $700,000 or more in taxes on the sale.

If instead the client holds the property until death and leaves it to her children through a revocable trust, their basis at her death is $2.1 million. If they sell it for $2.3 million, they owe capital gains tax only on the $200,000 of appreciation after her death. The same sale produces $700,000 less in taxes — just by holding the property and passing it through the estate.

This stepped-up basis analysis is why we almost never recommend lifetime outright gifts of highly appreciated real property to adult children purely for estate planning purposes. The tax cost outweighs the benefit in most cases.

Revocable Trust for the Primary Residence

For most homeowners, the right move for a primary residence is to transfer it into a revocable living trust. Here's why:

• Probate avoidance: The property transfers directly to beneficiaries at your death without Surrogate's Court involvement
• Stepped-up basis preserved: Because you retain full control of a revocable trust, the property is still in your taxable estate — and your heirs receive a full basis step-up at death
• No transfer tax triggered: Transferring your primary residence to a revocable trust where you are the trustee doesn't trigger New York real property transfer taxes when structured correctly
• STAR exemption maintained: You retain your School Tax Relief (STAR) exemption if the trust documents confirm you're a beneficiary using the property as a primary residence
• Mortgage issues addressed: The "due on sale" clause in most mortgages can be triggered by a deed transfer. However, the Garn-St. Germain Depository Institutions Act specifically exempts transfers to revocable trusts where the borrower remains a beneficiary — most lenders accept this. Get written confirmation from your lender before recording the deed.

Medicaid Asset Protection Trust for the Home

If protecting your home from nursing home costs is the priority, a revocable trust doesn't help. Revocable trusts are counted as your assets for Medicaid purposes. You need an irrevocable Medicaid Asset Protection Trust (MAPT).

The MAPT transfers your home out of your name at least five years before you apply for Medicaid. After the five-year look-back period clears, the home isn't counted for Medicaid eligibility. You can retain the right to live there for life (a life estate interest or retained occupancy right). The trust owns the property. When you die, it passes to your named beneficiaries — outside probate, with a partial stepped-up basis.

The trade-offs: The trust is irrevocable. If your plans change — you want to sell and move — the trustee must sell, and the proceeds stay in the trust. You lose the ability to refinance with a traditional mortgage in most cases. And the basis step-up at death is partial, not full — because the trust is irrevocable, the IRS may treat only a portion of the property as receiving a step-up.

Despite these trade-offs, for clients who are older, have a high-value home with low basis, and are concerned about nursing home costs that can exceed $180,000 per year in New York City, the MAPT is often the most valuable tool in the estate plan. Five years of advance planning can protect $1 million or more from Medicaid spend-down. See our Medicaid planning guide for full details.

LLCs for Investment and Rental Properties

For rental properties, multi-family buildings, and investment real estate, an LLC (limited liability company) provides two distinct benefits: liability protection and estate planning flexibility.

Liability Protection

An LLC separates the property's liabilities from your personal assets. If a tenant is injured on the property and sues, the lawsuit is against the LLC — not you personally. Your personal accounts, your home, your savings are not at risk (assuming you've maintained the LLC properly and haven't commingled assets). For landlords, this protection alone justifies the LLC structure.

Estate Planning Benefits

From an estate planning perspective, LLC interests can be transferred more efficiently than real property deeds in some situations. Several specific benefits:

• Annual gifting: You can gift LLC membership interests to children within the annual gift tax exclusion ($18,000 per recipient in 2026) each year, gradually transferring ownership without triggering gift tax returns
• Valuation discounts: A minority interest in a closely held LLC can be valued at a discount to the underlying asset value for gift and estate tax purposes — often 20-35% — because of lack of marketability and lack of control. This allows more economic value to be transferred within tax exemptions
• Avoidance of ancillary probate: LLC interests are personal property (intangibles), not real property. If you die owning LLC interests that hold New York real estate, your estate may avoid the ancillary probate issues associated with owning out-of-state real property. However, for New York property in a New York LLC, probate still governs the LLC interests unless they're held in a trust

The Right Combination: LLC + Trust

The most effective structure for significant rental portfolios: hold LLC interests in a revocable trust. The LLC provides liability protection. The trust holds the LLC interests and avoids probate at death. Your beneficiaries receive the LLC interests through the trust distribution — without probate, without a deed transfer, and with a stepped-up basis on the LLC interests themselves. This is the structure we use for most serious real estate investors in New York.

Qualified Personal Residence Trust (QPRT)

For higher-net-worth clients who want to transfer their primary residence out of their estate while continuing to live there, a Qualified Personal Residence Trust can be effective. You transfer your home to an irrevocable trust and retain the right to live there for a specified term — say, 10 or 15 years. The gift tax value is discounted based on the retained interest. If you survive the term, the home passes to your beneficiaries at a fraction of its full estate tax value. If you don't survive the term, the home reverts to your estate.

QPRTs work best when interest rates are higher (creating a larger actuarial discount on the gift value) and when the property is expected to appreciate significantly. For a Manhattan apartment expected to appreciate from $4 million to $8 million over 10 years, a QPRT executed now can transfer that property at a gift tax value of perhaps $1.5-2 million — dramatically less than the $8 million future value subject to estate tax.

The downside: you lose the stepped-up basis on the portion transferred in the QPRT. If the gift tax savings exceed the capital gains tax cost to your heirs, it's worth it. If not, it may not be. This is case-by-case analysis that requires real numbers.

Handling Multiple Properties: The Portfolio Approach

If you own multiple properties — a primary residence, a vacation home, several rental units — each property needs its own title analysis. The questions are the same for each:

• What type of property is it (co-op, condo, fee simple, multi-family)?
• What is the current title (sole owner, joint tenants with right of survivorship, tenants in common)?
• What is the current basis and estimated fair market value?
• Is there a mortgage, and if so, what are the due-on-sale provisions?
• Is there any existing Medicaid concern or prior planning that limits options?
• Who do you want to receive this property, and in what form?

Different properties may end up in different structures: primary residence in a revocable trust or MAPT, rental properties in LLCs held by a trust, vacation property in a QPRT or trust. The plan is holistic — every property is considered in the context of your overall estate, your tax exposure, and your family's needs.

Out-of-State Property: Avoiding Ancillary Probate

If you own real property in another state — a Florida vacation home, a Connecticut house — that property is subject to that state's probate laws at your death. Probate in two or more states simultaneously is expensive and time-consuming. A revocable trust solves this: property in multiple states held in a single trust distributes through one trustee without any state's probate court. This is one of the most compelling practical reasons for New Yorkers who own real property elsewhere to use a revocable trust.

For a complete framework for all your estate planning decisions — not just real estate — see our guide to what is an estate plan in New York. And for the specifics of how property transfers work legally, see our guide to understanding New York property transfer laws.