Estate Planning for High Net Worth Individuals in New York

If you have significant assets in New York, basic estate planning isn't enough. A will and a revocable living trust will avoid probate and keep things organized — but they won't protect your estate from a New York estate tax bill that can reach 16% on the amount above the exemption, or a federal estate tax that can claim 40 cents of every dollar above the threshold. The strategies that work for families with $300,000 simply don't apply at $3 million, $10 million, or $50 million. This is what does.

Start With New York's Estate Tax Cliff

Before anything else, you need to understand something that shocks most of our high-net-worth clients when they first hear it: New York's estate tax has a cliff.

In 2026, the New York estate tax exemption is $7.16 million. An estate worth exactly $7.16 million owes no New York estate tax. An estate worth $7.17 million owes nothing either — it's still below the exemption. But here's where the cliff appears: if your estate exceeds 105% of the exemption (roughly $7.52 million), you lose the entire exemption. The tax is calculated on the full estate value, not just the excess above $7.16 million.

This isn't a theoretical concern. For a New York City family with a $4 million apartment, a $2 million retirement portfolio, and $1.5 million in life insurance, the estate is already in cliff territory. Small asset appreciation — a rising real estate market, a good investment year — can tip an estate from zero tax to a six-figure bill. Planning around this cliff is a central objective of high-net-worth estate planning in New York.

The Federal Exemption: Act Before Potential Sunset

The federal estate and gift tax exemption in 2026 is approximately $13.6 million per person — historically high as a result of the Tax Cuts and Jobs Act of 2017. This exemption is indexed for inflation annually.

A married couple has a combined exemption of approximately $27 million. An estate below that threshold owes no federal estate tax. For most families, the New York tax is the primary concern, not the federal tax.

But for larger estates, the federal exemption matters enormously — and there's urgency. The elevated exemption was scheduled to sunset back to approximately $7 million per person (adjusted for inflation) after 2025. Subsequent legislation has extended aspects of the Tax Cuts and Jobs Act, but federal tax law is subject to change with each Congress. Families with significant assets should be capturing the current elevated exemption through irrevocable gifting strategies now, not waiting to see what Congress does next.

Key Strategies for High Net Worth New York Families

Dynasty Trusts: Building Multigenerational Wealth

A dynasty trust is designed to hold family assets for multiple generations — not just your children, but their children and grandchildren too. The core benefit: assets held in a properly structured dynasty trust are generally not included in any beneficiary's taxable estate. Each generation benefits from the trust, but the assets don't go through estate tax at each generational transfer.

Consider this: if you transfer $5 million into a dynasty trust today, and the trust grows at 6% annually for 90 years, the trust could be worth over $1.6 billion before any assets are distributed. Without the dynasty trust structure, that wealth would be subjected to estate tax at each generation — potentially losing 40% or more at each transfer. The compounding effect of avoiding generational estate taxes is dramatic.

New York's Rule Against Perpetuities limits dynasty trusts to approximately 90 years (21 years after the death of lives in being at the time of creation). Families who want longer-duration trusts sometimes use Delaware, Nevada, or South Dakota as the trust situs — states that have abolished the Rule Against Perpetuities for trust purposes. This is permissible and widely used by New York families with the right trust structure and administration arrangement.

GRATs: Transferring Appreciation Tax-Free

A Grantor Retained Annuity Trust (GRAT) works particularly well for assets expected to appreciate significantly — business interests before a liquidity event, appreciated real estate, concentrated stock positions. Here's the concept:

1. You transfer assets to the GRAT. The taxable gift at creation is minimal — or even zero — because you're retaining an annuity stream.
2. The GRAT pays you a fixed annuity for a set term (typically 2–5 years).
3. If the assets grow at a rate above the IRS "hurdle rate" (the Section 7520 rate, which has fluctuated between 4–6% in recent years), the excess appreciation passes to your beneficiaries free of gift tax.
4. If you survive the GRAT term, the appreciation above the hurdle rate has transferred to the next generation at little or no gift tax cost.

The primary risk: if you die during the GRAT term, the assets come back into your estate. For this reason, GRATs are typically structured with short terms, and families may "roll" a series of GRATs. Zero-out GRATs — where the annuity is structured to reduce the taxable gift to approximately zero — are the most common approach.

Family Limited Partnerships and LLCs: Discounts and Control

A Family Limited Partnership (FLP) or family LLC allows you to transfer interests in the entity to family members at a valuation discount. Because minority interests in a closely-held entity are not freely marketable and don't carry control, a qualified appraiser can typically support a discount of 20–40% from the underlying asset value.

Example: you transfer $10 million of real estate to a family LLC and then gift 40% minority interests to your children. If the appraiser supports a 30% discount, those interests are valued at $2.8 million rather than $4 million for gift tax purposes — you've transferred $4 million of value while using only $2.8 million of exemption. The entity also centralizes management, maintains family control, and provides asset protection from beneficiaries' creditors.

FLPs and family LLCs have been a target of IRS scrutiny for years. They must be properly structured, maintained as legitimate business entities (not just tax devices), and supported by qualified appraisals. Done right, they're a powerful tool. Done carelessly, they can be challenged and disallowed.

Charitable Strategies for High Net Worth Donors

Charitable giving is both personally meaningful and tax-efficient for high-net-worth families. The most powerful tools:

Donor-Advised Fund (DAF)

You contribute appreciated assets (avoiding capital gains), take an immediate income tax deduction, and then recommend grants to charities over time. DAFs are flexible, simple to establish, and don't require the legal complexity of a private foundation.

Charitable Remainder Trust (CRT)

You transfer appreciated assets to the CRT. The trust sells the assets without capital gains tax, invests the proceeds, and pays you (or a named beneficiary) income for life or a fixed term. At the end, the remaining assets go to charity. You receive a partial income tax deduction at creation and remove the assets from your taxable estate.

Qualified Opportunity Zone Investments

For clients with large capital gains, investing in a Qualified Opportunity Zone (QOZ) fund defers and potentially reduces capital gains tax while the investment appreciates free of tax if held for at least 10 years. QOZ investments also remove the investment from your taxable estate, which has New York estate tax implications.

For a broader look at charitable giving strategies in the context of estate planning, our article on charitable giving and estate planning in New York provides additional detail.

The Role of Life Insurance in High Net Worth Planning

Life insurance isn't just for income replacement at this wealth level — it's a tax planning tool. A properly structured ILIT can hold a life insurance policy outside of both spouses' taxable estates. When the insured dies, the death benefit is received by the trust income and estate tax free.

For families facing significant estate tax liability, the ILIT death benefit can provide liquidity to pay the tax without forcing a fire sale of illiquid assets — real estate, business interests, closely held stock. This is particularly important in New York, where the estate tax is due within 9 months of death and illiquid estates can face serious cash flow problems if they haven't planned for this.

Second-to-die (survivorship) life insurance is commonly used in this context. It insures both spouses and pays out at the second death — when the estate tax is actually due. Premium costs are lower than individual policies, making this a cost-effective way to fund an estate tax liability.

Working With a High Net Worth Estate Planning Attorney

The strategies described in this article require careful coordination between your estate planning attorney, your financial advisor, your accountant, and in some cases a qualified appraiser. They're not DIY projects, and the cost of implementing them incorrectly — in taxes, penalties, and failed tax positions — is far greater than the cost of doing them right.

At Morgan Legal Group, Russel Morgan works with high-net-worth clients across New York City and the surrounding area on sophisticated estate planning strategies including dynasty trusts, GRATs, SLATs, ILITs, and charitable planning. We coordinate with your existing financial and tax advisors or introduce you to professionals in our network. For additional reading on wealth preservation strategies available to New York families, the Morgan Legal NY estate planning resource page provides supplemental guidance.