- Keeping your wealth and assets in the family and setting up future generations for success is important. Our NYC lawyers routinely help individuals and families create estate plans that fully account for their high net worth and valuable assets.
- Anyone with $5 million or more in assets should ask an NYC high net worth estate planning attorney about how to minimize their federal estate tax.
- Many high net-worth individuals and families aren’t aware of the tax consequences of “generation skipping,” or leaving assets directly to grandchildren. The IRS wants every generation to pay taxes, so it will impose generation skipping transfer taxes if these transfers are not adequately accounted for in a well-executed high net worth estate plan.
- Our New York City high new worth estate planning attorneys can help establish gifts (assets, stocks, etc.) through a trust to help eliminate or mitigate your estate taxes.
- It is a common misconception that the proceeds from life insurance are not taxable, but life insurance can be included in a decedent’s taxable estate.
High Net Worth Lawyers in New York City and Suffolk County
Our law firm understands that high-net-worth individuals want to not only transfer wealth and minimize tax, but to create an enduring legacy that passes on values as well as assets. Whether a client’s high net worth stems from a family business, high income, real estate investment or appreciated stock investments, the ultimate goal is creating an estate plan that efficiently transfers wealth in line with a client’s goals.
Estate Planning for Private Wealth
Our firm assists individuals and families with a variety of effective estate planning strategies to keep wealth within the family and protect assets for future generations. Our attorneys work closely with clients, their accountants and financial advisors to devise a comprehensive estate plan. When doing long term strategic asset planning, we consider which types of trusts would be most beneficial. For business clients, we explore if a change of business entity, such as a family limited partnership, would be more efficient.
Mitigating Estate Taxes
Although the federal estate tax exemption is at an historical high of $11.7 million per person ($23.4 million per couple), the estate tax exemption could be lowered well before the Tax Cuts and Jobs Act (TCJA) is due to sunset in 2026. Those with assets exceeding $5 million dollars will want to discuss estate tax minimizing strategies with an attorney well before the end of 2025.
Avoid Death Tax Pitfalls
Our attorneys ensure our high net-worth clients avoid the pitfalls inherent in large estates, such as the generation skipping transfer and marital deduction planning. Many clients want to leave some assets directly to grandchildren, which is fine as long as generation skipping transfer taxes are avoided. The generation-skipping transfer tax is the way the IRS ensures that taxes are paid at each generation and applies whenever there is a transfer to a beneficiary who is at least 37½ years younger than the donor (other than a spouse). Not accounting for generation skipping transfer tax could result in a 40% tax on those assets.
Another common mistake to avoid is the “sweetheart will”, where a married couple leaves assets to each other outright. For high net worth individuals in New York State, this results in losing the deceased spouse’s state exemption of $6.11 million dollars.
Long-Term Strategic Asset Planning
Given the current high federal estate tax exemption of $12.06 million and its sunset in 2026, gifting is a popular technique for eliminating or mitigating estate taxes. The IRS issued regulations, IR-2019-189, stating that there will be no “clawback” for gifts made under the increased exemption. Gifting can be done by giving assets outright or in trust. The current Bear Market is also an opportunity to gift investments that have declined in value. These stocks are likely to appreciate in value in the future when the stock market makes a recovery.
Asset Planning With Trusts
Asset protection planning can prevent or significantly reduce risk by shielding a closely held business or personal assets from the claims of creditors, inheritance tax, and divorce.
Types of Trusts to Consider
Irrevocable Life Insurance Trusts
When it comes to proceeds from life insurance, a common misconception is that they will not be taxed. Although beneficiaries will not have to pay income taxes on life insurance proceeds, life insurance is includable in a decedent’s taxable estate.
The twin objectives of creating an Irrevocable Life Insurance Trust is to move money out of someone’s estate and ensure that beneficiaries have liquidity at death. Liquidity may be necessary to pay estate taxes, satisfy debts, provide additional resources, provide capital to a closely held business, or to make sure that all beneficiaries receive an equal inheritance.
The insured gifts a life insurance policy to the trust or, better yet, gifts cash so that the trust itself can purchase the life insurance policy. This initial gift is counted toward the insured’s lifetime gift tax exemption. The insured uses their $15,000 annual gift tax exclusion per beneficiary. If these annual gifts are not withdrawn by the beneficiaries in favor of anticipated future proceeds, the trustee pays the insurance premium with these monies. In this way, only the initial gift is counted toward the lifetime exclusion. ILITs are especially popular in states with estate tax, such as New York where the estate tax exemption for 2022 is $6.11 million. To avoid NYS estate tax, clients gift assets to an ILITs using a portion of their federal lifetime estate and gift tax.
Intentionally Defective Grantor Trust
An intentionally defective grantor trust (IDGT) places assets outside the grantor’s estate for estate tax purposes but is “defective” as to the income tax, so that the grantor is responsible for paying tax on the trust assets. An IDGT allows the grantor to gift or sell appreciating assets to a trust so that the gift grows tax free. The trust dictates how assets will pass to beneficiaries upon the grantor’s death.
The IDGT is increasingly popular due to the expected sunsetting of the high federal gift and estate tax of $12.06 million at the end of 2025. By making a gift while the federal exemption is high, the grantor captures the exemption amount while it is still available. By gifting to a trust instead of outright, beneficiaries are further protected.
The grantor can avoid using any of the estate exemption by selling assets to the intentionally defective grantor trust in exchange for an interest-bearing promissory note. Since the IDGT is a grantor trust, the sale is not a taxable event. The note, if still existent at grantor’s death would further reduce his or her taxable estate.
Qualified Personal Residence Trusts
A Qualified Personal Residence Trust (QPRT) is an irrevocable trust that allows the grantor to remove a residence or vacation home from their estate to reduce estate tax at death. By transferring the asset during life, the grantor can remain in the home for a stated period of time and when the period ends, the home is transferred to the beneficiaries. If the grantor wants to remain in the home, he or she must lease the property from the beneficiary.
Since the grantor retains an interest in the home in the trust, there is a valuation discount. This results in the value of the lifetime gift being lower than its fair market value and its appreciation grows tax free.
Charitable Remainder Trusts
If you have charitable inclinations, a Charitable Remainder Trust (CRT) or Charitable Lead Trust (CLT) qualifies for an estate tax deduction equal to the value of the behest and allows up to a twenty-year income stream to designated beneficiaries. A CRT can also be created during the grantor’s lifetime, minimizing or eliminating capital gains on appreciated assets and creating an income stream for the grantor.
Spousal Limited Access Trusts
A Spousal Limited Access Trust (SLAT) is an irrevocable trust created by one spouse (“donor” spouse) for the benefit of the other spouse to minimize estate tax. When utilizing gifting strategies, one of the biggest fears is losing control of assets the grantor may one day need. With a SLAT, the beneficiary spouse can receive income and principal distributions from the trust – thereby giving the grantor spouse indirect access to the trust. The SLAT can also be structured to have additional beneficiaries. The grantor controls who the ultimate beneficiary is upon the donor spouse’s death.
SLATs are an excellent vehicle right now for capturing the historically high federal estate tax exemption before it goes away, while retaining some control of the assets in the trust. SLATs are grantor trusts so the grantor pays all income tax on trust assets. This allows greater appreciation of principal, which is excluded from both spouse’s estate. If drafted correctly, SLATs also provide asset protection in that the assets are not reachable by creditors of the beneficiary spouse.
Frequently Asked Questions
A Medicaid Trust allows seniors and disabled individuals who may need long term care in the future to qualify for Medicaid long term care under the strict asset guidelines. By placing assets in a Medicaid Trust ahead of time – 2.5 years before needing home care or 5 years before needing nursing home care – the individual can protect those assets from the cost of long term care and qualify for Medicaid.
You can protect beneficiary’s inheritance from creditors and divorce by placing those assets in an inheritor’s trust. The beneficiary’s right to principal must be limited by an “ascertainable standard” such as health, education, maintenance or support. Even greater protection is afforded to the beneficiary when a third party is the trustee with discretion to make distributions.
If you are beneficiary of the trust, then your assets are not protected. New York State does not allow self-settled asset protection trusts, but other states such as Delaware, Nevada and Alaska. Our attorneys can help a New York resident set up a domestic asset protection trust (DAPT) in one of these favorable states. If married, consider a SLAT.
An irrevocable trust protects you from creditors because the assets you put in the trust are no longer yours. You can nominate a trustee to make distributions to your family and friends, but not to you.
A Spousal Limited Access Trust (SLAT) is an irrevocable trust for the benefit of your spouse and heirs. Since your spouse can use funds in the trust, you indirectly benefit as well, but since the assets are not in your name they are protected from your creditors and can be drafted to protect the assets from your spouse’s creditors as well. However, SLATs must be constructed with care to avoid being considered a fraudulent conveyance.
If you own a business or income producing property in your own name, then all of your assets are subject to creditors and lawsuits. If you incorporate or form an LLC, your liability is limited to the assets held by that business. Fr this reason, you should set up an LLC for each piece of property you own.
In New York State, an inherited IRA is not protected from the beneficiary’s creditors. This is a good reason to make a trust the beneficiary of a retirement account if the beneficiary has debt issues. However, the Secure Act eliminated the “lifetime stretch” available to adult children inheriting an IRA (except for a disabled child) so the proceeds of the IRA would have to be distributed within 10 years. If the amount of the IRA is substantial, this could pose serious tax issues, least limit the usefulness of the trust.
One option is to name a Charitable Remainder Trust (CRT) as beneficiary of the IRA – which allows you to stretch out payments to the child over their lifetime (or to multiple beneficiaries over a 20 year span). A charity of your choice ultimately receives the asset and the child gets income over his or lifetime – because the money is invested the child ends up receiving as much or more than he or she would have without the CRT.