Advanced NY Estate Planning Techniques

Asset protection techniques are used to protect assets from unexpected future creditors and lawsuit liability. There are various asset protection techniques that protect individuals’ assets during their lifetime and ensure that their estate is intact when they pass on. They include forming trusts and family companies in New York and other states and countries.

Trusts are an effective way to shield your assets from future creditors, lawsuits, and other claims, leaving more of your estate for your family to enjoy.

Forming a Family Company

A family company (partnership or LLC) can is used in many ways as an effective tax-savings tool. One way is to form a family company to hold a large asset and make a gift of stock valued at less than $12,000 every year, tax-free. This is a way of gradually passing your property to your relatives without paying gift taxes or estate taxes.

For example, a couple that owns property worth $ 1.5 million and has three children can transfer $ 504,000 in seven years tax-free. If the parents do not want the children to own the stock right away, the stock can be put into a “Crummey” trust for the children’s benefit.

Another way to use a Family Company to save on or avoid estate taxes and gradually giving up management of the business or assets to family members. That would involve forming a company managed and controlled by you and your future beneficiaries. This option is very flexible, but you will only realize tax benefits if this is done by an experienced professional. Also, it is important to tailor the amount of control of your assets that you are giving up.

Since you are giving up control of the company and the company is more difficult to sell, the IRS and New York State will accept a lower valuation of the company on estate tax returns and gift tax returns.

Life Insurance Trust/Charitable Remainder Trust Combination

A Life Insurance Trust and Charitable Remainder Trust combination, if done correctly, allows you to place a part of your estate in charitable remainder trust, whereby the principal of the trust will go to the charity of your choice, while you will receive income during your lifetime. You will use the income to pay premiums for a life insurance policy owned by a Life Insurance Trust. Upon your death, the charity of your choice will get a substantial amount, while your estate might get even more.

GRAT Trusts

GRAT trusts, short for Grantor Retained Annuity Trusts, are advanced trusts used to avoid estate tax on part of the interests of assets. If utilized correctly and early on, they can save tremendous amounts on estate taxes. Click here for more on GRAT trusts.

Call the Law Offices of Albert Goodwin at (212) 233-1233 and make an appointment to discuss your estate planning needs.

Spousal Lifetime Access Trusts (SLATs)

A SLAT is an irrevocable trust funded by one spouse for the benefit of the other spouse and the children. The funding spouse uses their federal lifetime gift exemption. The receiving spouse can receive distributions during life, providing the family with continued access to the funds. After both spouses die, the remainder passes to the children outside of the estate tax base.

SLATs have become increasingly popular as families plan around potential changes in the federal estate tax exemption. The current exemption is set to sunset in 2026, with the threshold potentially dropping significantly. Families with assets above the post-2026 threshold use SLATs to lock in the current exemption before it expires.

The SLAT structure has specific requirements. The two spouses' SLATs cannot be too similar (reciprocal SLATs are recharacterized for tax purposes). The funded spouse must give up too much control. Proper drafting is critical and the work should be done well in advance of any anticipated change in the exemption.

Qualified Personal Residence Trusts (QPRTs)

A QPRT is an irrevocable trust into which the grantor transfers their primary residence (or vacation home). The grantor retains the right to live in the home for a defined term — typically 10 to 15 years. After the term ends, the home passes to the named beneficiaries (typically children).

The estate tax benefit comes from the way the gift is valued. The transferred interest is valued at the future remainder value discounted to present value — substantially less than the home's current value. If the grantor survives the QPRT term, the home passes to the children at the original discounted value, with future appreciation having occurred outside the grantor's estate.

The risk is that the grantor dies before the QPRT term ends, in which case the home reverts to the estate and the planning fails. QPRTs are most useful for clients in good health whose life expectancy substantially exceeds the QPRT term.

Charitable Lead Annuity Trusts (CLATs)

A CLAT is the inverse of a charitable remainder trust. The trust pays a fixed annual amount to charity for a defined term. At the end of the term, the remainder passes to non-charitable beneficiaries (typically children). The structure provides current charitable giving and ultimately transfers wealth to the next generation, often at substantial discounts to the current value.

CLATs are particularly effective in low-interest-rate environments. The IRS uses the Section 7520 rate to value the charitable interest, and lower rates produce larger discounts on the remainder gift. CLATs are tax-effective wealth transfer tools that also fund charitable purposes.

Intentionally Defective Grantor Trusts (IDGTs)

An IDGT is an irrevocable trust deliberately drafted to be "defective" for income tax purposes — meaning the grantor remains the taxpayer on the trust's income — while being "complete" for estate and gift tax purposes — meaning the trust's assets are outside the grantor's estate.

The combination produces a powerful planning result. The trust grows without paying income tax (the grantor pays the tax personally, effectively a tax-free gift to the trust each year). The trust's assets and growth are outside the grantor's estate. Sales between the grantor and the IDGT are not income tax events. The net effect is substantial wealth transfer that compounds over years.

IDGTs are complex and require careful drafting and ongoing attention. They are most useful for clients with substantial estates and appreciating assets that they want to transfer outside their taxable estate.

Family Limited Partnerships and LLCs

Family limited partnerships and limited liability companies provide a flexible structure for holding family assets across generations. Common uses include:

• Holding investment portfolios with centralized management.
• Holding real estate that family members co-own.
• Holding operating businesses with controlled succession.
• Holding intellectual property and other assets with valuation issues.

The estate planning benefit comes from valuation discounts. When the grantor gives partnership interests or LLC membership interests, the gift is typically valued at a discount from the pro-rata share of underlying assets. Discounts of 20% to 40% are common, reflecting the lack of control and lack of marketability of minority interests in family entities. The discounts effectively move more value out of the grantor's taxable estate per dollar of exemption used.

The IRS scrutinizes family entities aggressively. The structure must have real business purpose beyond tax planning. Formalities must be observed — meetings held, distributions documented, separate books and records maintained. Family entities that look like estate planning shells without operational substance can be disregarded for tax purposes.

Annual Exclusion Gifting

The most basic but consistently effective estate planning technique is annual exclusion gifting. The federal annual gift tax exclusion (currently $18,000 per donor per donee in 2024) allows tax-free gifts each year. A married couple can give $36,000 combined per donee per year. With three children and seven grandchildren, that is $360,000 of tax-free gifts per year for the couple.

Over 10 to 20 years of consistent annual gifting, families can transfer substantial wealth without using any of their lifetime gift exemption. The wealth that is transferred and its future appreciation are all outside the grantor's eventual estate.

Coordinated Planning

No single technique solves every problem. Advanced estate plans combine multiple tools to address the specific situation. A typical high-net-worth plan might include:

• A revocable trust as the central probate-avoidance and incapacity-planning vehicle.
• An ILIT to hold life insurance outside the taxable estate.
• One or more SLATs to use the federal gift exemption.
• A QPRT for the family residence.
• Annual exclusion gifting through a family LLC.
• A charitable trust to handle the charitable component.
• Special-needs planning for any disabled family members.
• Medicaid planning structures for elder care needs.

Coordinating these tools requires comprehensive analysis and careful drafting. We do this work for clients across the wealth spectrum, scaling the techniques to the situation.