Contract Analysis & Insurance for High Net Worth Individuals in New York City

The short answer: yes, our firm handles contract analysis for New York City high net worth clients, and the details below explain how.

The reason is liquidity, not net worth. A large estate can owe a large tax and still have very little cash to pay it, because the value is locked in assets that cannot be sold quickly or should not be sold at all. New York imposes its own estate tax on top of the federal one, and the New York return and payment are generally due nine months after death. If your wealth sits in a closely held business, real estate, art, or a concentrated stock position, your heirs can be forced to sell those assets under time pressure, often at a discount, simply to raise cash for the tax. That fire sale is exactly what life insurance prevents. A policy delivers cash at the moment the tax comes due, so the family can pay New York and the IRS and keep the business, the building, or the portfolio intact. The insurance is not about making a wealthy family wealthier, it is about making sure the estate tax is paid with insurance dollars instead of a forced liquidation of the assets you spent a lifetime building. For a New York family whose estate is illiquid and over the cliff, that liquidity is often the difference between an orderly settlement and a distress sale.

An ILIT is an irrevocable life insurance trust, and it exists to solve a problem that catches families who buy insurance without coordinating the tax. If you personally own a policy on your own life, the law includes the death benefit in your taxable estate. So a $5 million policy you bought to help pay the estate tax adds $5 million to the estate being taxed, which can increase the New York and federal bill rather than cover it, the opposite of what you intended. An ILIT fixes this by having the trust, not you, own the policy from the start. When you die, the death benefit is paid to the trust outside your estate, free of estate tax, and the trust can then lend cash to the estate or buy assets from it, delivering the liquidity right where it is needed without inflating the tax. The structure has rules, the trust should own the policy from inception, or if you transfer an existing policy in you must survive a three-year lookback for it to leave your estate, and the premium gifts to the trust need proper beneficiary notices to qualify for the annual exclusion. Set up correctly, the ILIT keeps the entire death benefit out of the taxable estate, which is the whole point of using one.

The cliff raises the stakes and sharpens the math, because in New York a modest amount of extra estate value can trigger a wildly larger tax. New York’s 2026 estate tax exemption is about $7.35 million, and once your taxable estate exceeds 105 percent of it, roughly $7.72 million, the exemption disappears entirely and the whole estate is taxed from the first dollar. This means two things for insurance planning. First, you have to know which side of the cliff your estate falls on, because an estate just over the line owes hundreds of thousands of dollars that an estate just under owes nothing on, and that gap drives how much liquidity the family will need. Second, the insurance itself must be owned outside the estate through an ILIT, because a policy you own personally adds its death benefit to the estate and can push an estate that was under the cliff over it, forfeiting the entire exemption. A poorly structured policy can therefore cause the very cliff problem it was meant to solve. We size the coverage to the projected New York and federal tax, and we make sure the policy is held so it funds the tax without becoming part of the taxable estate that creates it.

Yes, and a review of existing coverage is often where the most valuable fixes are found, because policies bought years ago were rarely structured with the current estate tax in mind. We look at three things first. Ownership, who legally owns each policy, because a policy you own on your own life puts the death benefit in your taxable estate, and that single fact may call for transferring the policy to an ILIT, subject to the three-year lookback that applies to transfers of existing policies. Beneficiary designations, because a benefit payable directly to your estate is fully exposed to estate tax and creditors, while one payable to a properly drafted trust is not. And adequacy, whether the total coverage actually matches the projected New York and federal estate tax, since the cliff means the number can be larger than families expect. We also check whether permanent policies are performing as illustrated, because some older universal life policies are underfunded and at risk of lapsing just when they are needed. The review frequently turns up a policy owned the wrong way, a stale beneficiary, or a coverage gap, each of which is fixable while you are alive and very expensive to discover after death, so reviewing what you already hold is usually the first step we take.

Plenty, and they tend to surface at the worst time, when an owner dies or exits and the agreement is finally tested against the tax law. A buy-sell agreement that uses company-owned life insurance to fund the purchase of a deceased owner’s interest is a common structure, but a recent shift in how those arrangements are valued for estate tax purposes means agreements drafted under the older understanding can now produce a larger taxable estate than the owners planned for, because the insurance proceeds may be counted in valuing the business. That can raise the New York and federal estate tax on the very interest the agreement was meant to handle cleanly. Beyond buy-sells, a partnership or operating agreement can allocate income in ways that create tax in states you never worked in, a subscription agreement can commit you to capital calls and to out-of-state filings, and an installment note to a trust has to carry a genuine interest rate and real terms or the IRS can recharacterize the whole transaction. We read these agreements for the tax outcome, flag the provisions that will cost the family, and coordinate fixes before the document is signed, which is far easier than unwinding a problem after an owner has died or a deal has closed.