Entity Formation & Structuring for High Net Worth Individuals in New York City

It can, and the saving comes from two mechanics working together rather than from any single trick. First, a family limited partnership lets you gift or sell non-controlling, non-marketable interests to your children and to trusts, which moves both the asset and all of its future growth out of your taxable estate. Second, because those interests cannot control the entity and cannot be readily sold, a qualified appraiser can value them at a discount to the underlying assets, commonly 20 to 35 percent. Together that means a parent might transfer an interest backed by $1 million of real value while using only about $700,000 of the federal gift exemption. Repeat that over years and the amount pulled out of the estate can be substantial. In New York the stakes are higher because the state estate tax cliff forfeits the entire exemption once the estate crosses roughly $7.72 million, so moving value below that line protects against a tax that hits the whole estate, not just the excess. The structure only holds up if the partnership has a genuine business or investment purpose, the formalities are respected, and the discounts are supported by a real appraisal, which is exactly how we build it.

An intentionally defective grantor trust, usually called an IDGT, is an irrevocable trust drafted with a deliberate flaw, it is outside your estate for estate tax purposes but you are still treated as its owner for income tax purposes. That combination is what makes it powerful. Because the trust is outside your estate, every dollar inside it and all of its future appreciation escape both the federal estate tax and the New York estate tax. Because you remain the income tax owner, you pay the tax on the trust’s earnings from your own funds, which is not treated as an additional gift, so the trust compounds without the drag of income tax while you steadily shrink your own taxable estate by paying that tax. The classic strategy is to sell appreciating assets to the trust for a promissory note, which freezes the value in your estate at today’s figure while all future growth happens inside the trust for your heirs. With the 2026 federal exemption at $15 million per person, you can also make a large seed gift now to lock that high exemption in against future growth. For a New York family worried about the estate cliff, an IDGT is one of the cleanest ways to move appreciation out of reach.

Valuation discounts on transferred interests commonly fall in the 20 to 35 percent range, made up of a discount for lack of control and a separate discount for lack of marketability, though the exact figure depends on the entity, the assets, and the terms of the interest. The discounts are real economics, a minority interest that cannot direct the entity or be sold to an outside buyer is genuinely worth less than a proportionate share of the assets, and the tax law recognizes that. The IRS will accept supported discounts but scrutinizes aggressive ones, and the difference between an accepted discount and a challenged one is documentation. We work with a qualified independent appraiser who values the specific interest being transferred, we make sure the entity has a legitimate purpose beyond saving tax, and we respect the formalities so the structure is not treated as a sham. We also avoid the patterns that draw a challenge, such as funding the entity and gifting interests on the same day or stripping the entity of any real function. Done properly, the discount is defensible. Done carelessly, it invites an adjustment plus penalties, so the care is the point.

Yes, and this is the trap that catches New York families who think a $15 million federal exemption means they have nothing to plan for. New York has its own estate tax with a 2026 exemption of about $7.35 million, less than half the federal figure, and it operates as a cliff rather than a smooth phase-out. As long as your taxable estate stays at or below the exemption, you owe no New York estate tax. But once it exceeds 105 percent of the exemption, roughly $7.72 million, the exemption disappears entirely and the whole estate is taxed from the first dollar. The roughly $367,000 band just above the exemption is the danger zone, where a modest increase in estate value can trigger hundreds of thousands of dollars of New York tax. A family well under the federal $15 million can be well over the New York line. That is why the structuring we do aims at the New York number, using partnerships, holding entities, and grantor trusts to keep the taxable estate below the cliff, even for families who will never owe a dollar of federal estate tax. Ignoring the state tax because the federal one is covered is the single most expensive mistake we see.

The right number is the smallest number that does the job, because every entity carries a real annual cost in tax returns, recordkeeping, and administration, and an entity that does not earn its keep is just overhead. Many high net worth families are well served by one holding structure, often a family limited partnership or a holding LLC, paired with one or two trusts, rather than a sprawl of entities that each file their own return. We start by mapping what you are trying to accomplish, moving appreciation out of the estate, keeping value below the New York cliff, retaining control during your lifetime, and then design the fewest entities that reach those goals. Each partnership or trust we add brings a filing, a federal partnership or fiduciary return, sometimes a New York return, plus the bookkeeping to keep its accounts clean. We weigh that ongoing cost against the estate tax it is expected to save before recommending it, and we tell you when an entity has stopped being worth the cost so it can be unwound. The aim is a structure you can actually maintain and explain, not the most complex one a planner can draw.