Estate Planning for High-Net-Worth Families in Westchester County

Estate planning for high-net-worth families in Westchester County requires a different approach than planning for estates of moderate size. The combination of substantial real property values, investment portfolios, retirement accounts, and family businesses creates a complex tax landscape where federal and New York tax considerations interact in ways that demand careful coordination. A misstep in strategy can cost a family hundreds of thousands of dollars in unnecessary taxes. Proactive planning, by contrast, can preserve wealth for future generations.

This guide covers the essential strategies for high-net-worth families in Westchester County: the dual tax burden of New York and federal estate taxes, credit shelter trusts, irrevocable life insurance trusts, family limited partnerships and LLCs, charitable planning vehicles, generation-skipping transfer tax considerations, dynasty trusts, qualified personal residence trusts, and business succession planning.

What “High-Net-Worth” Means for Estate Tax Purposes

The definition of high-net-worth varies depending on which tax system you are examining.

For New York estate tax purposes, high-net-worth begins at $7,350,000 (the 2026 basic exclusion amount). Families with estates exceeding this threshold face the graduated New York estate tax rates (3.06% to 16%) and the unique cliff provision that can eliminate the entire exclusion if the estate exceeds 105% of the basic exclusion amount ($7,717,500 for 2026).

For federal estate tax purposes, high-net-worth begins at $15,000,000 per individual ($30,000,000 per married couple) following the One Big Beautiful Bill Act of 2025. The federal estate tax rate is a flat 40% on amounts exceeding the exemption.

The gap between these thresholds creates both a planning opportunity and a planning trap. Many Westchester families will owe New York estate tax without owing any federal estate tax, a scenario that did not exist before 2026. Coordinating planning across both systems is essential. A plan that minimizes federal taxes while failing to account for New York taxes can leave a family in a worse position than no plan at all.

Coordinated New York and Federal Planning: The Essential Foundation

High-net-worth families must plan simultaneously for both New York and federal estate taxes. The two systems operate under different rules, different exemption amounts, and different rate structures. A strategy that is efficient under federal law may be inefficient under New York law, and vice versa.

The most critical difference is New York’s lack of portability. Under federal law, a surviving spouse can elect to use the deceased spouse’s unused federal exemption, allowing a married couple to shelter up to $30,000,000 from federal tax without any trust planning. New York law does not permit this. The deceased spouse’s unused exclusion amount is lost forever.

For married couples in Westchester County, this difference means that simple, will-based plans that leave everything to the surviving spouse are inadequate. A coordinated plan must preserve both spouses’ New York exclusions while also accounting for the federal exemption. This typically requires the use of trusts, particularly credit shelter trusts.

Federal and New York calculations must also be coordinated for valuation and gifting strategies. A gift that is excluded from the federal gift tax (such as an annual exclusion gift of $19,000) is not excluded from New York’s three-year clawback rule. Gifts made within three years of death are pulled back into the New York taxable estate, even if those gifts are below the annual exclusion.

Credit Shelter Trusts (Bypass Trusts)

The credit shelter trust, also called a bypass trust or family trust, is the cornerstone of estate planning for married couples in Westchester County with combined assets approaching or exceeding the New York exclusion.

Upon the death of the first spouse, assets equal to the full New York basic exclusion amount ($7,350,000 for 2026) are placed into a trust rather than passing outright to the surviving spouse. The surviving spouse may receive all income from the trust and, depending on the trust terms, discretionary distributions of principal for health, education, maintenance, and support. At the surviving spouse’s death, the remaining trust assets pass to the next generation without inclusion in the surviving spouse’s estate.

This approach preserves the first spouse’s New York exclusion, which would otherwise be lost. It also preserves the first spouse’s federal exemption. A properly structured credit shelter trust can shield up to $14,700,000 from New York estate tax for a married couple (both spouses’ $7,350,000 exclusions) and up to $30,000,000 from federal estate tax (both spouses’ $15,000,000 exemptions).

The surviving spouse retains full access to the trust income and can receive principal for legitimate needs. The trust does not create an impoverished survivor. Rather, it creates a structure that separates the first spouse’s exemption from the surviving spouse’s estate, ensuring that exemption is fully utilized.

Irrevocable Life Insurance Trusts (ILITs)

Life insurance proceeds are included in a decedent’s gross estate if the decedent owned the policy or retained any incidents of ownership in the policy at death. For high-net-worth families, a large life insurance policy can push an estate over the New York exclusion or the federal exemption.

An irrevocable life insurance trust (ILIT) removes the policy from the insured’s estate. The ILIT is the owner and beneficiary of the life insurance policy. Premiums are paid by the insured through annual gifts to the ILIT. These premium payments qualify for the annual exclusion (each payment is treated as a gift to the beneficiaries of the trust, not to the trust itself, provided the trust is properly drafted to include Crummey withdrawal rights).

Upon the insured’s death, the life insurance proceeds pass to the ILIT and are paid to the beneficiaries income-tax-free. Because the insured did not own the policy, the proceeds are not included in the insured’s gross estate. For a family with $1,000,000 in life insurance, an ILIT can save more than $400,000 in federal estate taxes alone.

ILITs require careful attention to three issues: (1) the insured must not retain any incidents of ownership; (2) the insured must survive at least three years after transferring an existing policy to the ILIT (if the policy is transferred while owned by the insured); and (3) the ILIT must be structured to allow Crummey withdrawals so that premium contributions qualify for the annual exclusion.

Family Limited Partnerships and Limited Liability Companies

Family limited partnerships (FLPs) and limited liability companies (LLCs) serve two functions in high-net-worth estate planning: they create a vehicle for managing and controlling family assets, and they generate valuation discounts that reduce the taxable estate.

When a high-net-worth individual holds investment real estate, securities, or business interests directly, the full value of those assets is included in the gross estate. When those same assets are held by an FLP or LLC in which the individual holds only a limited partnership interest or member interest, the value of that interest may be discounted for estate tax purposes.

The discount reflects the fact that a limited partnership interest (or non-controlling member interest in an LLC) carries no control and has no direct liquidity. The interest cannot be sold without permission of the general partner (or managing member), and there is no ready market for the interest. An appraiser will typically apply a discount of 20% to 35%, sometimes more, to reflect these limitations.

Example: An individual owns investment real estate worth $10,000,000. If held directly, the full $10,000,000 is in the gross estate. If contributed to an FLP in exchange for a limited partnership interest, the individual’s interest in the FLP may be valued at $6,500,000 to $7,500,000 for estate tax purposes (a 25% to 35% discount), even though the FLP’s net asset value is still $10,000,000. The difference is permanently removed from the taxable estate and can be gifted to family members.

FLPs and LLCs must be structured properly to generate these discounts. The IRS challenges discounts that are not supported by legitimate business or personal reasons. The entity must have a real business purpose beyond tax avoidance, and the interest must be owned according to the entity’s operating documents. Despite these requirements, FLPs and LLCs remain one of the most effective tools for high-net-worth families.

Charitable Trusts: CRTs and CLTs

High-net-worth families often have both substantial estates and a desire to support charitable causes. Charitable remainder trusts (CRTs) and charitable lead trusts (CLTs) align these two goals by providing income to the family while generating a charitable deduction that reduces the taxable estate.

A charitable remainder trust is a trust that pays income to one or more non-charitable beneficiaries (typically the settlor and spouse) for a specified term of years or for life, and then distributes the remainder to qualified charitable organizations. The settlor receives a charitable deduction equal to the present value of the remainder interest passing to charity. The income stream can be structured as a unitrust (a fixed percentage of the trust’s net asset value, adjusted annually) or an annuity trust (a fixed dollar amount). The income is taxable to the beneficiary, but the estate receives a deduction.

A charitable lead trust operates in reverse. A trust pays income to qualified charitable organizations for a specified term, and then distributes the remainder to non-charitable beneficiaries (typically family members). The settlor receives a charitable deduction for the present value of the charitable payments. At the end of the term, the trust assets pass to the next generation, substantially discounted for gift and estate tax purposes.

For a high-net-worth family holding appreciated assets (such as real estate or securities), a CRT can also serve as a vehicle for tax-free diversification. The family donates highly appreciated assets to the CRT. The CRT sells those assets without triggering capital gains tax (the CRT pays no tax on the gain). The proceeds are reinvested in diversified holdings. The family receives a charitable deduction and a stream of income. At death, the remainder passes to charity, satisfying the family’s philanthropic goals.

Generation-Skipping Transfer Tax Planning

The generation-skipping transfer (GST) tax is a flat tax (currently 40%) on gifts or bequests to persons two or more generations below the settlor. For a high-net-worth family making substantial gifts to grandchildren or creating trusts that will benefit grandchildren for many years, GST planning is essential.

Each individual has a GST exemption ($15,000,000 per person for 2026, matching the federal estate tax exemption) that can be allocated to gifts or bequests to skip persons. Proper allocation of the GST exemption is critical. A poorly structured plan can result in a 40% tax on family wealth passing to the grandchildren generation.

GST planning typically involves designating certain gifts, trust contributions, or bequests as “exempt” gifts or bequests (allocated to the GST exemption) and ensuring the trust terms do not trigger GST tax inadvertently. For families with estates substantially exceeding the GST exemption, GST planning may involve deciding which family members or trusts receive exempt treatment and which do not.

Dynasty Trusts and Rule Against Perpetuities

New York law, as codified in the Estates, Powers and Trusts Law (EPTL) Section 9-1.1, permits trusts to remain in existence for lives in being plus 21 years (the traditional rule against perpetuities). However, New York also has an alternative perpetuities rule permitting dynasty trusts that can last for 100 years or more.

High-net-worth families seeking to preserve wealth for many generations may consider establishing a dynasty trust under favorable state law. Some families utilize Delaware, South Dakota, or other jurisdictions with favorable perpetuities rules. A dynasty trust can remain in existence for decades, providing asset protection, tax deferral, and family governance benefits across multiple generations.

The trade-off is complexity and potential income tax exposure. Dynasty trusts often result in substantial income tax liabilities as investment income is taxed at trust rates (which reach the maximum rate of 37% at relatively low income levels). Careful attention to grantor trust status, charitable distributions, and distribution strategies is necessary.

Qualified Personal Residence Trusts

Many high-net-worth families in Westchester County own significant real property: a primary residence worth $1,000,000 or more, a second home, or investment real estate. A qualified personal residence trust (QPRT) is a tax-efficient vehicle for transferring a personal residence to the next generation while reducing gift taxes.

A QPRT is an irrevocable trust that holds title to a residence. The settlor (typically the owner) contributes the residence to the QPRT in exchange for the right to live in the residence for a specified number of years (the term). At the end of the term, the residence passes to non-charitable beneficiaries (typically family members). The value of the gift is the current value of the residence discounted for the settlor’s retained right to use it during the term.

Example: A residence is worth $2,000,000. The owner transfers it to a QPRT with a 10-year term. The IRS assumes the owner will receive income benefit from living in the residence for 10 years, and values the gift at perhaps 40% of the residence’s current value ($800,000). The owner has reduced the taxable gift from $2,000,000 to $800,000, using only $800,000 of the lifetime federal exemption.

A QPRT must be structured carefully. The settlor must actually occupy the residence during the term. The settlor must not retain any other incidents of ownership. At the end of the term, the settlor must vacate or pay fair market rent to the trust. Despite these requirements, a QPRT can be an elegant vehicle for transferring valuable real property to the next generation.

Business Succession Planning

For high-net-worth families who own family businesses, business succession planning is a critical component of the overall estate plan. The business itself may represent 50% or more of the family’s net worth. Without a succession plan, the business may be forced to a fire sale at death to pay estate taxes and business debts.

Several strategies can address this:

Freeze structures. A common approach is to freeze the value of the owner’s interest in the business at its current value, and have future growth in the business pass to the next generation. This is often accomplished through a recapitalization of the business (converting owner’s equity into preferred stock with a fixed value) or through a partnership restructuring. The owner retains a fixed-value senior interest, and children or a trust holds the junior interests that will appreciate.

Buy-sell agreements. A buy-sell agreement is a contract among business owners specifying what happens if an owner dies or becomes disabled. The agreement may require the business to repurchase the deceased owner’s interest, or require the remaining owners to do so. The agreement must specify the price (fixed valuation, formula valuation, or appraisal process). Buy-sell agreements reduce uncertainty and provide liquidity at death.

Entity structure. The choice of entity (C corporation, S corporation, partnership, or LLC) affects the estate tax treatment of the business. S corporations and partnerships offer pass-through tax treatment, which is generally preferable for family businesses. Careful drafting of the operating documents can facilitate succession and minimize family disputes.

Key person life insurance. Life insurance on the life of key employees or the owner can provide liquidity to fund the purchase of the deceased’s interest, pay business debts, or fund operations during the transition.

Business succession planning requires close coordination between the tax advisor, the business attorney, and the estate planning attorney to ensure the business structure, the succession plan, and the personal estate plan all work together.

Asset Protection Considerations

High-net-worth families must consider not only estate taxes but also asset protection. Trusts can provide significant asset protection benefits, shielding assets from the beneficiary’s creditors, divorce claimants, and judgment creditors.

Many of the trust structures described above, including credit shelter trusts, dynasty trusts, and irrevocable life insurance trusts, provide asset protection. The assets held in these trusts are no longer owned by the beneficiary and may be beyond the reach of the beneficiary’s creditors.

Spendthrift clauses in trusts restrict the beneficiary’s ability to pledge or transfer trust interests, further protecting trust assets. Self-settled trusts (trusts created by the settlor for the settlor’s own benefit) offer less protection, but situs selection may matter. A trust governed by Delaware law or other favorable state law may receive stronger asset protection treatment.

Regular Review and Updating

Estate tax laws change frequently. The TCJA (Tax Cuts and Jobs Act) was scheduled to sunset on December 31, 2025, which would have reduced the federal exemption from $15,000,000 to approximately $7,000,000. That sunset was averted by the One Big Beautiful Bill Act in July 2025, but future changes remain possible. If Congress acts again, exemption amounts could increase, decrease, or the sunset could be reimposed.

High-net-worth families should review their estate plans every three to five years or whenever federal or New York tax law changes, whenever family circumstances change (births, marriages, divorces, deaths), or whenever the family’s assets increase or decrease substantially. An outdated plan can be worse than no plan.

A review should include:

• Current valuation of all major assets (real property, business interests, investment portfolios).
• Confirmation that the plan accounts for both New York and federal taxes.
• Confirmation that beneficiary designations on retirement accounts, life insurance, and transfer-on-death accounts are consistent with the overall estate plan.
• Review of trust terms to ensure they still align with the family’s goals and current law.
• Analysis of whether additional tax-saving strategies are appropriate given current exemption amounts and rates.

When to Consult an Attorney

High-net-worth estate planning is complex and individualized. The strategies outlined above are illustrative, not prescriptive. Every family’s situation is different: different asset composition, different family dynamics, different charitable goals, and different tolerance for complexity.

An experienced estate planning attorney in Westchester County can evaluate your specific circumstances, coordinate planning across state and federal tax systems, and design a plan that minimizes taxes while accomplishing your family’s goals. The cost of competent planning is small compared to the taxes and family conflicts that poor planning can create.

If your estate exceeds $7,350,000, or if you own significant real property, a business, or life insurance in Westchester County, an estate plan review is prudent. Contact us to discuss your situation and learn how proactive planning can protect your family’s wealth.