Estate Planning for Private Equity: How to Protect & Transfer BlackRock and Blackstone Assets in New York
If you are a successful investor in New York, your portfolio likely includes more than just stocks and bonds. You may hold significant positions in private equity, hedge funds, or real estate investment trusts (REITs) managed by titans like BlackRock or Blackstone. These alternative investments are powerful vehicles for wealth creation, but they are notoriously difficult to transfer.
As a New York estate planning attorney with extensive experience handling high-net-worth estates, I, Russel Morgan, know that “standard” planning fails when applied to these complex asset classes. Unlike a publicly traded stock that can be sold in seconds, private equity interests are illiquid, subject to strict transfer restrictions, and notoriously difficult to value.
With the 2026 Federal Estate Tax “Sunset” approaching, the stakes for these assets have never been higher. If you hold millions in BlackRock or Blackstone funds and do not have a specialized plan, your estate could face a forced liquidation to pay a 40-50% tax bill. This guide—based on our firm’s experience with over 1,000 successful cases—will explain the unique legal challenges of private equity and the advanced strategies (like FLPs and GRATs) required to protect them.
The Problem: Why You Can’t Just “Leave” Private Equity to Your Kids
When you invest in a fund like Blackstone’s BREIT or a BlackRock private equity vehicle, you are signing a complex Subscription Agreement and Limited Partnership Agreement. These contracts are designed to restrict movement.
Challenge 1: Transfer Restrictions (The “General Partner” Veto)
Most private equity agreements explicitly forbid transferring your interest without the prior written consent of the General Partner (GP).
- The Risk: If you die without pre-approval, the GP may refuse to recognize your trust or your children as the new owners.
- The Result: Your estate may be forced to hold the asset in a “limbo” state, or worse, the fund may exercise a “Right of First Refusal” (ROFR) to buy back your shares at a discount, stripping your family of future growth.
Challenge 2: The “Clawback” Risk
Many private equity funds have “capital call” obligations. If you pass away, your estate is still liable for these future commitments. If your executor distributes cash to your heirs too early, and a capital call comes in, the estate may be insolvent. We have seen executors personally sued for this.
Challenge 3: The Valuation Nightmare
How much is a fractional interest in a private real estate fund worth? The IRS will argue it is worth the full “Net Asset Value” (NAV). We argue it is worth much less due to “lack of marketability” and “lack of control.” This valuation fight is where millions in taxes are won or lost.
The 2026 Tax Cliff: A Crisis for Private Equity Holders
For HNWI in New York, the timing is critical. On January 1, 2026, the federal estate tax exemption drops from $13.61 million to ~$7 million.
The Scenario: You own $10M in Blackstone real estate funds and $5M in other assets.
- In 2025: Your $15M estate is largely tax-free federally.
- In 2026: You are $8M over the limit. You owe roughly $3.2 million in federal tax.
- The Liquidity Trap: Your Blackstone funds are illiquid. You cannot just “sell” them to pay the IRS. Your family might be forced to sell other assets at a fire-sale price to cover the tax bill on the illiquid funds.
The Solution: Advanced Strategies for Complex Assets
To protect these assets, we move them out of your taxable estate *before* you die, often utilizing valuation discounts to leverage your exemption.
Strategy 1: The Family Limited Partnership (FLP)
This is the most common vehicle for consolidating private equity.
- We create an FLP. You transfer your BlackRock/Blackstone interests into the FLP (after getting GP consent).
- You retain the “General Partner” interest (1%), keeping control.
- You gift “Limited Partner” interests (99%) to a trust for your children.
- The Discount: Because Limited Partners have no control and cannot sell their shares, we can often discount the value of the gift by 25-35% for tax purposes. This allows you to transfer *more* wealth tax-free.
Strategy 2: The Grantor Retained Annuity Trust (GRAT)
GRATs are perfect for high-growth assets like private equity or pre-IPO shares.
- You transfer the PE interest into a trust for a short term (e.g., 2 years).
- The trust pays you back an annuity equal to the current value plus a small interest rate (the IRS “hurdle rate”).
- The Win: If the PE fund outperforms that small hurdle rate (which they target to do), *all* the excess growth passes to your children tax-free. It is a “heads I win, tails I tie” strategy.
Strategy 3: The Intentionally Defective Grantor Trust (IDGT)
This is an advanced sale strategy. Instead of gifting the assets, you *sell* your Blackstone interests to a trust for your children in exchange for a promissory note.
- The “Freeze”: You freeze the value of the asset in your estate at today’s price (the promissory note).
- The Growth: All future appreciation of the fund happens *inside* the trust, outside of your taxable estate.
- The Income Tax: You continue to pay the income tax on the fund (the “defect”), which essentially allows the trust to grow tax-free.
The Critical Role of the “Specialized Trustee”
Who manages these assets if you are incapacitated or deceased? A standard “family member trustee” is rarely qualified to handle capital calls, K-1 tax forms, and GP negotiations.
In our practice, we often draft provisions for a “Special Trustee” or “Investment Advisor.” This is a specific professional designated solely to manage the private equity portfolio, while a family member handles distributions to the beneficiaries. This separation of powers prevents errors and lawsuits.
Why Morgan Legal Group?
Most estate planning attorneys are generalists. They do not understand the difference between a “carried interest” and a “capital interest.” They do not know how to read a hedge fund’s LPA.
At Morgan Legal Group, we specialize in high-net-worth planning. We have reviewed hundreds of subscription agreements. We know how to work with fund managers to secure transfer consent. We know how to structure FLPs and GRATs to withstand IRS scrutiny.
Your portfolio is sophisticated. Your estate plan must be too. Schedule a confidential consultation today. Let us help you secure your hard-earned legacy before the 2026 window closes.
For more on the valuation of complex assets, you can read the IRS guidelines on Estate and Gift Taxes.
