Estate Planning for Big Law Partners: Capital Accounts, NQDC, and the Trust Structure You Actually Need

A Big Law equity partner's estate is not a standard high-net-worth estate. Your largest assets — partnership capital, deferred compensation, retirement accounts — each follow their own set of rules at death. Partnership agreements, 409A elections, and ERISA all override your will in ways most generalist estate attorneys don't fully appreciate. Here's how to structure it correctly.

Why Big Law estate planning is different

Three features of a Big Law partner's financial profile create estate planning complexity that standard high-net-worth planning doesn't address:

• Partnership capital is illiquid and agreement-controlled. Your capital account — often $300,000–$1,000,000 or more — is not a bank account your estate can access immediately. The partnership agreement governs the return timeline, clawback provisions, and treatment of outstanding firm loans. Your will doesn't control it.
• NQDC elections are locked by §409A. Deferred compensation accumulated in the firm's NQDC plan can be distributed to your beneficiary at death — but the income tax follows. Deferred comp is income in respect of a decedent (IRD) and taxable when received, even though it was earned before death.
• Multi-state income creates multi-state estate exposure. Partners at national firms often have income nexus in states where clients are billed. That nexus doesn't automatically disappear at death, and some states tax IRD income received by beneficiaries as if earned in the state.

The OBBBA permanent $15M exemption: who actually needs to worry about estate tax

The One Big Beautiful Bill Act (OBBBA, July 2025) made the federal estate, gift, and GST tax exemption permanent at $15,000,000 per person.¹ For married couples, portability allows the surviving spouse to use the deceased spouse's unused exemption (DSUE), creating a combined shelter of up to $30,000,000 — provided a federal estate tax return is filed to elect portability.

The practical point: even if you're confident you're under $15M today, the combination of a growing capital account, rising NQDC balance, appreciated real estate, and compounding retirement accounts can push a couple over $30M combined within a 10–15 year window. Trust structure put in place before assets grow is far cheaper than restructuring after.

Core documents every equity partner needs

These four documents form the foundation of any Big Law estate plan:

1. Revocable living trust. The primary estate planning vehicle for most partners. Assets held in the trust avoid probate in every state where you own property — important for partners with real estate in multiple states. Provides a clear mechanism for incapacity management (the successor trustee takes over without court involvement) and integrates with beneficiary designations for assets that pass outside the trust.
2. Pour-over will. Captures any assets not titled into the trust and directs them there at death. Required even if your trust holds most of your assets.
3. Durable power of attorney (financial). Allows your designated agent to manage assets, file taxes, and handle firm-related financial decisions (including NQDC elections and partnership account matters) during incapacity. Without one, a court-appointed guardian is required.
4. Healthcare directive and HIPAA authorization. Medical decision authority separate from your financial POA. The HIPAA authorization is often overlooked but is required for your agent to receive medical information from providers.

What happens to your partnership capital at death

This is the most misunderstood component of a Big Law partner's estate. Your partnership interest — and specifically your capital account — is governed almost entirely by your firm's partnership agreement, not by your will or trust.

Most large-firm partnership agreements include a death provision that specifies: (1) whether the partnership continues or is required to dissolve, (2) how quickly the capital account is returned to the estate, (3) whether any outstanding firm loan is callable immediately or continues to accrue against the returned capital, and (4) whether goodwill attributable to the deceased partner has any value to the estate (often zero in large service partnerships under IRC §736(b) analysis).

Your estate plan cannot change these provisions — they're contractual. But your plan can account for the timing gap: if your capital account won't be returned for 18–24 months after death, your estate may need liquidity to cover expenses during that period. Life insurance structured correctly can provide that liquidity immediately (see life insurance guide for ILIT structure).

NQDC at death: the IRD trap

Deferred compensation accumulated in your firm's nonqualified deferred compensation plan is a §409A plan asset. Section 409A treats death as a permissible payment event — distributions can be paid to your named beneficiary upon death.² But the income tax doesn't disappear.

NQDC is income in respect of a decedent (IRD) under IRC §691 — income the decedent earned but had not yet recognized at death.³ Your beneficiary receives the distribution and pays ordinary income tax on it at their marginal rate, as if they had earned it. A $1,000,000 NQDC balance distributed to a beneficiary in the 37% bracket is $630,000 net of federal tax.

The coordination point: if estate tax is paid on the NQDC balance (because it's included in the gross estate), IRC §691(c) allows the beneficiary to deduct the portion of estate tax attributable to the IRD — a deduction against the income tax owed on the same asset.⁴ This is the estate/income tax integration calculation. For large NQDC balances in taxable estates, the §691(c) deduction is meaningful and should be explicitly calculated in the estate plan.

Beneficiary designations on NQDC accounts are separate from your will and trust. Check your firm's plan document and update the beneficiary form — many partners assume their revocable trust controls the NQDC, but it only does if the trust is explicitly named as beneficiary on the plan's beneficiary form.

Retirement account beneficiary rules under SECURE 2.0 and T.D. 10001

Your 401(k) and IRA beneficiary designations control who receives these assets — not your will, not your trust. The post-SECURE Act rules add complexity:

• Spouse as beneficiary: A surviving spouse is an "eligible designated beneficiary" and can roll the inherited account into their own IRA, treating it as if they had always owned it. This is typically the most tax-efficient option.
• Non-spouse beneficiaries (adult children, other heirs): Under the SECURE Act 10-year rule, they must deplete the inherited account within 10 years of your death. No annual distributions are required — but the entire balance must be distributed by year 10.
• Annual RMD requirement if you were past your Required Beginning Date (RBD): T.D. 10001 (July 2024) finalized that if you were already taking required minimum distributions at death, your non-spouse beneficiaries must continue taking annual RMDs throughout the 10-year period — they cannot defer entirely to year 10.⁵
• Roth 401(k): SECURE 2.0 eliminated Roth 401(k) lifetime RMDs starting in 2024. But inherited Roth 401(k) accounts are still subject to the 10-year rule for non-spouse beneficiaries.

Trust strategies for partners approaching $15M

For partners whose combined assets — with a spouse — may approach or exceed $30M over time, proactive trust planning captures the current exemption before it's used against you:

Spousal Lifetime Access Trust (SLAT)

One spouse gifts assets to an irrevocable trust that benefits the other spouse and descendants. The gifted assets leave the donor's taxable estate permanently, using the donor's $15M exemption. The beneficiary spouse retains access to distributions, providing indirect access to the assets. Each spouse can create a SLAT for the other, effectively sheltering up to $30M — but the trusts must be structured differently to avoid the "reciprocal trust doctrine" that would collapse them back into each estate.

Grantor Retained Annuity Trust (GRAT)

A GRAT transfers the appreciation on assets above the IRS §7520 rate outside the estate tax-free. The grantor contributes assets, receives an annuity for a fixed term, and any growth above the §7520 rate passes to beneficiaries with no gift tax cost. GRATs work best with assets expected to appreciate significantly — a growing partnership capital account or a large taxable investment portfolio during a high-growth period. If the grantor dies during the GRAT term, assets return to the estate, so these are typically structured with shorter terms.

Portability election: don't miss it

At the death of the first spouse, the surviving spouse can elect to use the deceased spouse's unused exemption (DSUE). This election requires filing a federal estate tax return within the estate tax return deadline — even if no estate tax is owed. Many families skip this filing because no tax is due. Failing to elect portability wastes the first spouse's exemption permanently. For a couple with a combined estate of $10M today, the surviving spouse who later builds wealth past $15M has no recourse if portability wasn't elected.

Coordinating your estate plan with your firm

Several steps require coordination with your firm's general counsel or managing partner:

• Obtain and read the partnership agreement's death and retirement provisions before finalizing your estate plan. Your estate attorney should review these provisions, not just assume standard terms.
• Update NQDC beneficiary designations on the plan document — these are managed by firm HR, not your estate attorney.
• Check whether the firm-provided life insurance has a conversion option your estate can exercise at departure or death.
• Understand whether your firm loan is forgiven or callable at death and factor this into the liquidity planning discussion with your advisor.

Related guides

• Life Insurance for Big Law Lawyers: ILIT Structure and Coverage Sizing
• Big Law Retirement Planning: Capital Draw-Down and NQDC Distribution Sequencing
• How Is Law Firm Partner Retirement Income Taxed? (IRC §736)
• Equity Partner Tax Planning: K-1, SE Tax, AMT & Estimated Payments
• NQDC Deferral Optimizer