Estate Planning

Estate Planning For High Net Worth & Large Estates

Ty McDuffey


The process of estate planning can be complicated and difficult, particularly if you are an individual with a significant net worth. 

A lot of elements need to be taken into consideration, some of which include tax rules, tax liabilities, and other matters that impact the family.

High-net-worth individuals have many priorities, including preserving their descendants' inheritances, reducing the amount of estate tax they must pay, staying out of the need for a probate proceeding, and selecting the most qualified trustee. 

But how does one successfully manage this intricate procedure? This article will serve as a concise guide to helping you lay out your large or high net-worth estate.

Why Is Proper Estate Planning Necessary for Individuals and Families with a High Net Worth?

Individuals with an ultra-high net worth are not your usual investors. After amassing a liquid net worth of millions, the major objective of ultra-high-net-worth persons is no longer to amass wealth; rather, it is to conserve and secure their assets for future generations.

Because of this, strategic estate planning for ultra-high-net-worth families is absolutely essential and must prioritize the preservation of wealth, the reduction of estate tax liability, and the transfer of assets from one generation to the next in order to maintain the integrity of their legacy.

Although it may appear that amassing extraordinary wealth renders one immune to the possibility of future financial difficulties, the reality is that no one is immune to the possibility of being sued, experiencing a sudden loss of income due to illness or disability, or experiencing market volatility. 

The process of estate planning is essential for ultra-high-net-worth families since they have more to lose than the typical household.

What Exactly is an Estate that has a High Net Worth?

In most cases, an estate is considered to have a high net worth if it has a value of more than one million dollars in terms of its liquid assets.

At What Point in Your Financial Career Should You Establish a Trust?

To establish a trust, you do not necessarily need to be a person with a significant amount of wealth. 

A trust can help you avoid the time-consuming procedure of probate if you have assets that you would like to leave to your friends and loved ones after you pass away.

Determine Who Will Serve as Your Trustee

To begin, you need to make sure that you hire someone to handle your needs regarding estate planning. 

Regrettably, some experts do not consider their customers' needs when serving them. 

They might choose a path that offers them the greatest potential for money rather than offering suggestions that would lower their expenses and ensure that the assets in question are transferred to the appropriate parties. 

But how can you determine whether or not you can put your faith in your trustee?

Carry out some analysis and look for a person who is willing to work with your requirements. Make it a point to talk to the individual you pick to represent you about all of your wishes for estate planning.

When choosing the correct trustee or attorney for estate planning, the information provided below is a wonderful place to begin.

Lowering Estate Taxes

One of the numerous aspirations of working people is to acquire riches for themselves and their families so that they can leave something for them after they are gone. 

However, doing so frequently results in a cost being incurred. There is the matter of taxes, which might reduce the value of your estate if you do not make the appropriate decisions.

During the process of planning your estate, you should take into account all possible tax situations. Taxes on income, gifts, estates, and generation-skipping are all included in this category. 

When income taxes are taken out of the equation, the three taxes that are left over are called wealth transfer taxes. 

For taxable amounts greater than $1 million, federal estate taxes now top out at 40%. For example, suppose your estate is worth $12.5 million in 2022. Because your estate is worth more than the $12.06 million threshold, your total taxable estate is $440,000.

Remember that your state might also levy taxes and that you should check your state's laws to discover if this is the case.

Taxes on Bequests and Estates

Gift and estate taxes, in most cases, go through annual adjustments to account for inflation. 

However, the passage of the Tax Cuts and Jobs Act (TCJA) in 2017 doubled the exemption for gift and estate taxes, which are together referred to as a unified credit. The exception is as follows:

  • Individuals can expect to receive $12.92 million in 2023, up from $12.06 million in 2022.

  • 25.84 million dollars for married couples in the year 2023 (24.12 million dollars in the year 2022). Anything over that amount will result in a tax of forty percent of the worth of the gift.

There is no cap on the number of people to whom you can offer a gift of up to $17,000 every year ($16,000 in 2022), and there is also no limit on the number of receivers you can have. 

For instance, if you give somebody a gift of $25,000 in 2023, the first $17,000 (or $16,000 in 2022) of that gift is not subject to taxation. 

A gift that falls within this category is called an annual exclusion gift. Gift taxes can be applied to any amount that is left over after other deductions have been taken.

When it comes to estate taxes, the same principles apply; however, the $12.92 million estate tax exemption for 2023 will be lowered by the value of the gifts you donate during your lifetime. 

Taxes Applicable to Transfers Between Generations

When a grandchild or great-grandchild inherits property, the current owner is responsible for paying generation-skipping transfer taxes. 

Again, you are responsible for paying tax based on forty percent of the value of the present or gifts, and there is an exemption from taxation of up to twelve point nine million dollars for the year 2023 (twelve point six million dollars for the year 2022).

In case you were wondering, the reason for this tax is to prevent grantors, who are the people who create trusts, from skipping the following generation to avoid paying taxes.

Planning for Incapacitation

If you spent your whole life working to build a nest egg for retirement and to leave an inheritance to your children, you would be outraged if that nest egg suddenly shrunk or vanished because of an occurrence that stops you from putting it all in place. 

You want to make sure that, in the event that you become unable to care for yourself due to aging, a disease, or an accident during your lifetime, you are able to:

  • Give support for dependents

  • Ensure that your property is being managed in an organized fashion.

  • Indicate your end-of-life treatment preferences in the event that you’re in a vegetative state permanently.

In order to achieve these objectives, you will need to make sure that specific measures are taken:

  1. Create a power of attorney (POA) that is long-lasting: In the event that you become unable to care for yourself, your agent will be able to handle all monetary and legal concerns, as well as those concerning any property, thanks to this type of POA. You can assure that your agent will be able to handle your bank accounts, buy and sell property, manage other investments, and look at your mail if you follow these steps.

  2. Think about getting a healthcare power of attorney, also known as an HCPA: With the help of this document, your agent will be able to make decisions regarding medical treatment, such as the choice of doctor or hospital, the provision of long-term care, and certain treatments.

  3. Identify a release agent in accordance with the Health Insurance Portability and Accountability Act (HIPAA): This representative has access to your confidential medical records.

  4. Put together a living will: Additionally known as a medical directive in advance, a living will asks if you want a feeding tube taken out and if you want any therapies discontinued to allow for a natural passing. It also asks if you want to remove a breathing tube. You can also avoid the probate process by using a living will.

  5. Make a revocable trust: A new trustee will be appointed as a result of this.

Make Sure You Choose the Right Professionals

Many legal professionals specializing in estate planning will encourage you to create a standard will. How come? Because they receive a greater benefit than they would if you made a living trust for your estate. 

Be aware of attorneys that specialize in estate planning and try to persuade you that a living trust is not a better choice than a will and that it would cost you more money. 

A Living Trust Will Save You Money in the Long Run

A living trust will cost you more upfront but will save you money in the long run. You should steer clear of the probate process if you want to evade incurring expenditures that are not necessary.

It would be best if you instead considered establishing a living trust in order to achieve this objective. Because it is a trust, not all will be in your name; therefore, you will be able to avoid the probate process. 

Even if not everything is in your name when you die, you will still have authority over the assets you own while you are still living. Keep in mind that you have the ability to select a successor to manage your estate in the event that you become unable to do so.

Can I Influence the Way My Beneficiary Will Use Their Inheritance?

If you are concerned about the way a beneficiary will use their inheritance, you have the ability to impose some restrictions on them. 

You may, for instance, stipulate that the beneficiary may only spend the inheritance money on things related to their medical care or academic pursuits. You also have the option of appointing an impartial trustee, who will be responsible for authorizing any distributions.

Create a trust that is specifically tailored to your needs so that the shares of the trust continue to be held in the name of the trust after your death, and then pass them on to each of your heirs. 

This will ensure that your property is distributed fairly after your passing. The ability of a spouse to transfer assets to their kids from a prior marriage is revoked as a result of this provision. 

Additionally, it will make it impossible for that spouse to transfer any assets to a new partner. In addition, this type of trust will shield your inheritors from the claims of creditors as well as bankruptcy.

Make a Plan for the Succession of Your Business

If you own a company and wish to give it to your children or grandkids someday, you should get a head start on the process by taking some preventative measures. 

It is best to get them involved in the company as soon as possible rather than later so that they may get experience and grasp the day-to-day transactions. Then, over the course of five to ten years, you can ease them into a greater role. 

This not only gives you additional piece of mind but also ensures that your company will continue in capable hands in the event that you pass away.

Put Your Money into Life Insurance

Purchasing a solid life insurance policy is an additional tactic that should be given some thought. Life insurance can be used to pay estate taxes and to leave specified assets or sums to loved ones after your passing.

For instance, if a significant portion of your family's legacy will consist of illiquid assets, such as real estate or a business, your estate may owe more in taxes than it has accessible in the way of liquid monies. This is because illiquid assets tend to appreciate in value over time. 

Because your estate can use the earnings from a life insurance policy to pay these taxes, your heirs won't have to sell the family business or any investment properties in order to avoid having to do so.

You might also "equalize" the inheritance by using the proceeds from your life insurance policy. 

For instance, it's possible that one of the children would do a better job of managing the family business. In this scenario, you could leave this child your business and give another child a life insurance policy with a face value equivalent to the company's worth.

Donations to Charity 

Ultra-high net worth investors have the ability to reduce the size of their estates by transferring portions of their estates to a charitable lead trust (CLT) or charitable remainder trust (CRT) in the form of charitable contributions. These contributions can take the form of investments, tangible assets, or cash.

With a CLT, you can reduce the value of your estate by donating a portion of the assets held inside the trust to a charity that is exempt from paying estate taxes. This provides you with the additional benefit of receiving a tax break for your generosity. 

The balance of the trust will be distributed to the beneficiaries either at the end of a set period of time or after your death, whichever comes first.

You are able to move an asset that is increasing in value, such as a stock, into an irrevocable trust if you use a CRT. 

During the course of your life, you will have the opportunity to earn profits from this investment; following your passing, the remaining funds from the investment will be given to a charitable organization.

If you do this, your inheritance tax burden will be reduced, you will receive a tax deduction, and you will be able to avoid paying the capital gains tax.

How are Billionaires Able to Get Out of Paying Estate Tax?

Many people circumvent the need to pay inheritance taxes by establishing unique trusts, such as Grantor Retained Annuity Trusts and others.

How Trustworthy Can Help

Minimizing estate taxes, planning for the possibility of incapacity, avoiding the procedure of probate, and protecting your intended beneficiaries from immoral intents are crucial when estate planning for high net-worth individuals. 

Estate planning documents are often complex and time-consuming. It's best to keep these documents in one safe place where all family members can collaborate. 

That's where Trustworthy comes in. Trustworthy gives you and your family a cloud-based platform to store all of your important documents.

Start your free 14-day trial today to ditch your stacks of paper and filing cabinets. 

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