Estate Planning

High Net Worth Estate Planning


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What is Estate Planning?

Estate planning is an ongoing process that every person should undertake. It is highly encouraged that people who are considered high-net-worth individuals invest in an estate planning strategy as high-net-worth individuals quite literally have more to lose in cash, stocks, bonds, cryptocurrency, mutual funds, and several other liquid assets.

With the support of an estate planning attorney, a high-net-worth individual will have the control to determine how their assets will be managed, preserved, and distributed to their chosen beneficiaries upon their passing or incapacity as well as provide instruction on how to protect vulnerable beneficiaries like minor children or persons with special needs; how to manage medical care decisions and cost; and how to alleviate federal and state taxes. With these considerations in mind, it is crucial that high-net-worth individuals have a concrete estate plan in place to make an orderly transition of assets.

At What Point Are You or Your Family Considered High Net Worth?

There is a simple calculation you can do to find out if you or your family is considered a high-net-worth individual or household. You subtract your debt (also known as your liabilities) from your total value of assets. Generally, liquid assets are the assets considered in this equation as liquid assets are assets that are easily exchanged for cash and keep their market value. Examples of liquid assets include cash, cryptocurrency, stocks, bonds, mutual funds, exchange-traded funds (ETFs), inventory, account receivables, certificate of deposits (CDs), money market funds, trusts, and checking and savings accounts. The debt or liabilities considered in this equation are credit card balances, car loans, an unpaid mortgage balance, student loans, personal loans, and other financial obligations.

Assets – Debt = Net Worth
Once you find your total net worth you are categorized as one of three classifications of high net worth. As of 2021, Forbes has identified the three classifications as:

  • High-net-worth individuals or households hold liquid assets between $1 million and $5 million.
  • Very-high-net-worth individuals or households hold liquid assets between $5 million and $30 million.
  • Ultra-high-net-worth individuals or households hold liquid assets valued at more than $30 million.

Please note, we document the most recent 2021 classifications because due to inflation the net worth of individuals has increased over time. These classifications may change in the future.

Upon determining you or your family’s classification of high net worth there are certain considerations and advantages to creating your estate plan strategy.

Why Is Estate Planning a Must for High-Net-Worth Individuals?

No one is safe from unexpected life changes like sudden incapacity, lawsuits, divorce, and death. Therefore, it is essential to have a strategic estate plan in place especially for high-net-worth individuals. High-net-worth individuals generally invest in an estate plan because of unforeseen, unexpected life changes as described but also as a way to protect and preserve their assets for their families.

High-net-worth individuals have more assets than people who are not considered high net worth and therefore have more to consider and strategize financially. When a high-net-worth individual takes action to create a secure estate plan, they can have complete control over what happens to their assets once they die, they have protection for their minor children, and they have clear instructions on their medical care in the event of incapacity. Just having the knowledge that these matters are taken care of creates peace of mind, however, should a high-net-worth individual choose not to create an estate plan or has a very poor one in place then their estate could be subject to probate and unnecessary taxes after they are deceased. Probate is a long, arduous, and expensive process that any individual would not want to leave their family to deal with. Should an estate go into probate, in many cases families of the estate will have to hire an attorney, incur court and legal fees, experience court delays, and the estate will be exposed to the public because probate records are public records. Through the probate court the assets will eventually be distributed but, in many instances, those assets will not be distributed the way the deceased had intended. Additionally, through probate, the exposure of the assets to the public can cause further challenges for families of high-net-worth individuals. Often when the estate becomes public (especially for high-net-worth individuals) creditors, lawsuits, and unknown “heirs” or family members pop up out of nowhere all seeking to gain a share of the wealth. Families are then burdened with navigating these issues, which causes further stress and expense.

To avoid probate and the burden it may cause to beneficiaries, high-net-worth individuals must have an estate plan in place to protect their families and generational wealth.

What Are the Estate Planning Strategies for High-Net-Worth Families?

Creating an estate plan is not merely creating a will. There are a number of complex factors that are part of an estate plan and there are several considerations to be made for high-net-worth individuals. Once a high-net-worth individual or family chooses to establish an estate plan it is essential to seek an experienced estate planning attorney who specializes in asset strategies for high-net-worth, very-high-net worth, and ultra-high-net-worth individuals to create a unique estate plan that is suited for their specific financial needs. Below are examples of strategies that an estate planning attorney will use to preserve and protect your assets.

  • Last Will and Testament – A last will and testament is a legal document describing who you would like to receive your assets and, in some instances, who will gain guardianship of your minor children when you pass. Without a last will and testament the laws of the state where you lived will decide on the distribution of your estate through probate court without your input.
  • Living Will – A living will gives you the opportunity to detail exactly what type of medical care you wish to receive if you are incapacitated including options for life-saving interventions.
  • Guardianship Designations – Should you unexpectedly become incapacitated or pass away and have minor children you will want to ensure the children are cared for. In your last will and testament you can nominate a guardian/guardians of your minor children. If your designated guardian/guardians are out of state, then you can plan for an emergency guardian to care for your children until the permanent guardian arrives. If there is not a guardianship designation plan established, then the courts will determine who will look after your children and they may not appoint who you would prefer as a guardian.
  • Planning for Minor Children – As you create a succession plan setting up a revocable living trust for your minor children is extremely beneficial to the financial wellbeing of your children when you pass. By establishing a revocable living trust, you will be the trustee and remain in control of the assets while alive, which means you can move funds, manage distribution, name beneficiaries, and amend the trust as your children grow. Once you pass you are still in control of the revocable living trust by appointing a successor trustee who will administer the funds to your children at a specified age of your choosing. Those funds can be distributed at a specific time, staggered over time, or as a conditional gift. In the trust, the funds are protected from unfortunate events like divorce, bankruptcy, and lawsuits.
  • Trust – Simply put, a trust is a private legal document that declares who you would like to receive your property after your passing. The advantages of a trust are that it avoids the probate court; protects your family’s privacy from the public; provides for your children, grandchildren, and pets; helps to plan for your incapacity; and protects your assets from creditors and lawsuits. With Blake Harris Law there are a number of different trusts you can establish including a revocable living trustirrevocable trust, testamentary trust, pet trustasset protection trustdomestic asset protection trustoffshore asset protection trustTitanium Trust, and a Cook Islands Trust.
  • Structuring a Trust – Should your estate plan include a trust you must consider the structure of the trust. There are four parties involved in the structure of a trust – the settlor, the beneficiaries, the trustee, and the trust protector. The settlor is you, the person establishing the trust. The beneficiaries are the people who will receive the assets in the trust. The trustee can be more than one person. The trustee is a key member of the trust structure as this person holds the legal title to the trust’s assets and is legally bound to protecting those assets. This person must be carefully selected and trustworthy. The trust protector is appointed by the settlor to act as supervisor of the trust to make sure the trustee is acting in the settlor’s best interest. The trust protector is generally an attorney, trust protection firm, or family member. Like the trustee, the trust protector must be carefully selected when structuring a trust.
  • Tax Planning – A major part of estate planning for high-net-worth individuals is generating a plan to minimize taxes. There are very specific taxes that can impact the amount of your estate that is passed on to your beneficiaries. Such taxes include estate tax, gift tax, generation-skipping transfer tax, inheritance tax, and income tax. With an estate tax plan there are tax-saving benefits to be had by incorporating strategies such as charitable trusts; family limited partnerships and LLCs; foreign trusts; IRA distributions; irrevocable life insurance trusts; marital and credit shelter trusts; Grantor Retainer Annuity Trust (GRAT); wealth transfer during your lifetime to minimize gift taxes on your estate upon death; and Qualified Terminal Interest Property (QTIP).
  • Gifting – For very-high- and ultra-high-net-worth individuals gifting can be an effective estate planning strategy, especially to reduce the amount that is taxable on your estate. As of 2021, an individual’s lifetime federal gift and estate tax exemptions are $11.7 million for an individual and $23.4 million for married couples filing jointly. While you are alive, by gifting money to your heirs it can reduce your overall taxes and your heirs would receive inheritance gifts tax-free. An individual can gift $15,000 and married couples can gift $30,000 to as many people as they like per year as part of that lifetime federal gift and estate tax exemption.
  • Giving to Charity and Philanthropic Goals – It is quite common that high-net-worth individuals desire to leave all or a portion of their wealth to charity. This can be accomplished a few different ways in the estate planning process. A charity can be listed as the beneficiary of the estate, and a charitable lead trust (CLT) or charitable remainder trust (CRT) are charitable donation options. There are tax benefits by giving to charities like a reduction in capital gains tax, income tax deductions, and reduced estate tax.
  • Life Insurance – High-net-worth individuals tend to have life insurance policies which are a very useful addition to an estate plan. Life insurance policies can cover certain expenses like taxes on illiquid assets (e.g., real estate) as well as act as another source of liquid inheritance to beneficiaries.
  • Incapacity Planning – It’s not an easy conversation to have but it is important to create an incapacity plan when dealing with your estate. Incapacity planning is a structured plan created by you and your attorney that will protect your wealth, ensure your medical wishes are honored, and it saves the burden of your family making difficult decisions for you should you become incapacitated. Legal documents that are included in an incapacity plan are a revocable living trust, a living will, financial power of attorney, medical power of attorney, healthcare power of attorney, and health insurance portability accountability (HIPPA) authorization.
  • Financial Power of Attorney – Financial power of attorney is a legal document that specifies who will make financial decisions on your behalf in the event that you are incapacitated. This person will have the authority to pay bills, manage assets, file taxes, etc., on your behalf.
  • Medical Power of Attorney – A medical power of attorney is a legal document that instructs who can make medical decisions on your behalf as determined by you. It ensures that if you are incapacitated the medical treatment that you receive is your preference.
  • Healthcare Power of Attorney (HCPA) – A HCPA is a legal document in which you have denoted an individual to make medical decisions for you.
  • Health Insurance Portability Accountability (HIPPA) Authorizations – A HIPPA authorization is a legal document in which you have given permission to release and share your medical information and care to medical professionals.

Learning the Tax Laws in Your State

Every state is different when calculating taxes on your estate, gifts, generation-skipping transfers, inheritance, and income. To navigate what taxes are required in your state in terms of transferring your wealth, the best option is to contact an estate planning attorney. An estate planning lawyer will know what taxes apply and help you to strategize a plan to minimize those taxes.

Estate Planning Pitfalls to Avoid

With high-net-worth individuals and families comes more complex financial situations. As you begin to develop your estate plan or update your current one, there are estate planning pitfalls you can avoid if you strategize appropriately. Below is a list of pitfalls you will want to avoid while strategizing your estate plan.

  • Not having an estate plan or understanding your estate plan. High-net-worth individuals must have an estate plan because of the complex, diversified, and multiple investments and assets they own and want to preserve; to minimize taxes (in some instances taxes can take up to 40% of your estate if you don’t plan carefully); and to pass on to their wealth to their beneficiaries. Having an estate plan in place and understanding how it is managed, maintained, and implemented safeguards against future issues for you and your loved ones, once you pass.
  • Not updating your estate plan. Too often, people create an estate plan and they think, this is a set it and forget it. It is not. There are many major changes in life like the birth of a child, marriage, moving to a different state, divorce, or death that can impact you and how you’d like to leave your wealth for generations to come. By updating your estate plan when such life changes occur you can ensure that your assets are designated to the appropriate beneficiaries when the time comes.
  • Not naming or updating your fiduciariesFiduciaries are people assigned by you to take legal control of your assets and act in the best interest of you and your beneficiaries. Fiduciaries are executors and trustees. Simply put, executors are responsible for collecting your assets and paying off your liabilities and filing your estate tax returns. Trustees are responsible for your assets that are held within your trust and how those assets are distributed to your beneficiaries. Updating your fiduciaries is essential in case your fiduciaries are no longer fit to assume those assigned roles.
  • Not funding your trust or underutilizing your trust. Trusts are the best way to protect your assets and avoid probate court. In some instances, people will take the time and effort to establish a trust, have the contractual agreements signed and then neglect to fund the trust or do not use the trust to its fullest potential. For example, to fund a Cook Islands Trust, your assets must be transferred into the trust whether those assets be liquid assets, investment portfolios, cryptocurrency, company stocks or shares, intellectual property, real estate, cars, or boats—those funds, deeds, titles, and signed statement letters of ownership should all be transferred to that trust.
  • Not considering taxes. Tax exclusions and exemptions fluctuate on the federal and state level over time. You may have had an estate tax strategy in place from years ago that could be updated now to minimize your taxes. Every few years, review your estate planning tax strategy with your estate planning attorney and tax attorney or professional to ensure you are benefiting from tax exemptions and exclusions federally and in your state.
  • Not keeping your family and fiduciaries in the loop. It is all well and good to have an estate plan in place but if your family and fiduciaries are not aware of it then it may cause confusion once your pass. Have regular conversations with your family, beneficiaries, and fiduciaries so that they know what assets, accounts, trusts, etc. you hold as well as how your estate plan is structured. When everyone is in the loop there will be no surprises when you pass, which would hopefully avoid family disagreements and/or litigation over your estate.

How To Pick a High-Net-Worth Estate Planning Lawyer

There are seven criteria to look for when choosing a high-net-worth estate planning lawyer.

The lawyer has a J.D. and has passed the bar exam.
The lawyer has extensive experience in estate planning and asset protection.
The lawyer has a specialty in working with high-net-worth, very-high-net worth, and ultra-high-net-worth individuals and families.
The lawyer has knowledge of tax law and has tax law or tax professional networks to tap into.
The lawyer has positive reviews from current and former clients.
The lawyer will listen to your estate planning goals.
The lawyer will not push you into an estate planning strategy you are no comfortable with.

At Blake Harris Law, our team of high-net-worth estate planning lawyers meet all of these criteria and has the wealth of knowledge in estate planning, asset protection, and tax law to assist you in creating your unique estate plan.

Contact Blake Harris Law

It’s time to establish your estate plan today. Whether you are newly interested in securing your future finances or have secured your assets and need to update your estate plan, our experienced attorneys are available to assist you.

Our legal team will provide legal services and help to secure your financial future for you and your family. Call us today via phone at 833-ASK-BLAKE or via email at Info@BlakeHarrisLaw.com.