Estate planning might not be at the top of your financial to-do list. Still, if the unthinkable happens, you want your loved ones to be taken care of and your legacy to be preserved. The truth is, it’s never too early to start strategic estate planning, and having a solid plan early on will provide peace of mind and help you meet your financial goals.
It’s especially important for high-net-worth individuals, whose estates are often complex and multifaceted. Maybe you own a family business or multiple homes that aren’t that simple to divide evenly. If you don’t plan effectively, the wealth you’ve worked hard to accumulate could end up in the wrong hands or be whittled away by taxes.
High Net Worth Estate Planning Strategies
Estate planning for high net worth individuals and families involves more than having a will. There are a variety of high-net-worth estate planning strategies you can employ to make sure that you transfer your wealth to the right beneficiaries with minimal tax implications.
Financial advisors can help you decide which strategies are best for you and implement them in line with your financial goals. Read on to learn more about our top estate planning recommendations to get you started on the right path.
1. Consider a Trust
The wide variety of trusts available and the flexibility they offer make them a popular high-net-worth estate planning strategy. The right one(s) for you will, of course, depend largely on your needs and circumstances. Some options include:
- Revocable trusts: Allow you to manage and modify your property throughout your lifetime. Upon your passing, your assets can pass on to your beneficiaries without a court proceeding.
- Irrevocable life insurance trusts: Allow beneficiaries to receive the benefits of life insurance and death benefits free of taxes. Great for providing liquidity in the case of an estate tax liability or debt.
- Grantor-retained annuity trusts: Allow you to transfer significant wealth to your beneficiaries with minimal tax implications, although this option is typically best when interest rates are lower.
- Qualified personal residence trusts: Allow you to reduce the amount of gift tax your beneficiary or beneficiaries incur by removing a personal home from your estate.
Beyond the type of trust(s) you establish, you can also choose how and when your assets are distributed. Rather than providing beneficiaries with a lump sum, for example, their inheritance can be distributed in installments over time.
You could even set up a spendthrift trust, enabling the transfer of wealth to the next generation while ensuring the beneficiary spends the funds responsibly. Remember that it’s critical to choose a dependable trustee who can steward the trust assets in accordance with your wishes.
2. Look Into a 529 Plan
One of the key estate planning strategies for high-net-worth individuals is reducing the size of your estate during your lifetime so that less of it is subject to taxes upon your passing. Consulting with a tax planning financial advisor is crucial, especially with current federal income tax breaks and higher federal estate and gift tax exemption amounts set to expire in 2025 . Maximizing your tax-advantaged, diversified investments now can help significantly reduce income tax liabilities in the future.
One way to take advantage of the higher estate and gift tax exemption amounts is to give to a 529 plan, or a tax-advantaged educational savings plan. With a 529, account holders can save money for educational expenses without its growth being subject to federal income tax. As of 2024, you can make a tax-free gift of $18,000 to a 529 Plan beneficiary as a single person or $36,000 as a married couple. Funding to a 529 plan up to this annual gift tax exclusion is immediately removed from the contributor’s estate. Alternatively, you can frontload or “superfund” five years of 529 gifting in 2024 by contributing as much as $90,000 as an individual or $180,000 as a married couple. Donors can even take money back in case they have an urgent need for liquid assets, such as unexpected medical expenses.
And when it comes time for your beneficiary to make a 529 withdrawal, they won’t have to worry about paying taxes on that money, as long as it will be used for a qualified expense.
3. Explore a Charitable Planning Strategy
Implementing a charitable planning strategy is another great high-net-worth estate planning strategy. Not only will this allow you to support causes that you care about — charitable contributions can also provide possible income tax deductions.
One specific tactic that could be worth evaluating is a charitable remainder trust. This type of irrevocable trust allows you to donate to charity while drawing annual income for a designated time period. Given the current high interest rates, this can be an especially valuable option in today’s financial market.
4. Account for Digital Assets
One of the most commonly overlooked elements in estate planning strategies for high-net-worth individuals is taking stock of digital assets. These can include financial assets such as cryptocurrency and non-fungible tokens (NFTs) as well as any digital asset of value: documents, photos, social media accounts, etc. Keeping these assets in mind during the estate planning process will ensure that you can successfully transfer them to your beneficiaries and prevent them from being hit with any surprise taxes upon your passing.
Be careful not to list any login IDs or passwords in your will itself, as it becomes public upon your death. And if any of these assets are individually titled, such as a retirement account, you may want to think about keeping a hard copy of the documents in a folder and handing this financial information to your spouse or someone else whom you trust.
5. Regularly Revisit Your Plan
Estate planning for high net worth individuals is not a one-and-done process. Situations such as moving to a different state, changes in federal estate tax exemptions, or consolidations in the financial or banking industry can all significantly affect your estate plan — and you may need to adapt your investment strategies accordingly.
Read more: National Estate Planning Awareness Week – 7 Big Estate Planning Considerations
You’ll also want to regularly review your executors, trustees, and beneficiaries. Your named beneficiaries may change over time with life events, such as deaths, marriages, divorces, and births. It’s a good idea to go through your beneficiaries after major life events such as these, or every few years in general.
Find Peace of Mind With an Expert-Advised Plan
High-net-worth estate planning generally isn’t something you should take a do-it-yourself approach to. Given the complexities of financial regulation and estate law, it’s best to work with specialists who can help you come up with a plan for efficiently distributing your assets.
The Certified Financial Planner (or CFP®) professionals at Team Hewins have years of expertise in estate planning strategies for high-net-worth individuals, so you can trust that your finances are in good hands. Working with your estate planning attorney, we’ll help you build a solid estate planning foundation and maintain it for years to come, allowing you to rest easy. After all, there’s no more reassuring feeling than knowing your loved ones will be taken care of even after you’re gone.
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