Estate Tax Planning and Tax Exemption Strategies – PillarWM

Rich investors have estates worth millions of dollars which can incur heavy federal estate taxes on an annual basis. If your net worth exceeds the exemption limit of 11.7 million dollars, this can result in a third or more of your money being used to pay off those taxes. Many high net worth individuals seek estate planning or estate tax planning for guidance on wealth and asset protection. However, every financial advisor is not an expert in dealing with an estate as big as yours. Our Ultimate Guide covers all you need to know as a high net worth investor to sort through your options. In this guide, we identify all the traits and qualities you should look for in your financial advisor.

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Private wealth management firms are experts in monitoring the financial matters of wealthy families, covering numerous aspects from estate planning to tax management. Pillar Wealth Management is one such firm, where we specialize in the wealth management of clients with 5 million to 500 million dollars in liquid assets. We know how detrimental estate taxes can be for high net worth and ultra-high net worth investors. Our wealth managers can analyze tax avoidance strategies to help you retain your wealth. If you have more questions about how we can help you with your tax management and estate planning, feel free to schedule a meeting with our team of experts!

Estate Tax and How It Works

To understand estate taxes and what is included in estate tax, you first need to understand the federal tax exemption limit. As of 2021, the value stands at 11.7 million dollars and is projected to continue increasing from inflation. Any value of your estate above this limit is taxed, anywhere from 18% to 40%.

Now, as an affluent investor, taxes are not the only risks to your wealth. You have other liabilities and threats to your assets; something that we talk more about in our book, The Art of Protecting Ultra-High Net Worth Portfolios and Estates – Strategies for Families Worth $25 Million To $500 Million. With so many financial concerns, it is reasonable to want to reduce the effects estate tax has on your wealth.

To calculate your estate tax, you’ll have to add the total value of your estate, i.e., the value of all the assets you own, from investments and properties to non-cash assets and even vehicles. Any debts, loans, or outstanding payments you have are subtracted from this amount to obtain an accurate value of your estate.

What should concern you in your estate value is how much of it is tied up in non-liquid assets. Estate taxes are charges based on all your assets, not just the liquid ones. So, if most of your estate is illiquid, you won’t have enough liquid wealth to pay estate taxes and enjoy the luxuries that your net worth affords you.

This results in issues during your legacy planning as well. Paying off estate taxes becomes the responsibility of your beneficiaries. With the other costs that accompany wealth transfer, your beneficiaries might be forced to sell off some of your assets to pay these expenses. This negates the purpose of leaving them an inheritance in the first place!

Wealth managers are aware of estate tax laws and tax avoidance strategies. They are also experts in optimizing your portfolio to allow you to increase your liquid net worth. If you would like to read more about the strategies our wealth managers use, you can read our Performance Guide.

What Is Estate Tax Planning?

Knowing what is estate tax planning can help you understand how you can benefit from it. Depending on which state you live in, estate taxes can eat up a large chunk of your wealth. Fortunately, financial experts know how to help you reduce that tax bill.

Estate tax planning helps you use strategies and methods to mitigate your taxes or legally avoid them altogether.The process of calculating your estate taxes and using complex strategies to lower that amount can be overwhelming and confusing. Wealth managers such as those at Pillar Wealth Management are knowledgeable on this topic and can help you understand your financial situation better. You can call us today to book your very first meeting with us!

Not only do we help you keep most of your money, but we also specialize in wealth enhancement strategies that boost your income. Some of the shifts we use to optimize your investment portfolio are highlighted in our guide,5 Critical Shifts For Maximizing Portfolio Growth Strategies.

Is It the Same as Estate Planning?

Although estate tax planning is a part of estate planning, estate planning itself covers a broad aspect of your wealth management. It covers a collection of services that help you prepare for the transfer of assets to your inheritors.

An estate planner can help you plan out how much wealth you want to leave to your family, charities, and any other beneficiaries. They help you create your will so that you’re able to financially support your family even when you’re gone. Due to the complexity of the processes involved in estate planning, wealthy investors often need to hire a team of experts to help them achieve their goals. Our wealth managers can provide you with valuable input on these matters. Schedule a meeting with us to get started on your estate planning!

What Does Estate Tax Planning Do?

Managing an estate worth millions of dollars is no easy task, which is why most wealthy families hire estate planners. Here’s how working with an estate tax planner can help you:

Helps You Avoid Estate Taxes

If you find yourself wondering, “How do I avoid federal estate tax?” estate tax planning can answer that for you. Estate planning attorneys are aware of the tax bills that come with wealthy estates and how most of those assets might be illiquid. Therefore, they are well-versed in tax exemption strategies that can legally help you keep most of your wealth. They can advise you according to your unique financial situation.

Avoid Unnecessary Expenses

As a high net worth individual, you want to enjoy your luxurious lifestyle without worrying about having to save enough money to pay off your taxes. Working with an estate tax planner or a financial professional can help you cut down on unnecessary costs to help you keep more money for you to use at your leisure.

Helps You Achieve Your Philanthropic Goals

Many of the estate tax avoidance strategies involve setting up charities, foundations, or trusts in your name. Hence, if you’ve always wanted to give back more to charity, estate tax planning can help you achieve that.

Who Can Help You with Estate Taxes?

Assets worth millions of dollars require the expertise of a professional, and often, a team of professionals. Working with an estate planner, tax attorney, wealth manager, and tax accountant for your estate tax planning is the most effective way to achieve the results you want. The right financial advisors can answer any questions you have regarding estate taxes, from “How do I avoid federal estate tax?” to “How do I reduce my estate’s value?” Finding the right advisors to handle your estate is crucial. Therefore, we have written our Ultimate Guide to help rich families find the best professionals to help them with their wealth management.

Strategies to Help You Avoid Estate Tax

We’ve talked about how estate tax planning helps you save money on taxes; now, let’s discuss how your advisor can help you achieve this. Here are a few strategies that can be used to avoid estate taxes.

Distribute Your Money Over the Years

Leaving an inheritance is not the only way to ensure your family’s financial security. Wealth transfer and inheritance laws can come with taxes that result in your beneficiaries using that inheritance to pay off. Fortunately, there are ways that you can ensure that they receive as much of your wealth as possible.

Giving money in the form of gifts over a period of a few years can help you transfer wealth effectively. For example, you give 15000 dollars to your heirs each year. This will count as an annual allowance and will offer you the benefit of reducing your estate’s value, thereby lowering your estate tax bill.

Move to a State with No Estate Taxes

High tax states can charge you a fortune on everything from your income to your investments. For high net worth and ultra-high net worth individuals, in particular, federal estate taxes can climb up a million dollars since they enter the highest tax bracket.

However, not all states charge federal estate taxes. Changing your residency or relocating to one of these states can help you avoid estate taxes altogether. Although, this is not as simple as moving to another state. You need to prove your residency to avoid being taxed in both states. Working with an expert on state tax laws can help you avoid the consequences of dual taxation.

Start a Family Limited Partnerships or an Irrevocable Life Insurance Trust (ILIT)

Setting up a family limited partnership means that you make your children or beneficiaries partners in a new or pre-existing business. This gives them a stake in your company, reducing the value of your estate, and therefore, estate taxes. When you die, the funds are transferred to your partners, completing the purpose of wealth transfer while avoiding the repercussions of income, estate, and gift taxes.

Alternatively, setting up an irrevocable life insurance trust has similar benefits. Ownership is transferred to your heirs and cannot be changed or adjust without the beneficiary’s consent. It is important to note that the proceeds of your life insurance can be taxed if you die within three years of transferring the funds, so it is best to act sooner rather than later.

Charitable Lead and Remainder Trusts

Philanthropy is often an important part of a wealthy investor’s financial goals. Many investors consider making charitable donations to reduce their estate value and get a tax break. The two types of charitable trusts are lead and remainder trusts. Setting up a functional trust can require the expertise of a tax accountant, an estate attorney, and a wealth manager.

Tax reduction strategies are only effective when used correctly. Working with the best financial advisor can help you achieve the results you want. To help affluent families with more than 10 million dollars, we wrote the Ultimate Guide to choose the best financial advisor.

The Best Option for High Net Worth Investors

The skills and experience need for estate tax planning can be found at private wealth management firms. Pillar Wealth Management is one such firm, where we cater to clients who have a liquid net worth of 5 million to 500 million dollars. Our wealth managers consult with you or your estate planning attorney to help create a customized plan that meets your financial goals. They use their knowledge about estate tax laws and reduction strategies to develop the most appropriate tax plan for your financial profile. If you’d like to get in touch with one of our experts, feel free to schedule a free consultation with us.

Authors

Hutch Ashoo

Chris Snyder

To be 100% transparent, we published this page to help filter through the mass influx of prospects, who come to us through our website and referrals, to gain only a handful of the right types of new clients who wish to engage us.

We enjoy working with high net worth and ultra-high net worth investors and families who want what we call financial serenity – the feeling that comes when you know your finances and the lifestyle you desire have been secured for life, and that you don’t have to do any of the work to manage and maintain it because you hired a trusted advisor to take care of everything.

You see, our goal is to only accept 17 new clients this year. Clients who have from $5 million to $500 million in liquid investable assets to entrust us with on a 100% fee basis. No commissions and no products for sale.