If you’re a high net worth individual or belong to such a family, then there will be a hefty tax applicable on your estate. Thus, if you don’t acquire the right expertise to carry out estate planning for you, you can lose a lot of that worth to the IRS and other tax authorities. When it comes to estate planning, high net worth individuals are the first to need this service.
At some point, you begin to wonder, “When should you begin estate planning?” “Do I need an attorney for estate planning?” or “How do you set up an estate?”
Pillar Wealth Management has the answers! Our experienced professionals specialize in wealth management for investors with at least $5 million in liquid assets to as much as $500 million in such assets. If you’re interested in learning more, get a free copy of our book titled 7 Secrets To High Net Worth Investment Management, Estate, Tax, and Financial Planning to get more in-depth insight into estate planning.
STRATEGIES FOR FAMILIES WORTH $5 MILLION TO $500 MILLION
The insights you’ll discover from our published book will help you integrate a variety of wealth management tools with financial planning, providing guidance for your future security alongside complex financial strategies, so your human and financial capital will both flourish.
Clients frequently share with us how the knowledge gained from this book helped provide them tremendous clarity, shattering industry-pitched ideologies, while offering insight and direction in making such important financial decisions.
Table of Contents
- Is Estate Different from Net Worth?
- What is subject to estate tax, and what are its components?
- 2. Power of Attorney
- Components of an Efficient Estate Planning Strategy
- 1. Business Succession Planning
- 2. Life Insurance
- 3. Minimizing Estate Taxes
- 4. Saving by Gifting
- 5. Split Family Income
- 6. Instil a Sense of Responsibility
- Concluding Thoughts
Rather speak to an expert? Now, you can schedule a free consultation with one of our experts and get started with estate planning right away! Keep reading below to learn more about estate planning.
Is Estate Different from Net Worth?
You may be wondering how net worth and estate are different, and in fact, they are completely different. A person’s estate is everything that they own, which includes net worth, their real estate properties, cash at hand, savings and securities, all their possessions, and any other asset that they may own.
Whereas, the net worth of an individual is one of the components of the individual’s estate and it is more specifically defined. Simply put, net worth is the value of a person’s assets after subtracting their liabilities. So, net worth accounts for all their loans and other liabilities while calculating their worth.
Let’s learn more!
What is subject to estate tax, and what are its components?
For an efficient estate plan, you need to understand its components. The estate plan consists of what should happen to your assets after you die or are unable to make decisions, and it also defines who will be responsible to act on your behalf. To ensure that your wealth is handled according to your wishes, these main components must be a part of your estate plan:
1. Your Will
A will is a legal document that specifies all the persons who will get a share of your assets once you have passed. It is one of the most important documents in your estate plan. If you pass away without having prepared a will, the state will decide who are the recipients of your asset distribution. The procedure for writing a will varies based on state laws. Make sure you hire an experienced estate attorney to draft and officiate your will. If your liquid assets exceed $10 million in value, be sure to study our $10m guides.
2. Power of Attorney
This document is designed to designate someone, such as an adult child or a spouse, to take charge and manage your finances in case you become incapacitated. The person you designate, commonly referred to as your agent, will have decision-making power concerning your finances.
This document is extremely important, regardless of whether you have a family or are a single person with no clearly defined candidate. You have full flexibility to determine how much discretion and guidance to give the designated person in managing your financial affairs. You may even authorize them to nominate a person of your choosing to act as your conservator or guardian when required.
If you fail to designate someone through a power of attorney before passing away, the court will decide who should be appointed to manage your financial affairs.
3. Your Trusts
A trust is a legal entity that acts as a nominal owner with the legal title to the property on behalf of the beneficiaries. The person establishing the trust will decide how and when beneficiaries receive assets in the trust. Typically, assets are subject to probate, but putting them in the trust helps avoid probate.
While there are different types of trusts, most middle-class families choose living trusts or revocable trusts. This type allows you to retain control of the assets in the trust so that you can amend or revoke the terms at any point in time. Plus, you can name a trustee of your choice to take care of you, using your financial assets. At the same time, you can give the trustee the discretion to take care of your spouse and children during the time you remain incapacitated.
Upon your death, the trustee will provide for your family according to the instructions you placed in your trust. For instance, you can direct the trustee to split the trust among your children and pay for their education accordingly. You can then instruct them to distribute the funds to the children when they reach a certain age.
With an irrevocable trust, on the other hand, the assets in it no longer remain yours. Plus, you can’t make any changes to the terms without the consent of the beneficiaries. The benefit of this option is that any appreciated assets in it aren’t subject to estate taxes. Also, if you want to shield certain assets from your creditors or beneficiaries’ creditors, irrevocable trusts are a perfect choice.
4. Healthcare Directive
If you want to make specific medical decisions for your health, a healthcare directive is critical. It works like a power of attorney because you designate someone to make medical decisions for you when you’re not able to do so yourself. Again, the type of documents you include as your health directive can vary by state and depend on the local laws. These can include:
A healthcare proxy: This document names the person you choose to make medical decisions on your behalf, should you become terminally ill. It can be a parent, sibling, spouse, adult child, or anyone you deem fit.
A living will: This is a written statement that issues instructions for your healthcare, which need to be followed when you become incapacitated. Sometimes, there are disagreements among family members regarding the steps that need to be taken in your care. A living will ensures that you receive treatment as per your wishes.
Components of an Efficient Estate Planning Strategy
To ensure that your beneficiaries receive the maximum benefits of your estate, you need to plan your estate strategically. If your net worth exceeds $25 million, be sure to read our hardcover book, the Art of Protecting Ultra-High Net Worth Portfolios and Estates: Strategies for Families worth $25 million to $500 million. At Pillar Wealth Management, estate planners protect the assets and estate of their wealthy clients in the following ways:
1. Business Succession Planning
If you’re a high-net-worth individual with a business, you may want to pass it on to capable children or grandchildren as part of your estate planning. One of the most critical estate planning strategies for you is to plan for business succession proactively. If you have a business successor in mind, get them involved in business affairs as early as possible.
This transitional period should span 5 to 10 years, during which they can gain hands-on experience, understand day-to-day operations, and take responsibility for business performance. By the end of this period, they should be ready to head your business after your retirement or death and take it to the next level. To learn how to make your business succession a seamless transition, conduct a video meeting with our wealth managers.
2. Life Insurance
Life insurance is a significant consideration in estate planning for high-net-worth individuals, with regards to bequeathing funds or assets to family members and paying estate taxes.
If a substantial portion of your estate is tied up with illiquid assets, such as real estate or a business, it will likely owe more in taxes than its liquid net worth. Most of this taxation expense can be covered by a good life insurance policy. This way, your beneficiaries won’t have to sell real estate assets or businesses to pay for the estate taxes.
Life insurance can also help if you’re faced with an even distribution of assets among your beneficiaries. For instance, if you consider one of your children capable of inheriting your high-valued business, your life insurance policy can pay out additional compensation to your other children.
3. Minimizing Estate Taxes
When you build wealth that you can leave for your loved ones, taxes are an important aspect to consider. Not making the right choices in this regard can leave you with a highly depleted estate. This is why minimizing taxes is one of the most important estate planning strategies for high-net-worth individuals. Here are some strategies we recommend:
4. Saving by Gifting
The 2017 enactment of the Tax Cuts and Jobs Act raised the exemption for a unified credit (the gifts and estate taxes). The exemption for the 2021 tax year is $11.7 million/individual or $23.4 million/per married couple. Anything that exceeds that amount is taxed at 40% of the gift’s value.
You may gift $15,000 per person per year tax-free, but if you gift $20,000 to a single person in a year, your first $15,000 will be exempt, while the remaining amount will be subject to a gift tax. While these rules apply to estate taxes, the $11.7 million estate tax exemption for 2021 can be reduced by the value of the gifts you give over your lifetime. For example, if you give $4 million worth of gifts using the lifetime give tax exemption, your tax exemption will be reduced to $7.7 million.
5. Split Family Income
Another great way to minimize your high net worth tax burden is to split your high net worth among your family members. As per the US tax system, high-income earners must pay higher taxes. The family’s overall tax burden would be significantly reduced if you divide the wealth among the low-income earners of your family. You could end up saving thousands of dollars this way.
While these were some effective strategies to minimize the tax you pay on your hard-earned wealth, nothing beats the power of expert advice. Use our Financial Advisor Guide to choose the best wealth manager to help you further minimize your tax burden.
6. Instil a Sense of Responsibility
Estate planning should go beyond ensuring a safe inheritance process of your estate. It should be aimed at keeping your wealth protected and putting it to good use for generations to come. To achieve this, you should focus on instilling a sense of financial responsibility in your heirs.
An experienced wealth manager can help you coordinate revocable trusts with age-banded withdrawals, manage cash transfers, and structure access to funds during their youth. These steps can create a sense of responsibility among your children and grandchildren while also protecting and preserving their wealth. Read our Free Book titled Five Critical Shifts for Maximizing Portfolio Growth Strategies For Families Worth $5 Million to $500 Million. Then, recommend this book to your children and grandchildren.
Estate planning requires a careful understanding of government regulation and taxation regarding the wealthy. To protect your wealth, you need to work with experienced professionals who have the expertise required to manage high-profile clients.
The ever-changing industry and tax laws don’t make it easier for individuals to do their own estate planning. At Pillar Wealth Management, our experts take a keen interest in protecting your wealth and long- and short-term interests. We specialize in services for investors with $5 million to $500 million. To talk to a professional estate planner, schedule your first free meeting today!
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.
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