Estate Planning Strategies for High Net Worth: A Comprehensive Guide

The right estate planning attorney can help you select and implement the best strategy for ensuring that your assets are passed on to your family members and loved ones after you pass. Learn more here.

Examples of Estate Planning Strategies for High Net Worth

Estate planning is a very important process, especially for individuals with high net worth. However, the process can be complex. If you have an ultra high net worth, you need a law firm that understands how issues such as the estate tax exemption, life insurance policies, and real estate ownership can affect the wealth transfer process. 

As just one example, the Internal Revenue Service (IRS) adjusts the gift tax exemption and the estate tax exemption each year. When you draft your estate plan, any amount of your estate above the annually-adjusted threshold is subject to estate tax. For 2021, the estate tax exemption is $11.7 million per individual. This means that if your estate is worth $20 million, $8.3 million of your estate will be subject to estate taxes. The experienced estate planners at Legacy Law Group can help you construct your living will or trust in a way that limits the tax rate your assets are subject to, thereby maximizing the gift to each individual beneficiary of your estate.

Gifts are also subject to tax when they exceed a certain amount. These are sometimes known as a “transfer tax.” Currently, you can gift $15,000 per year to any number of recipients. After $15,000, the gift will be subject to tax. 

Importantly, your estate tax exemption is reduced by the total amount gifted over your lifetime to friends or family. This means that if you gifted a total of $5 million over your lifetime, any assets in your estate above $6.7 million will be taxable. Our knowledgeable estate planning attorneys are able to help ultra high net worth clients navigate the complexities of estate taxes and create plans to ensure that their families benefit from the wealth the individual has built over their lifetime.

Retirement Planning for High Income Earners

Having a knowledgeable estate planning team that can formulate and execute the appropriate tax planning strategies is especially crucial for high net worth clients with large estates. 

One strategy that your estate counsel may suggest to help you achieve your estate planning goals is the creation of a family limited partnership (FLP). In a family limited partnership, individual family members pool their wealth to purchase business interests. Family limited partnerships have two types of members, general partners and limited partners. General partners control the major business decisions of the FLP and allocate the partnership’s assets according to the partnership’s written agreement. Limited partners, in contrast, do not control the partnership but instead buy and sell shares of the partnership to outside investors. 

Family limited partnerships offer a number of advantages when it comes to estate tax liability. For example, the partners can distribute interests tax-free to other individuals up to the amount of the annual gift tax exclusion. Once the funds are distributed, they are no longer considered part of the estate of the individual who made the gift and therefore exempt from the estate tax or other types of transfer taxes. By hiring a Colorado estate planner with knowledge of the intricacies of tax laws, you can ensure that your wealth is transferred to your family in a way that minimizes the tax rate to which your assets are subject.

Living Trusts & Estate Planning for High Networth Individuals

As they age, some high net worth individuals begin to worry about the amount of their assets that could be lost through gift and estate tax. Every individual, and especially those with high net worth, will want to ensure that their wealth transfer will benefit their family members, loved ones, and the causes that matter most to them, as opposed to being transferred to the government. 

One method high net worth individuals may use to protect their assets as they pass from generation to another is known as a “living trust.” A living trust is created during the trustee’s lifetime and gives the trustee the responsibility of managing a given set of assets that will eventually be transferred to the trust’s beneficiary. One of the primary benefits of creating a living trust as part of your estate planning is that the assets that are part of the trust can be passed on to the eventual beneficiary while avoiding the often expensive and time-consuming process of probate.

Additional Ultra High Net Worth Financial Planning Strategies

Another strategy for ultra high net worth individuals to consider is an “annuity trust.” In an annuity trust, the trustee channels assets or property into a trust and the beneficiaries of the trust are able to draw a fixed income from the trust for a given period of time. 

Because the trustee is considered to have purchased the assets or property from the settlor for fair market value, the trust is exempt from paying tax that would otherwise be due.

Strategic Estate Planning Services

Another factor that tax advisors and estate planning attorneys help their ultra high net worth clients to understand is capital gains tax. At the federal level, capital gains (which refers to the profit realized from the sale of a property or an investment) are subject to taxes in just the way that you are familiar with from paying income taxes – as long as the individual selling the asset held it for a total of one year or less. 

If you are realizing capital gains on an asset that you have owned for more than one year, the amount of taxes owed will depend on the tax bracket that the seller’s annual income puts him or her in. 

The taxes on capital gains at the state level vary widely depending on the state. An experienced estate planner can help you ensure you with tax planning so as to ensure that the amounts passed to your family or loved ones are maximized.

Tax Strategies for High Income Earners

Because tax laws change frequently, it is important to trust matters relating to your estate tax liability to an experienced professional. For example, the Tax Cuts and Jobs Act of 2017 represented the largest overhaul of the tax code in decades. December of 2019 saw another large shift in tax matters with the passage of the Taxpayer Certainty and Disaster Tax Relief Act of 2019. 

Legacy Law Group has the knowledge and experience to ensure that high net worth individuals are able to transfer their wealth to their families in a way that preserves the assets you have worked to accumulate to the maximum extent possible. Contact us today for more information.

Our Client Success Stories

Plan Ahead Now

Request a Consultation