Regardless of the number of assets you own or your life situation, estate planning can be difficult. For high-net-worth individuals, however, estate planning can present some unique obstacles. Additionally, estate planning laws and taxes are constantly evolving, and it can be hard to keep up to date with these various changes. Here are some important estate planning tips to remember if you are an individual with a high-net-worth estate.
Recognize the Obstacles High-Net-Worth Individuals Commonly Face
High-net-worth estates commonly encounter one of several estate planning obstacles. By understanding these challenges and planning for them in advance, it is often possible to avoid these hardships. Some of the obstacles you should consider include:
- Many high-net-worth individuals fail to revise the terms of their estate plans after major life events like births, marriages, and divorce. As a result, it is common for these individuals to end up with outdated estate plans.
- If you own a business, create a detailed succession plan. While this might involve passing your business down to children, it could also involve a much more nuanced succession. Despite the value of adequate succession planning, not everyone takes these steps.
- Because high-net-worth individuals often have a diverse set of income sources, they often overlook what repercussions taxes might have on their estate. Adequate estate planning should sufficiently address and reduce taxes.
- High-net-worth individuals commonly have more diverse estate planning needs than others. Their assets often are more likely to encourage jealousy and competitiveness among potential beneficiaries. It is critical to select a trustee who will handle the position responsibly.
Make the Most of Strategic Gifting
Even though the Internal Revenue Service has a gift tax, this exemption is shared with the estate tax exemption. Every dollar that a person saves due to the gift tax exemption is subsequently taken away from the estate tax exemption. Additionally, the gift tax comes with an annual exclusion. Each year, a person is permitted to give anyone that they want up to $15,000 without being subject to taxes.
Consider an Irrevocable Life Insurance Trust
Irrevocable life insurance trusts are one of the best ways to pay for a life insurance policy without paying any taxes for the premium payments or payout on a policy. A person gifts assets to the trust itself. The trustee then utilizes these assets to pay the insurance company. After the policyholder passes away, the insurance policy places assets into the trustee. The person tasked with managing the trust simply then has to distribute the assets as directed by the deceased individual.
Generation-skipping trusts are becoming a more common feature of the estates of many high-net-worth individuals. A person begins by funding a trust and paying either the generation-skipping tax or utilizing a generation-skipping tax exemption. After this, the trust creator is not required to pay estate taxes on the assets within the trust provided they remain in the trust. The trust then gradually distributes assets to future generations.
Obtain the Assistance of an Estate Planning Lawyer
Estate planning is full of challenges. To make sure that you fully consider each challenge, it can help greatly to speak with an experienced estate planning attorney. Contact attorney Jim A. Lyon today for assistance.