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Advanced Estate Planning Tools for High-Net-Worth Individuals

Discover advanced estate planning tools meant to help high-net-worth individuals build their financial legacy.

Strategies to Consider for Helping Secure Your Wealth and Preserving Your Legacy

Estate planning is a critical aspect of financial management for anyone who is looking to further protect their wealth and ensure their wishes are honored after death. However, the planning process becomes even more intricate for high-net-worth individuals with significant assets to plan for. Because these individuals have accumulated substantial wealth over their lifetimes, they may need advanced estate planning tools to ensure a smooth transition of their assets to the next generation while also minimizing tax liabilities and maintaining financial security.

If you’ve accumulated significant wealth and are in the process of planning your estate, below are several advanced estate planning tools tailored to the unique needs of high-net-worth individuals that may be beneficial to your planning.

Advanced Estate Planning Tools #1: Revocable Living Trusts

A revocable living trust is a versatile tool for high-net-worth individuals because it enables you to transfer assets into a trust during your lifetime while still retaining control over those assets. What’s more – the grantor can make changes or revoke the trust as necessary. One of the reasons that this tool is so beneficial is because of its ability to provide for the seamless transfer of assets to beneficiaries upon the grantor’s death, giving your heirs the opportunity to avoid probate. Additionally, it offers privacy because the trust’s details remain confidential, unlike a will, which becomes public record after probate, which can be particularly valuable for high-net-worth individuals with complex asset portfolios.

Advanced Estate Planning Tools #2: Irrevocable Life Insurance Trusts (ILITs)

Life insurance not only serves as a wealth preservation tool, but it may also be a savvy wealth transfer tool. However, without proper planning, the death benefit from life insurance can be subject to estate taxes. To mitigate this, you can establish an Irrevocable Life Insurance Trust (ILIT), which is a separate legal entity that owns the life insurance policy.

By doing this, the death benefit is kept out of the taxable estate, potentially saving your heirs a significant amount in estate taxes. While the trust does provide a tax-efficient way to pass on wealth to your beneficiaries, it is important to note that the grantor of the trust cannot make changes to the trust or the insurance policy once it’s established, so it doesn’t have as much flexibility as some other estate planning tools.

SEE ALSO: Key Considerations for Your Wealth Transfer Plan

Advanced Estate Planning Tools #3: Qualified Personal Residence Trusts (QPRTs)

A Qualified Personal Residence Trust (QPRT) is an estate planning tool specifically designed for individuals who want to transfer their primary residence or vacation home to heirs while reducing estate tax exposure. With a QPRT, the grantor retains the right to live in the property for a specified period, after which ownership passes to the beneficiaries.

The main advantage of a QPRT is that it allows high-net-worth individuals to remove the value of the residence from their taxable estate while retaining the right to reside in the property for a predetermined time. If the grantor outlives the QPRT term, the property passes to the heirs with reduced estate tax consequences. However, if the grantor passes away during the term, the property is included in the estate, and the estate tax benefits are lost.

Advanced Estate Planning Tools #4: Family Limited Partnerships (FLPs) and Family Limited Liability Companies (LLCs)

For high-net-worth individuals, one of the key worries when it comes to estate planning is all of the taxes that will be accrued during the transfer of wealth. If you’re looking to consolidate family assets and retain control over them while minimizing your exposure to estate tax, then you may want to look into Family Limited Partnerships (FLPs) and Family Limited Liability Companies (LLCs).

These entities are often used to hold assets such as real estate, investments, and business interests, and by gifting or selling partnership or membership interests to family members, the grantor can effectively transfer wealth to the next generation while also taking advantage of valuation discounts. FLPs and LLCs also offer asset protection benefits and allow for centralized management of family assets, which may help make a complicated process like estate planning a bit easier to navigate.

Advanced Estate Planning Tools #5: Charitable Remainder Trusts (CRTs)

If you want to incorporate philanthropic efforts into your estate plan, Charitable Remainder Trusts (CRTs) are a unique tool that allows high-net-worth individuals to support charitable causes while preserving family wealth. With a CRT, the grantor can transfer assets into a trust and retain an income stream for a specified period, then after the trust term ends, the remaining assets are donated to a charitable organization of their choice.

SEE ALSO: Transitioning Your Family Business to the Next Generation

CRTs may offer several advantages, including an immediate income tax deduction for charitable contributions, potential reduction of estate taxes, and the ability to generate income for the grantor or other beneficiaries. In short, it may be a triple threat in your advanced estate planning toolbox.

Advanced Estate Planning Tools #6: Dynasty Trusts

High-net-worth individuals often need an estate plan that considers not just the next generation, but many generations to come. For those looking to preserve their legacy over the long term, a Dynasty Trust may be a useful tool. It allows high-net-worth individuals to establish a trust for the benefit of multiple generations of their family. These trusts are typically designed to avoid estate taxes at each transfer.

That’s because one of the key features of a Dynasty Trust is the allocation of the generation-skipping transfer (GST) tax exemption, which allows for the transfer of wealth to grandchildren or more remote descendants without incurring additional transfer taxes. This may become an incredibly powerful tool if you’re looking to preserve family wealth over the long term.

Incorporating Advanced Estate Planning Tools into Your Financial Plans

Advanced estate planning tools may be quite useful for high-net-worth individuals looking to preserve their wealth, minimize estate taxes, and ensure a smooth transition of assets to the next generation – and beyond. Each of the tools mentioned above has its unique advantages and considerations, and the right approach will depend on your unique circumstances and goals.

To navigate these complex strategies effectively, it’s helpful to work closely with experienced estate planning professionals who can tailor a plan to help you meet your specific needs and objectives. At Paces Ferry Wealth Advisors, our experienced team can work with you to build a wealth plan that takes on a calculated, comprehensive approach to managing risk, assets, and your overall wealth so that we can best meet your individual goals, including regarding estate planning. Contact us today if you’d like to learn more about our comprehensive services.

Paces Ferry Wealth Advisors, LLC is a registered investment advisor with the U.S. Securities and Exchange Commission (“SEC”).  This material is intended for informational purposes only. It should not be construed as legal or tax advice and is not intended to replace the advice of a qualified attorney or tax advisor.