More Money, Literally More Problems: Unique Estate Planning Concerns for the Ultra Wealthy
More Money, Literally More Problems: Unique Estate Planning Concerns for the Ultra Wealthy
Patrick Villanova, CEPF®
In the realm of personal finance, estate planning stands as a paramount consideration for those who have amassed substantial wealth. For ultra-high-net-worth individuals – people with over $30 million in investable assets – the complexities and implications of legacy planning become even more pronounced. While it’s often tempting to delay such discussions, proactively managing your wealth’s future distribution is essential to ensure a seamless transition for your beneficiaries. A financial advisor may be able to help you manage your wealth and create an estate plan tailored to your needs.
Importance of Proper Estate Planning
Estate planning is a powerful gear in the engine of wealth management and preservation. It establishes mechanisms like trusts, which cater not only to the future needs of heirs but also ensure your assets are distributed according to your wishes. A well-drafted plan clearly outlines the distribution of assets, minimizing the chance of disputes and legal battles. This not only preserves family relationships but also reduces stress during an already challenging time.
Without precise planning, heirs could also face taxing burdens and legal puzzles that can whittle down the value of their inheritance.
Additionally, estate planning offers a chance to express one’s healthcare preferences through documents like living wills and medical powers of attorney. These documents ensure that an individual’s medical wishes are respected, even when they are unable to communicate their desires.
Unique Estate Planning Concerns for the Wealthy
If you’re ultra-wealthy, the complexity of your wealth demands a more intricate plan than what the average person or even high-net-worth individual may require.
Ultra-high-net-worth individuals often possess wealth that spans multiple generations. Ensuring this wealth endures and thrives requires strategic estate planning. Structures like family limited partnerships (FLPs) and generation-skipping trusts can be employed to efficiently pass assets to grandchildren, avoiding excessive taxation while maintaining family control over assets.
Many affluent individuals also hold a deep commitment to philanthropy. Establishing charitable foundations or trusts can allow you to leave a lasting impact on causes dear to your heart.
Collections of art, rare cars or other unique assets may require special attention. Estate planning must account for their valuation, distribution and potential capital gains implications. Proper planning can ensure these assets are handled with care and integrated into the overall estate plan, underling the importance of this process.
Tip #1: Save By Gifting
Rather than being just a kind gesture, gifting is a proven strategy that enables you to transfer wealth during your lifetime, reducing the size of your estate and potential estate tax. In 2023, the IRS permits you to gift up to $17,000 ($34,000 for married couples) to as many people as you want per year. Individual gifts that exceed this annual limit count against your lifetime gift and estate tax exemption, which stands at $12.92 million in 2023.
Estates larger than $12.92 million are subject to the federal estate tax, which ranges from 18% to 40%. While the average estate won’t be subject to this tax, the estates of the ultra-wealthy often are, underscoring the importance of strategic gifting.
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