Three focuses of high-net-worth estate planning

You’ve worked extremely hard, may have caught some lucky breaks and cashed in on some opportunistic situations to be financially secure. The last thing you want, is to have your estate suffer through high taxes and heirs that don’t know how to manage their inheritance.

The three-estate planning focuses for those with a high-net-worth and estate that needs protecting should be to minimize their estate taxes, safeguarding their inheritance and avoiding the expensive probate process.

Estate Taxes

The term “estate taxes” is broad and encompasses income, gift, estate and generation-skipping transfer taxes (GSST.) Income, gift, and actual estate taxes are well known, but what are generation-skipping transfer taxes?

A GSST, is a federally regulated tax that occurs when an heir, that is at least 37.5 years younger than the donor, is gifted a property or inheritance.

The three tax categories other than income tax are called wealth transfer taxes. As highlighted below, all three are taxed slightly different.

  • Gift taxes
    • 40% of the gift’s value is taxed
    • The first $5.6 million is not taxable
    • You can gift up to $15,000 to as many people as you wish tax-free, and this does not count toward the $5.6 million lifetime gift tax exemption
    • Estate taxes
      • 40% of the estate’s value is taxed
      • Your $5.6 million estate tax exemption is reduced by the total dollar amount you provide via gifts
      • If you were to give $2 million in gifts throughout your lifetime, your $5.6 million estate tax exemption would now be $3.6 million
      • Generation-skipping transfer taxes
        • 40% of the gift’s value is taxed
        • $5.6 million tax exemption is applied
        • The GSST was created so trust creators couldn’t skip generations of inheritors to avoid being taxed

Safeguarding inheritance

The time will come, hopefully not for a long time, that you will be ill or disabled to the point that you can no longer make the necessary changes to your estate plan. These changes could include assigning guardians for dependents, appointing a medical proxy and trustee, assigning the management of your property, procure a living will and revocable trust, and assign inheritances.

 

Probate

Probate is an enemy of estate plans. Probates are time consuming and a financial burden that can be avoided if planned correctly. A will is cheaper to create, but often, must endure the probate process. A living trust, though more expensive right away, will save your wallet in the long run.

Trusts can avoid the probate process, because some items will not be in your name. Any property or assets not in your name can avoid probate. Also, the power of a living trust allows you too still have power over your assets, even if they are not in your name.

Also, be aware and plan accordingly. As the name states, you are in control of the labeled assets while you’re living, so be sure to appoint a successor in case incapacitation or death occurs.

All states and your specific financial situation will determine which of the above tasks are necessary to complete. An experienced estate planning attorney focused on your goals and best interests can guide you through the complexities that are bound to arise.

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