6 Estate Planning Options for High-Net-Worth Families

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Almost anyone can benefit from a well-thought-out estate plan. However, the more resources you have, the more important working with an experienced estate planning firm becomes. The tax implications and other considerations that affect larger estates make it especially important to consider options for estate planning for high-net-worth families.

The Importance of Estate Planning for High-Net-Worth Families

If you or your family control substantial assets, the financial aspects of your estate plan can become complicated, and highly important. High-net-worth families often have to balance numerous priorities in crafting their estate plan including:

  • Providing for their descendants
  • Protecting their assets from immature decisions
  • Avoiding lengthy, public probate court proceedings
  • Selecting the right person to manage their assets after their death or disability
  • Reducing the portion of their estate paid to the government through taxes and court fees

Tax Implications for High-Net-Worth Estate Planning

Above a certain threshold, high-net-worth families must consider the tax implications of their estate plan much more directly than those in lower tax brackets. While Florida has no state-level estate tax, the IRS collects an estate tax or “death tax” on any assets over $13.61 million for an individual, or twice that much for a married couple (as of 2024). Federal estate tax is equal to 40% of any amount over that limit, so it can quickly decrease the value of property awarded to your heirs through the Florida probate process. In addition, if your beneficiaries live in certain states (not Florida), they will also need to pay inheritance taxes on assets they receive from the family estate.

This is why it is so important for high-net-worth families to work with an estate planning law firm familiar with tax as well as Wills and trusts. Harrison Estate Law founder McCabe Harrison has an advanced legal degree (an L.L.M.) in tax law. This specialized training means that our entire estate planning team is prepared to consider the tax implications for high-net-worth estate planning whenever the need arises.

There are estate planning strategies for high-net-worth families that can reduce or even eliminate the estate taxes your estate and your beneficiaries will have to pay. Our attorneys can help you consider these strategies and make plans for your assets during your lifetime that will shield them from the IRS, and bring the highest value to your loved ones after your death.

6 Estate Planning Strategies for High-Net-Worth Families

1. Make Use of Revocable and Irrevocable Trusts to Avoid Probate

Transferring assets into a revocable living trust during your lifetime or an irrevocable trust either while you are alive or as part of your estate plan, is one way to reduce your family’s tax obligations. Because irrevocable trusts are considered separate legal entities, they are not considered part of your estate for tax or probate purposes. While beneficiaries may challenge a trust in Florida probate court, as long as the trust is properly documented and funded, it will not require court supervision to distribute your assets to your intended beneficiaries.

Trusts also can be used to protect assets you intend to pass on to children, people with disabilities who may receive government benefits, or family members with substantial debt or immature spending habits. In addition, you can use an incentive trust to guide your beneficiaries’ lifestyle choices even after your death.

2. Choose a Professional Trustee to Minimize Risk of Trust Litigation

Most high-net-worth families rely on professionals to guide their investment decisions and financial strategies. This should continue to be true in their estate planning and trust administration. While Florida law allows you to name a relative or friend to handle your estate’s financial affairs, an inexperienced trustee is more likely to breach their fiduciary duties, or mismanage the trust’s assets. It is wiser to allow the trust to retain a professional trustee, to ensure that the trust’s finances add up, and to remove favoritism, sibling rivalry, or other family dynamics from the equation.

3. Use Beneficiary Designations to Maximize Trust Assets

Smaller estates often rely on beneficiary designations and transfer-on-death accounts to transfer assets without going through your probate estate. However, when your estate plan includes a revocable or irrevocable trust, beneficiary designations can serve another purpose: that of consolidating assets. By designating your trust as your intended beneficiary on investment accounts, retirement assets, and even bank accounts, you can avoid facing a divided estate administration with some assets going through probate while others are handled by the trust. Talk to your estate planning attorney to ensure that the proper paperwork has been completed to fully fund your trust upon your death.

4. Fund an Irrevocable Trust to Take Advantage of an Estate Freeze

If your estate plan includes the creation of an irrevocable trust (discussed above), you can use periodic gifts to fund the trust and protect your loved ones from paying taxes on the appreciation of those assets' value. Many wealthy individuals begin transferring assets to their loved ones through annual financial gifts up to a yearly annual exclusion exemption of $18,000 per person per year (starting in 2024). Using this strategy, your loved ones obtain access to the assets right away, but the funds aren’t shielded from estate taxes when they pass away. However, if those same assets are transferred into an irrevocable trust, then all subsequent appreciation in the assets–forever–are outside of the estate tax regime and not subject to tax. This technique is called an “estate freeze,” and it gives your loved ones and future generations the benefit of all subsequent appreciation after the gift was given without paying estate taxes on the change in value.

Similarly, you may be able to obtain a life insurance policy that you title in an irrevocable trust (called an ILIT or Irrevocable Life Insurance Trust) that will pay your loved ones benefits upon your death without being subject to estate tax.

5. Establish 529 Accounts for Student Relatives

If you have children or students on your intended beneficiary list, another estate planning strategy is to invest their would-be inheritance into a 529 tax-advantaged educational savings plan. These 529 accounts allow you to invest in your loved ones’ education without incurring gifts or income taxes. Parents and relatives can contribute up to $18,000 per student per person per year, tax-free (as of 2024). They can also “superfund” up to five years of giving at one time, investing up to $85,000 for an individual or $170,000 for a married couple.

6. Consider Charitable Gifts to Reduce Estate Taxes

Your beneficiaries are not limited to your family or friends. Many high-net-worth families include charitable giving in their estate plans as a way to reduce their taxable estate. Charitable gifts can be made to religious institutions, social causes, or a current favorite, the donor advised fund. You can also designate a charity as your “residual beneficiary,” allowing the cause to receive anything left after your estate’s bills are paid and your beneficiaries receive their specific inheritances. This is a simple way to avoid estate taxes at death, since money given to these entities can be deducted for estate tax purposes.

Begin Your High-Net-Worth Estate Planning Today

At Harrison Estate Law, we are uniquely equipped to handle the complicated estate planning issues facing high-net-worth families. We can help you consider estate planning strategies to minimize probate and tax consequences, and make sure your assets will be well-managed after your death. We are happy to help you set up a new high-net-worth estate plan or update your existing plan to better protect your assets and reflect your priorities. Please contact us online or via email or call 352-306-3579 to schedule a free consultation. If you don’t live close to Gainesville, we are happy to set up a phone or Zoom call.

Categories: Estate Planning