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10 Estate Planning Strategies for Ultra High Net Worth Families

Why Is Estate Planning Important for High Net Worth Families and Individuals?

Ultra-High Net Worth (UHNW) individuals are not typical investors. Having accumulated over $30 million in liquid net worth, the primary driver for UHNW individuals is no longer to accumulate wealth, but to preserve and protect their assets for generations to come.

For this reason, strategic estate planning for Ultra-High Net Worth (UHNW) families is absolutely critical and must prioritize wealth preservation, estate tax minimization, and intergenerational asset transfer to keep their legacy intact.

While it may seem that accumulating extraordinary wealth makes you invincible to financial troubles in the future, no one is exempt from the risk of lawsuits, sudden income loss due to disability or illness, or market volatility. UHNW families have more to lose than the average family, making the estate planning process critical.

High Net Worth Estate Planning Strategies

Working with HNW and UHNW estates requires a particular nuance due to the increased complexity of their financial assets. Ultra-High Net Worth wealth managers collaborate strategically with UHNW families’ estate lawyers and CPAs to mitigate risks including tax laws, tax liabilities, and probate. An Ultra-High Net Worth wealth manager provides comprehensive planning and expertise tailored to UHNW families, designed to preserve and grow wealth while protecting their legacy.

Two areas where UHNW families can benefit from estate planning guidance that is customized to their unique financial picture are in mitigating estate tax during their lifetime and preserving and protecting financial assets when inherited by beneficiaries. Here are the 5 top considerations to keep in mind for each of these purposes.

Save Millions on Estate Taxes

1. Save Through Gifting

Every US taxpayer has a lifetime gift tax exemption, which is currently $11.7 million. This means a UHNW investor will not owe any gift tax on gifted funds until they exceed this lifetime exemption — and, even then, they can still gift up to the annual limit ($15k) each year without a tax impact. This makes gifting potentially the most impactful strategy to reduce your overall estate size to optimize taxes.

2. Split Family Income

Another effective way to reduce the UHNW tax burden is to divide UHNW income amongst family members. The US tax system is structured so that those generating higher income pay higher taxes. By dividing income among lower-income family earners, you can substantially reduce your family’s overall tax burden, potentially saving thousands each year.

3. Charitable Giving

UHNW investors can reduce their estate size by assigning portions of their estates to a charitable lead trust (CLT) or charitable remainder trust (CRT) as charitable donations, including investments, hard assets, or cash.

With a CLT, a portion of your assets within the trust will be passed to a tax-exempt charity, lowering the value of your estate and giving you the added benefit of a charitable tax break. After a predetermined time, or after you die, the remainder of the trust will be passed to your beneficiaries.

With a CRT, you can transfer an appreciating asset like a stock into an irrevocable trust. You can still make money off this investment throughout your lifetime, and then after you die, the remainder of the investment will be donated to charity. Doing this will lower your estate tax burden, earn you a tax deduction, and help you avoid the capital gains tax.

4. Life Insurance

Life insurance is another critical consideration in UHNW estate planning, both to pay estate taxes and to bequeath assets or funds to family members.

If a large portion of your family’s estate is tied up in illiquid assets, such as a business or real estate, your estate would likely owe more in taxes than it has in liquid net worth. A good life insurance policy can help cover most of the cost of this tax so your beneficiaries do not have to sell business or real estate assets to cover estate taxes.

Additionally, if you’ve already minimized your estate taxes through other methods and are facing an unequal distribution of assets to your beneficiaries, you can use your life insurance policy as part of your estate plan to balance this out. If you have two children but only one is interested in or capable of inheriting a high-valued business, for example, the life insurance could help pay out additional compensation to the other child.

5. Establish a Family Limited Partnership

Creating a family limited partnership is a strategy often used to reduce estate value while protecting assets from loss, which is covered in more detail with the strategies below. Like many tax minimization and estate planning strategies, a family limited partnership is very complex. Essentially, it’s an arrangement that allows you (as the general partner or GP) to still manage your investments without the risk of interference from entities such as creditors or divorced spouses. After you die, responsibility will transfer from you to your limited partners (LP, which, in this case, are your family members or heirs) and they’ll get a tax break on estate, gift, and income taxes. At this point, they become responsible for managing the funds.

Protect Your Assets For The Future

Another main goal of estate planning is protecting your assets in the future for the sake of your beneficiaries. You can ensure that your assets are in the right hands by utilizing the following strategies:

6. Plan for Business Succession

If you own a business and want to pass it on to your children or grandchildren, start taking proactive steps toward the transition. Get them involved in the business sooner rather than later so they can gain experience and understand the day-to-day dealings before easing them into a larger role over a 5-10 year period. This also provides added peace of mind that your business will remain in capable hands in the case of your passing.

7. Pass on Vacation Property

Inter-vivos family trusts are a strategic way to pass family vacation property on to children while deferring future capital gains tax and avoiding probate. If you have two or more children who you’d like to share ownership of a property, a co-ownership agreement can guarantee equitable distribution.

8. Consolidate Assets

The kind of diversification you want in your portfolio should come from how you invest, not where your accounts are held. If you have several accounts scattered across various institutions, it can cause unnecessary confusion, as well as be a missed opportunity to see the real growth you’re looking for. In consolidating your assets under a single UHNW wealth manager or management team, you’ll gain their guidance and expertise working with UHNW families at a lower cost of management as well as streamlined investment and estate planning.

9. Incapacitation Planning

Medical planning is one of the bleakest aspects of estate planning, but it is a critical component to ensuring your wishes are honored and your legacy remains intact. Some of the important steps an estate lawyer can help you to put in place are to appoint a durable power of attorney that can take charge of important matters on your behalf as well as, potentially, hiring a healthcare power of attorney and appointing a HIPAA release agent to access your medical records. Finally, you may want to create a revocable trust to designate a successor trustee should you pass.

10. Instill Financial Responsibility

One estate planning strategy that not enough wealth managers discuss is instilling a sense of financial responsibility in your children and grandchildren, as it is the best way to ensure your wealth will stay protected and put to good use for generations to come. Some areas your UHNW wealth management team can assist with are managing cash transfers, structuring access to funds during their youth, and coordinating revocable trusts with age-banded withdrawals to help protect and preserve their wealth and instill a sense of financial management.

Should I Hire a Wealth Management Firm?

UHNW families lead extraordinarily busy and complex lives. The responsibility of a financial portfolio of this size, as well as other business, real estate, and other assets like fine art, vehicles, and collectibles, make it difficult to maintain a clear, comprehensive understanding of your financial picture as well as a strategy for preserving and protecting your wealth in the future. Working with a wealth management firm is the best way to ensure your estate is protected and growing both now and after you pass, and guide you through complex tax regulations that can have a dramatic impact on your overall wealth and legacy.

Estate Planning at Weber Global Management

At Weber Global Management, we specialize in creating a comprehensive financial strategy for UHNW investors and their families, providing reasoned, rational guidance and a deep understanding of the intricacies of portfolios of this size. We take an individualized approach to every client’s financial strategy, considering their goals and the legacy they want to leave to future generations. The most critical step to ensuring the preservation and growth of your assets is to get started. To learn more about how we specialize in managing the extraordinary wealth of UHNW families, particularly when it comes to estate planning, reach out to us here.