Estate Planning Essentials for High-Net-Worth Families

A well-constructed estate plan can promote certainty that heirs and beneficiaries receive assets according to your wishes and minimize your estate’s tax burden. Without a plan, distributing your assets falls to the state.

The estate planning process for high-net-worth and ultra-high-net-worth families can be particularly complex, given the sheer number and value of potential assets. No two estate plans are the same, but the goals of the process — to minimize your taxes, protect your assets and provide you and your family with peace of mind — are universal.

Key Takeaways

• The larger the estate, the more potential for complexity.
• Understanding your priorities is the first step, as it will inform the rest of your estate plan.
• There are several ways to minimize estate taxes, but which methods you adopt depend on your goals.

Preliminary Considerations for High-Net-Worth Families

Before you start researching specific trust vehicles and tax strategies, you should have a comprehensive understanding of your family’s assets, lifestyle and shared goals and values.

Take Inventory of Your Assets and Talk to Your Advisors

Compile an inventory of your assets. Any property, including land or real estate, can be individually owned or held in co-ownership or in an entity, which may affect how it can be transferred.

Discuss your goals with your financial advisory team and make it a priority to hire a competent estate planning attorney.

Establish Your Estate Planning Directives

Your complete estate plan should establish legal directives with specific documents. These documents can include the following:

• Last Will and testament — determines how your individually owned assets will be disposed.
• Healthcare power of attorney or medical power of attorney — authorizes someone to make healthcare decisions for you if you become incapable of doing so.
• Trusts — allow you to transfer ownership of assets to a trust, administered by a trustee that you select.

Review and Designate Beneficiaries

Retirement plans, annuities and insurance products usually have beneficiary designations that take precedence over a Will. Make sure to review your primary and secondary beneficiary designations. If you have established a “payable on death” or “transfer on death” designation for any bank or brokerage accounts, regularly review those as well.

Tax Considerations

The transfer of wealth to your beneficiaries is subject to taxes, and though gift and estate tax planning can be effective in minimizing taxes, the aggregate value of your assets at your death will be used to determine your gross estate for tax purposes.

It is important to understand tax considerations as you build your estate plan. Generally, you can separate them into the following three categories:

• Estate tax — At the federal level, only very large estates are subject to estate tax, so this is of particular concern to high-net-worth and ultra-high-net-worth families. The federal estate tax is imposed on the value of all assets owned at death, minus exemptions, expenses and deductions, and unified with lifetime transfers.
• Gift tax — The federal gift tax applies to gifts that exceed a specific value, called the annual exclusion. There is also a lifetime gift tax exemption, which means you can give away up to a certain amount over your lifetime without having to pay the gift tax.
• Income tax — This is placed on the income you earn during your lifetime. Income tax is also assessed against income earned by your estate after your death. Considerations for income tax include the basis of assets, timing of asset sales and the use of trusts.

For high-net-worth families, additional tax considerations will most likely include property, sales and inheritance taxes, but you should consult your advisory team about the tax implications of your specific estate plan.

Charitable Giving

Your family’s philanthropic goals may involve simple charitable giving or foundations large enough that they require their own administrative process. Determining the extent of your family’s charitable interests will help you determine how big a role they should play in your estate plan.

Estate Planning Strategies for High-Net-Worth Families

For high-net-worth and ultra-high-worth families in particular, the estate planning process should start with a high-level discussion about priorities. The larger and more valuable the estate, the more complex the process becomes, with assets such as vacation homes providing sources of potential conflict and misunderstanding.

Estate Administration

Those who are appointed executor or personal representative of an estate or trustee of a trust have a fiduciary responsibility to make sure that the intent of the individual or family as described in the Will or trust is carried out correctly.

2017 Tax Cuts and Jobs Act Implications for High-Net-Worth Families

The 2017 Tax Cuts and Jobs Act, often referred to as simply the Tax Act, introduced significant tax reductions for individuals, estates and corporations. While some provisions were made permanent, most are set to expire (or sunset) on December 31, 2025.

In 2025 the lifetime gift and estate tax exclusion and the generation skipping taxes (GST) exemption is $13.99 million per individual and $27.98 million per couple, if planning includes gift-splitting election or portability. The exemption has allowed high-net-worth families to pass along significant gifts tax-free, but if it is set to expire at the end of 2025, it will revert to the 2010 limit of $5 million (indexed for inflation), exposing estates above that limit to a tax rate as high as 40%.

Though it’s possible that the GST exemption and gift and estate tax exclusion are extended beyond 2026, nothing is guaranteed, so revising your estate plan now is the best way to remove the uncertainty about what happens beyond 2025.

The Implications of Rising Property Values for High-Net-Worth Estate Planning

The ripple effects from the possible expiration of the GST exemption and gift and estate tax exclusion can spread far, especially when conditions in the economy or housing market change. The recent trend of rising home prices may seem, especially for high-net-worth families, like an unalloyed good, but it can lead to increased estate tax liability.

Up-to-date information along with guidance from trusted tax professionals, wealth advisors and attorneys will help you make full use of options for incorporating highly valued properties into your estate plan.

How State-Level Inheritance and Estate Taxes Complicate the Picture

Whereas estate taxes are paid by the estate before the remaining assets are distributed to the beneficiaries, inheritances taxes are assessed to the beneficiaries themselves. Rates of inheritance taxes vary depending on the beneficiary’s relationship to the deceased — whether they’re a spouse, child or other relative — and their location, since five U.S. states have inheritance taxes, 12 states and Washington, D.C. have estate taxes (in additional to the federal estate tax), and one state, Maryland, has both.

Tax law also sets limits on how much you can give to others without incurring gift, inheritance or estate tax. Taxpayers can use powerful wealth transfer tools such as the lifetime gift tax exemption and the annual exclusion to strategically distribute wealth.

The Important Role of Trusts in Estate Planning

One of the most powerful and versatile tools in an estate planner’s kit is the trust. Trusts come in so many varieties that it would be impossible to cover them all here, but you should work with your estate planning team to understand your options so that you can determine which trusts make the most sense for you and your family.

Trusts can help preserve and protect family wealth for generations and fall into two basic categories: revocable and irrevocable. Revocable trusts offer control, flexibility and continuity and are “tax neutral,” meaning that you are the taxable owner of the assets and will be taxed on income earned and capital gains realized.

Irrevocable trusts are frequently designed specifically to minimize estate taxes and protect assets. Generally, once an irrevocable trust is established, you cannot make changes to it. Transferring assets by a completed gift to a properly crafted irrevocable trust can remove them and any future appreciation from your taxable federal estate, further shielding them from inheritance tax.

Family Education Can Mitigate Common Estate Planning Mistakes

Your estate plan should include a way to help other members of your family understand their role in the estate as well as its full dimensions.

We value the role of education in estate planning so highly that we have dedicated resources to help you build a curriculum that meets your family exactly where they are. Glenmede’s Center for Family Philanthropy and Wealth Education provides holistic wealth education for every generation, helping you feel confident that your estate is in good hands.

Glenmede Has Been Helping High-Net-Worth Families Since 1956

For more than 65 years, Glenmede has served the best interests of high-net-worth clients. Our fiduciary mindset, coupled with private ownership, keeps us focused on our clients’ investment and wealth management objectives, whether that includes providing comprehensive trust settlement services or wealth education for several generations of heirs and beneficiaries.

Frequently Asked Questions

What is considered high net worth for estate planning?

Estates of least $1 million; estates are considered “very” high net worth when they are at least $5 million.

What is considered ultra-high net worth?

Estates of at least $30 million.