High Net Worth Inheritance Planning: What You Need To Know

Explore five inheritance planning tips for high net worth individuals to help you pass down wealth to future generations while avoiding hefty taxes.
High Net Worth Inheritance Planning: What You Need To Know

Inheritance planning for your family’s future is an important part of an estate plan that can become complicated for high-net-worth individuals. Many Americans can pass down assets to their heirs without estate tax issues. However, this is not the case for individuals with a high net worth due to federal estate tax law, which has made headlines recently in light of proposed changes to estate tax exemption levels.

Creating an inheritance plan can help you pass down wealth or assets to future generations with the least possible tax in the event of your death. It can also eliminate ambiguity around your wishes that could lead to strained relationships within your family. In this blog post, we’ll explore five inheritance planning tips for high-net-worth individuals.

5 Inheritance Planning Tips For High Net Worth Individuals

1. Understand that inheritance planning involves more than your will.

A will is one of the foundational documents of your estate plan, along with other key documents like a power of attorney and an advanced medical directive, which in the event of your incapacity provides for the management of your financial affairs and medical decisions, respectively.

However, a robust inheritance plan goes beyond the basics. As a high-net-worth individual, you may have a substantial amount of money in accounts without beneficiaries attached to them, such as an individual retirement account (IRA). In this case, you may choose to create a revocable trust that enables you to transfer ownership of your non-retirement assets, such as your home or a brokerage account, into the trust while still maintaining control of the funds.

One of the major differences between a will and a revocable trust is that the former goes through probate court. Depending on which document you use, either can determine how your assets will be distributed upon your death. Revocable trusts do not need to go through probate and thus are usually much more efficient and provide for more privacy than a will.

Pro Tip: In addition to a revocable trust, there are many other types of trusts you can incorporate into your inheritance plan as a high-net-worth individual to minimize both income and estate tax and ensure your wishes are carried out upon your death and often also provide for creditor protection. These include spousal limited access trusts, grantor retained annuity trusts, irrevocable life insurance trusts, charitable trusts, and generation-skipping trusts, to name a few. The best choice for you depends on your unique goals and financial situation, so be sure to discuss the options with your financial advisor.

2. Create your inheritance plan early.

The future is uncertain, and it’s essential to be prepared for anything. This includes beginning the inheritance planning process early to remove future growth on assets, such as investments and property from your estate. This kind of proactive tax planning will help you minimize paying hefty estate taxes on your assets down the road.

Once you’ve established that you have enough wealth to support your own standard of living and may not need to rely on some of your assets, you may want to begin moving some of your money and assets from your estate into a trust that captures future growth of your assets outside of your estate. The benefit to this is that you can minimize the amount of assets that may be taxed in your estate, and they will continue to grow to support future generations or your charitable wishes.

3. Hire a team of experts to provide inheritance guidance.

As a high-net-worth individual with a certain level of assets, you need the help of professionals with specific knowledge to create a personalized inheritance plan for your family. This team includes your financial advisor, estate planning attorney, and a Certified Public Accountant (CPA). It’s important to find experts who regularly deal with your level of wealth and are well-versed in strategies to minimize taxes.

For example, if you own 100% of a company that is growing and increasing in value, have children working alongside you, and you are looking for an exit strategy, this will get complicated. You will need your financial planner and advisor to help understand if you will have enough wealth for your own future. You will also need an estate planning attorney to help strategically set up the transfer, and a CPA to make sure you manage the tax side of the transaction properly. A team of pros who understand your objectives and have specific expertise in each area can help you reach your objectives in the best way.

4. Review your investments as part of inheritance planning.

While it’s key to remove growth from your estate, you still need to be careful because some investments are better suited to trusts than others. You may want to include real estate or interest in a family business that you want to preserve for future generations.

In addition, the location of your investments plays a role in your overall investing strategy. For example, you may want to be more aggressive with assets that you’ve moved from your estate into a trust. If your children are planning to inherit these assets, they’ll likely have a longer time horizon before they need to access the investments. In contrast, you may need access to certain investments sooner to fund your retirement, so a less aggressive investment in these stocks makes sense.

Charitable planning also comes into play. As a high-net-worth individual, if you purchased a stock in your portfolio for $10,000 that turned into $1 million, you would incur a high capital gains tax if you sold this investment. If you have charitable intentions, it may be a smart move to donate this highly appreciated stock to charity instead of selling it to avoid paying tax.

5. Include different types of life insurance in your inheritance plan.

Life insurance is a valuable tool for high-net-worth individuals. For example you may decide to create an irrevocable life insurance trust (ILIT) with a $5 million policy. Upon your death, the $5 million policy will be excluded from your estate because it is owned by the ILIT, so it won’t affect your estate tax.

Typically, the purpose of an ILIT is not to replace income for your spouse or children in the event of your death. Rather, this type of trust often serves to pay for your assets. For example, if your assets are valued at $20 million but your heirs do not have the cash to cover the tax costs, they can use ILIT funds to provide liquidity for illiquid assets like businesses or land.

Get Inheritance Guidance Tailored To Your Family’s Needs

Knowing where your wealth will go when you pass away is essential. The key is to be specific about your wishes to ensure your money and assets are distributed as smoothly as possible. The inheritance planning process can be long and complex, so working with experts who can provide the right advice for your situation is a must.

At Curio Wealth, we have extensive experience working with high-net-worth clients. We also pride ourselves on our ability to listen first and act second, and we’re never too busy to take your calls or answer your questions. Our team has access to estate planning attorneys who can work with you to set up trusts and determine the flow of your assets as part of an inheritance plan. Schedule a call with us today to learn more about how we can help.

Important Disclosure: Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by Curio Wealth, LLC [“Curio Wealth”]), or any non-investment related content, made reference to directly or indirectly in this blog will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this blog serves as the receipt of, or as a substitute for, personalized investment advice from Curio Wealth. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. Curio Wealth is neither a law firm nor a certified public accounting firm and no portion of the blog content should be construed as legal or accounting advice. A copy of the Curio Wealth’s current written disclosure Brochure discussing our advisory services and fees is available for review upon request or at www.curiowealth.com. Please Note: Curio Wealth does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to Curio Wealth’s web site or blog or incorporated herein, and takes no responsibility for any such content. All such information is provided solely for convenience purposes only and all users thereof should be guided accordingly. Please Remember: If you are a Curio Wealth client, please contact Curio Wealth, in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services, or if you would like to impose, add, or to modify any reasonable restrictions to our investment advisory services. Unless, and until, you notify us, in writing, to the contrary, we shall continue to provide services as we do currently. Please Also Remember to advise us if you have not been receiving account statements (at least quarterly) from the account custodian.

Other Articles You Might Like

subscribe to our newsletter

Your Financial Journey Starts Here

Embark on a path of financial clarity and strength. Schedule a meeting with our team, and together, let’s shape a secure and prosperous future tailored just for you.