Trust Solutions for High-Net-Worth Estates

Trust Solutions for High-Net-Worth Estates

April 26, 2024

Estate planning is essential for high-net-worth individuals, who often have significant assets to pass on to their families. One of the most effective ways to protect HNW estates is through the use of different types of trusts. Here's what you need to know.

Busy schedules and high-stress environments often lead many wealthy individuals to delay the critical process of including trusts in their estate plans. According to a recent survey from Caring.com, over half of the wealthiest Americans have implemented no form of estate plan—no will, trust or advance directive. A staggering 54% attribute their inaction to procrastination.

With the right knowledge, trusts offer a powerful solution for preserving your legacy and helping secure your assets. At Agemy Financial Strategies, we believe trusts are one of the most undervalued financial tools for managing your hard-earned wealth. 

Join us as we explore how trusts in your overall estate plan can help you protect your family's future and achieve your financial goals.

First is Understanding The Importance of Estate Planning 

Estate planning is a crucial aspect of retirement planning as it allows retirees to set a blueprint for the distribution of their assets after their passing. Without an estate plan, retirees risk leaving their loved ones without clear instructions on handling their estate. Poor planning can lead to confusion, disputes, and potentially costly legal battles. 

35% of American adults say they have personally experienced family conflict or know someone who has due to not having an estate plan in place. Creating a comprehensive plan helps ensure your assets are distributed according to your wishes, minimizing the likelihood of family conflict. 

Before consulting with a fiduciary advisor to start your estate plan, take some time to reflect on your posthumous wishes, as well as some critical questions and scenarios, including:

Although it may be challenging to initiate, discussing your intentions with your loved ones in advance allows you to convey your wishes clearly and allows everyone to ask questions or express their concerns. 

 Second is How Trusts Benefit High-Net-Worth Individuals

Trusts serve as effective tools for high-net-worth individuals (HNWI) by protecting assets, minimizing taxes for beneficiaries, and helping provide precise allocation of wealth. Essentially, trusts are legal entities that hold assets for designated beneficiaries. Trusts provide several benefits for high-net-worth individuals:

  • Asset Protection: Trusts shield assets from creditors and lawsuits, providing valuable protection, especially for individuals in high-risk professions.
  • Estate Planning: Trusts facilitate tax-efficient wealth transfer to loved ones by bypassing probate, reducing estate taxes, and helping ensure assets are distributed according to the grantor's wishes.
  • Privacy: Trusts maintain the confidentiality of financial affairs as private documents, offering discretion in asset management and distribution.

In addition to these primary advantages, trusts can be tailored to achieve specific goals, such as charitable giving and preserving wealth across generations. Now that we've covered the basics of trusts let's explore trusts that may benefit high-net-worth individuals.

Types of Trusts Available

Each type of trust presents unique advantages and considerations, and the suitability of a specific trust structure depends on individual circumstances and goals. Trusts are powerful tools for high-net-worth retirees who aim to preserve their wealth and legacy for future generations. Here’s a look at several common types of trusts.

1. Living Trust

A Living Trust is created during your lifetime and it designates a trustee who will manage assets for your Beneficiary or Beneficiaries after your passing.

2. Intentionally Defective Grantor Trusts (IDGTs)

These irrevocable trusts are advantageous for estate tax reduction and wealth transfer. IDGTs allow assets to be excluded from the grantor's estate for tax purposes while the grantor pays income tax on trust earnings.

3. Revocable Trusts & Irrevocable Trusts

Irrevocable trusts are often used for tax planning and asset protection purposes, while revocable trusts are more flexible, allowing the trust to be changed by written amendment by the grantor/creator.

A Revocable Living Trust is established while you are alive and can be changed or canceled during your lifetime. Its purpose is to bypass probate; however, it does not provide absolute asset protection while you are alive. Assets held within your revocable living trust remain accessible to creditors during your lifetime, although it will pose more challenges for them to access these assets.

Irrevocable Trusts cannot be changed once they are established unless they are subject to special decanting rules provided in many states or unless a court permits the trust to be amended, usually with the consent of the impacted beneficiaries.

4. Charitable Trusts

Charitable trusts are designed to allow individuals to donate assets to a charitable organization while still retaining some benefits from those assets. With this type of trust, the grantor transfers assets to the trust, making payments to the grantor based on an agreed-upon formula. After the grantor passes away, the remaining assets in the trust are distributed to the designated charity.

Charitable trusts offer several benefits:

  • Potential tax deductions for the grantor.
  • The ability to support a charitable cause or organization
  • The option to receive income during the grantor's lifetime. 

These types of trusts can be tailored to meet individual goals and structured in various ways to suit different situations. It is important to work with an experienced fiduciary advisor to determine if a charitable trust is appropriate for your estate planning needs.

5. Dynasty Trusts

Dynasty trusts are designed to perpetuate wealth management across multiple generations while minimizing tax liabilities. By keeping assets within the trust, dynasty trusts can protect wealth from estate taxes and creditors, ensuring a lasting legacy for future descendants. Consulting with a knowledgeable fiduciary advisor is essential to determine the most appropriate trust strategy for maximizing estate protection and achieving long-term financial objectives.

The above list serves as just a few trusts available for HNWIs. Others to discuss with your fiduciary advisor include: 

  • Crummey Trust
  • Generation-Skipping Trust
  • Grantor Retained Annuity Trust
  • Asset Protection Trust

Why Trusts Are Important

Setting up a trust is essential for asset protection and ensuring tax-efficient wealth transfer. Trusts play a crucial role in reducing estate tax exposure, enabling more assets to be passed to beneficiaries in a tax-efficient manner. By minimizing estate taxes, trusts offer significant benefits to estate planning.

While estate tax rates are currently progressive, it's crucial to understand the tax rates applicable to your situation. Many states, including Connecticut, impose estate taxes with lower asset thresholds than the federal government. The table below outlines each state's exclusion amount.

Living in a state with an estate tax can be advantageous, as your estate tax bill is generally subtracted from your taxable estate before calculating what you owe the IRS. Consulting with an experienced fiduciary advisor is key to selecting the most suitable trust to meet your unique needs and goals.

Working With a Fiduciary Advisor

Estate planning that includes the right types of trusts can be challenging, especially for those with a high net worth. You want to protect your family, assets, and business while gaining peace of mind knowing you’re prepared and in control. That's why when estate planning for HNW estates, it's essential to work with an adviser highly experienced in this area of retirement planning. 

Working with fiduciaries is essential when establishing a trust. They can help ensure that your wishes are met and your assets are protected. An experienced fiduciary advisor can help you navigate complex legal and financial issues and determine the best type of trust for your specific needs and goals. They can also help confirm that your trust is structured to provide the maximum benefit to your beneficiaries.

Agemy Financial Strategies has a team of skilled fiduciary advisors who excel at helping clients create robust and meaningful trusts. We are committed to providing our clients with the highest level of service and will work with you every step to help ensure that your trust meets your unique needs and goals.

Final Thoughts

For high-net-worth retirees, trusts are pivotal in preserving assets and facilitating tax-efficient wealth distribution. Partnering with Agemy Financial Strategies can help bring you peace of mind regarding effective estate planning. Our experienced team is dedicated to helping you secure your legacy and confidently achieve your financial goals. 

Schedule a complimentary strategy session with us to learn more about leveraging trusts for your estate planning needs.