Spring Into Action: HNWI Estate Planning

Spring Into Action: HNWI Estate Planning

March 15, 2024

As the seasons transition and we look forward to warmer days ahead, change sweeps not only through the natural environment but our financial world, too. For high-net-worth investors, spring signals a prime time to review financial plans, especially when it comes to estate planning.

In the hustle and bustle of everyday life, it's easy to overlook the importance of estate planning. Yet, reviewing and updating your estate plan can be valuable as the seasons change and new opportunities emerge. It's a chance to reflect on your financial legacy and make any necessary adjustments to have it align with your current circumstances and goals. Here's what you need to know.

The Importance of Estate Planning for HNWI

Estate planning is not solely about the transfer of assets after one's passing. It involves having a comprehensive approach to managing wealth during your lifetime and beyond. Individuals with high net worth have estates that involve complex structures and significant assets. In order to protect these assets, careful planning is needed.

64% of Americans think having a will is very or somewhat important. Surprisingly, among those who emphasize the importance of having a will, one in four individuals still haven't drafted one. Yet, higher-earning Americans are twice as likely as lower-earning Americans to prioritize drafting a will after expanding their family.

This emphasizes the importance of estate planning for HNWI, as it protects their assets and ensures the protection and distribution of wealth for their growing families. Without proper planning, a substantial portion of an estate's value could be lost to taxes, diminishing the legacy for beneficiaries. Let's look at some strategies that can help you optimize your estate plan while maximizing your wealth preservation.

Setting Up A Trust

HNWIs can optimize their estate plans to help maximize wealth preservation by implementing strategic measures, such as establishing trusts. Trusts can be powerful tools for achieving financial goals and protecting assets. They offer flexibility, control, and numerous benefits, making them popular among individuals with substantial wealth. 

There are various types of trusts, each designed to serve different purposes. Common types include:

  • Revocable Living Trusts
  • Irrevocable Trusts
  • Charitable Trusts
  • Special Needs Trusts
  • Spendthrift trust

Understanding the nuances of different trust structures can empower you to decide which type of trust best aligns with your estate planning objectives. Trusts can help shield your assets from creditors, lawsuits, and other threats. Some trusts allow you to serve as the trustee, maintaining control while enjoying the benefits of asset protection and tax planning.

The federal estate tax ranges from 18% to 40% and generally only applies to assets over $13.61 million in 2024 for individuals. But married couples don't have to pay estate if their estate is worth $27.22 million or less. For 2023, the threshold is $12.92 million for individuals and $25.84 million for married couples.

It's important to consult a financial advisor who can help you navigate the complexities of trusts to preserve, protect, and distribute your wealth according to your wishes.

Minimize Gift & Estate Assets 

High Net Worth Individuals (HNWIs) can integrate gifting assets strategically into their existing estate plans in various ways. Firstly, they can take advantage of annual gift exclusions, permitting them to gift a set amount per recipient annually without incurring gift taxes. Taxes are a certainty in life, but with careful planning, you can minimize the tax burden on your estate after your passing.

 As part of your estate planning journey, it's crucial to evaluate your total assets, encompassing:

  • Properties
  • Stocks and bonds
  • Cash reserves
  • Interests in life insurance or annuity contracts
  • Retirement accounts like a 401(k)
  • Personal belongings such as vehicles, clothing, and household items

The estate tax threshold, or the exemption limit, is crucial in estate planning. Estates exceeding the current threshold may be subject to federal estate taxes, which can significantly diminish the wealth intended for beneficiaries. Giving gifts to loved ones presents another avenue for reducing the value of your total assets during your lifetime. Notably, you can avoid paying gift tax if your gifts remain below the gift tax limit, which is $18,000 per recipient in 2024. In addition to charitable giving, there exist other avenues for giving that are not subject to gift tax, including:

  • Qualified gifts to your spouse or contributions to a political organization.
  • Qualified medical or educational expenses payments directly to the medical or educational provider.

A comprehensive estate plan evaluates all available strategies and implements those most suitable to your circumstances. Working with a fiduciary can help you find the right strategies based on your needs and goals.

The Role of a Fiduciary in Estate Planning

Navigating the complexities of estate planning can require professional help, especially if you have substantial assets to manage and transfer. Your advisor should be familiar with your goals and concerns, your assets and how they are owned, and your family structure, which is where a fiduciary comes into play. A fiduciary is an individual or entity entrusted to act in the best interests of another party, typically concerning financial matters. There are several ways in which a fiduciary can assist HNWI in their estate planning endeavors:

  • Objective Guidance: A fiduciary provides impartial advice based on a thorough understanding of the client's financial situation, goals, and concerns. They can offer insights and recommendations tailored to the unique needs of the individual or family, helping to devise a comprehensive estate plan that aligns with their objectives.
  • Experience in Estate Planning: Estate planning entails navigating a maze of legal and tax intricacies that can be daunting for individuals unaware of these laws. Fiduciaries bring extensive experience crafting estate plans, adeptly minimizing tax burdens, and protecting wealth. Their experience allows them to navigate complex regulations adeptly, optimizing strategies to reduce tax exposure and enhance the efficiency of wealth transfer.
  • Conflict Resolution: In cases where disputes arise among beneficiaries or challenges to the estate plan emerge, a fiduciary can serve as a mediator and facilitator, seeking amicable resolutions and upholding the integrity of your wishes.

Working with a fiduciary ensures that your estate planning journey is guided by professionalism, integrity, and a commitment to achieving your long-term objectives.

Regularly Review and Update Your Plan

Estate planning can be challenging, especially for those with a high net worth. You want to protect your family, assets, and business and gain peace of mind knowing you're prepared and in control. Therefore, it's essential to regularly review and update your estate plan to confirm it remains aligned with your goals and takes advantage of any new tax-saving opportunities.

An experienced fiduciary advisor can provide valuable advice and guidance regarding estate planning. At Agemy Financial Strategies, our team of skilled fiduciaries excel in assisting clients with creating robust estate plans for HNWIs. We are committed to providing our clients with the highest level of service and will work with you every step of the way to confirm that your estate plan needs are taken care of.

Last Thoughts

Spring is a season of renewal and growth, making it ideal for HNWIs to spring into action and revisit their estate planning strategies. By proactively addressing their estate planning needs and enlisting the support of a knowledgeable fiduciary, HNWIs can help protect their wealth for generations to come. 

At Agemy Financial Strategies, you can rest assured that your financial affairs are in capable hands. To learn more about how trusts can benefit your estate planning needs, schedule a complimentary strategy session with us today.