With a greater net worth comes greater complexity when creating your estate plan. You will need a range of documents to successfully protect your family after your passing. It is crucial to understand estate planning essentials for high net worth families to effectively plan for the future by minimizing taxes, protecting your assets, and securing your legacy through expert guidance.
Tax Considerations
There are a range of wealth transfer taxes that are especially relevant for high net worth families to understand and consider when estate planning. These taxes include:
- Gift & Estate Tax: You are allowed to gift up to $19,000 per person in a single year. Anything over this amount is taxed at 40% per the gift tax. The estate tax is applied to everything you own at the time of your death. The exemption amount is $13.99 million for individuals and $27.98 for married couples for 2025. The $13.99 million limit applies to what the IRS refers to as a “unified credit” of estate and gift taxes. So, if you go over the gift tax exemption limit, this cuts into the portion of the exemption that you can use for estate tax. The estate tax is a 40% tax that is only applied to any amount over the exemption amount. Prior to the Tax Cuts and Jobs Act (TCJA) of 2017, the exemption limit was $5.67 million.
- Possible Changes: The $13.99 million exemption limit is not permanent and must be renewed in Congress to be effective past 2025; therefore, it is important to plan if the exemption limit reverts to pre-TCJA rate of $5.49 million (adjusted for inflation) which would go into effect January 1, 2026.
- Generation-Skipping Transfer Taxes: These taxes are applied when you give property to a grandchild or great-grandchild, effectively skipping a generation. In 2025, similar to Estate taxes, there is a tax exemption up to $13.99 million.
- Inheritance Tax: This tax must be paid by the beneficiary, not by the grantor. There is no federal inheritance tax and most states, including Wisconsin, do not have an inheritance tax.
Minimizing Taxes through Trusts
If you are part of a high net worth family, the important part to take into account when considering the 40% estate tax is that it is applied to assets you own at the time of your death. By putting assets into certain trusts, such as an irrevocable trust, they are no longer part of your taxable estate, and you avoid the 40% estate tax if you are over the $13.99 million exemption. Trusts are a very powerful, complex tool, especially for larger estates. Irrevocable trusts minimize estate taxes, offer asset protection, and avoid probate. However, there are also disadvantages to irrevocable trusts as they lack control for the grantor and lack flexibility.
Other forms of trusts may better tailor to your specific needs. For example, an irrevocable life insurance trust is also a powerful wealth transfer mechanism and allows the trust to own a life insurance policy, rather than the insured person themself. A charitable remainder trust allows you or other named beneficiaries to receive a certain predetermined amount in the form of reliable payments from the trust for life or up to 20 years. Then, the remaining balance of the trust goes to a charity organization of your choosing. If you have a beneficiary that you may have concerns about being “bad with money” or unable to responsibly manage their wealth, then you may want to consider a spendthrift trust. This trust limits a beneficiary’s access to the assets in the trust and can help protect them from creditors as they are not the trustee (manager) of the trust.
Choose the Right Trustee
If you determine that a trust is part of your estate planning portfolio, then choosing the right trustee is an essential step to protect your assets if you are a high net worth family. You may choose to hire an external trustee to designate a trusted family member. Either way, you must do your research and should consult with an attorney about what option best fulfills your goals.
Review your Beneficiaries
You should review and possibly update your beneficiaries to ensure that your wishes are still reflected later in life. Relationships change, people get married/divorced, and loved ones may pass away or be born.
You should also regularly review your beneficiary designations of retirement plans, annuities, and insurance products as these typically take precedence over what is written in a will as well as designations for any bank or brokerage accounts. Updating your estate plan can also help avoid legal complications after your death.
Plan for Incapacitation
In the case you become incapacitated, it is important to have a range of documents to comprehensively ensure that your wishes are followed every step of the way. A Power of Attorney (POA) document is a powerful tool to appoint agents to care for you and your estate in the case you cannot yourself. Given the amount and value of your assets, a Durable Power of Attorney (DPOA) is especially important as it allows an agent to take charge of your financial matters, including property, and manage your bank accounts and other assets. A Health Care Power of Attorney (HCPOA) allows your agent to determine your medical treatment, long-term care, and specific courses of treatment in the case that you cannot communicate this on your own. A HIPAA release form allows you to designate an agent to access your protected medical information to help them make decisions. Additionally, a living will is a set of instructions if you are in a vegetative state or terminal condition and there is no hope for your recovery. It includes your wishes related to life-sustaining procedures and feeding tubes.
Contact a Wisconsin Estate Planning Attorney
No two estate plans are the same, so it is essential to contact an experienced attorney to learn more about what best suits your estate planning needs and how to accomplish your goals. Contact Konstantakis Law Office to protect your legacy and your loved ones’ futures and help you navigate the complex legal and tax issues that come with a high net worth.
