Estate planning is a complex process, especially for high earners. Without a comprehensive estate plan, you may be costing yourself and your beneficiaries millions of dollars.
1. Failure to Plan for Incapacity
Given the amount and value of your assets if you are a high earner, it is essential to plan for your possible incapacitation. Creating Power of Attorney documents allows you to appoint agents to care for you and your estate in the case that you cannot yourself. A Durable Power of Attorney (DPOA) (financial POA) is especially important because it allows you to appoint an agent to take charge of your financial matters, including your property and bank accounts, and make decisions in your place. A Health Care Power of Attorney (HCPOA) is also important as it allows your agent to make decisions related to your medical care such as determining your medical treatment and long-term care.
If you do not appoint your own financial power of attorney agent or health care power of attorney agent, the court will appoint one for you, and they may or may not align with your goals or values. It is crucial to appoint agents you trust to these power of attorney positions to ensure that your legacy is protected and your wishes are followed, especially for high earners. If you don’t appoint a financial POA, they cannot access your accounts in the event that money needs to be transferred or properties managed, unless they are already listed on the accounts. Failure to plan for incapacity may also lead to family conflicts in your absence and delayed or unwanted treatments.
To properly plan for incapacity, you should also have a HIPAA release form which allows you to designate an agent to access your protected medical information. 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.
2. Choosing the Wrong Trustees or Agents
As a high earner, choosing the wrong trustees or agents to manage your estate can be detrimental to your legacy. A trustee is the manager of a trust. If you create an irrevocable trust, then you (the grantor) cannot be the trustee as you lose ownership of the assets in the trust during your lifetime. You no longer have the ability to manage the assets that are in an irrevocable trust and instead this responsibility is passed onto the trustee. However, if the designated trustee is irresponsible with your assets or money, you and your beneficiaries will be severely impacted. You should do your research and pick a trustee that you trust, someone who you know can responsibly manage your wealth. If you pick a family member or friend, it is important to consider their personal habits, such as gambling, excessive drinking, or other irresponsible behaviors. You may also choose to hire a corporate trustee outside of your family; either way it is important to evaluate your options and choose someone you trust. You do not want to put your legacy and your beneficiaries at risk by choosing an irresponsible trustee.
3. Not Considering Estate Taxes
Wealth transfer taxes such as estate, gift, and generation-skipping taxes play a major role in high earners’ estate plans. 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. Anything over the exemption amount is taxed at 40%.
It is also important to note that there may be changes to the $13.99 million exemption limit as it is not permanent and must be renewed in Congress to be effective past 2025. If the Tax Cuts and Jobs Act (TCJA) of 2017 is not renewed, the exemption limit reverts to its pre-TCJA rate of $5.49 million (adjusted for inflation) which would go into effect January 1, 2026.
To minimize taxes, many high earners utilize trusts to remove assets from their taxable estate and avoid the 40% estate tax rate. Trusts are a very powerful, complex tool, especially for larger estates and it is essential to consult with an experienced attorney to learn the tax and legal issues that come with trusts.
4. Failure to Regularly Review and Update your Plan
It is essential to regularly review and update your estate plan. If you do not, you may not be accounting for all of your assets or you may not be leaving your assets to all your intended beneficiaries. It is important to revisit your estate plan following major life events to ensure your wishes are still followed. For example, relationships with your beneficiaries may change, people may get married/divorced, loved ones may pass away or be born, and financial situations may change. Updating your estate plan can also help prevent legal complications after your death, such as if you included someone that had passed away, or family conflicts, such as if you included a loved one’s ex-spouse instead of their current one.
5. Lack of a Comprehensive Estate Plan
You need a range of documents to have a comprehensive estate plan, especially if you are a high earner. A will by itself is not enough. A trust of any kind by itself is not enough. As stated in the importance of planning for incapacity section, you also need a range of documents to communicate your wishes and appoint agents to act in your place if you are unable to yourself. One document is not sufficient to effectively distribute your assets. For example, trusts can help avoid the probate process, but some things fall through the cracks, creating the importance for a pour-over will to comprehensively cover all your assets.
Contact a Wisconsin Estate Planning Attorney for High Earners
If you do not create a comprehensive estate plan, you are not effectively securing your legacy or protecting your beneficiaries after you pass. No two estate plans are the same and it is crucial to consult an experienced attorney to learn more about estate planning for high earners. Contact Konstantakis Law Office today to learn about how to maximize your estate and the assets you leave for your beneficiaries.
