Estate Planning for High Net Worth Individuals

Debugging the myths and phobias of estate planning

For the most part, people do not want to discuss their own mortality. This notion especially rings true for high net worth individuals – especially if they are in the prime of their lives. I’m young, I’m healthy, and I have everything I need to succeed­—what possibly could go wrong? I don’t need to deal with estate planning because I’m not planning on dying anytime in the near future.

Unfortunately, recent events have allowed us to witness the tragic deaths of some very rich and famous people at younger ages. In some respects, however, that statement holds true. That individual has the right to say, “I don’t need to deal with any estate planning”… but maybe you do!

Perhaps you are the one who is charged with making sure that the estate plan for a high net worth individual is in place. You may be the person responsible for ensuring that a significant inheritance is distributed in accordance with the desires of a wealthy client. As such, gaining a strong understanding of the basics of estate planning has become critical now more than ever before. As the point person in situations like this, it is important that you work in collaboration with other trusted advisors who may be involved in the financial lives of the client.

[To read more of Scott Sachs’ thought leadership click here]

The Basics of Estate Planning

In its simplest form, a basic estate plan consists of properly executed wills, trusts, powers of attorneys, and advanced healthcare directives. In the case of entrepreneurs, writers, athletes, entertainers, and others, consideration may also need to be given to other areas such as royalties, intellectual property rights, memorabilia, endorsements, and the like. It is strongly recommended that any estate plan be reviewed on an annual basis. This becomes crucial to any high net worth individual that may experience some significant changes in their financial situation over the course of any given year.

As an example, reaching a certain incentive under a contract may create a significant increase in wealth from the previous year. Many wealthy people today have become financial targets, resulting in their involvement in frivolous lawsuits. Protection of their assets during lifetime as well as at death is of paramount importance to them and must be addressed.

“It is strongly recommended that any estate plan be reviewed on an annual basis. This becomes crucial to any high net worth individual that may experience some significant changes in their financial situation over the course of any given year.”

Estates and Non–U.S. Citizens

Yet another unique challenge in the estate planning process, one that may escape the traditional thinking, is the citizenship of one of the spouses. Under current federal estate and gift tax rules, in 2015, each spouse, assuming they are U.S. citizens, has an individual estate tax exemption of $ 5,430,000. Combined, that means that both spouses can shield the first $10,860,000 of assets from federal estate taxes. But, what if one of those spouses is not a U.S. citizen and is, instead, a foreign national? What happens in that circumstance?

Well, the federal government is not as kind. A non–U.S. citizen can only shelter the first $60,000 of assets. That’s right, the first $ 60,000! So, to an unsuspecting high net worth individual – one who may not have U.S. citizenship for themselves and/or a spouse – left unattended, and without proper planning in place, the financial consequences at the death of both spouses may be devastating to the heirs.

[For more on Cohn Reznick’s approach to Estate Planning click here]

Assessing Strategies

So, if you are that “point person” – the one charged with the responsibility of ensuring that all goes as planned in the event of the untimely death of a high net worth client – are you up to date with the latest in maximizing estate planning strategies? Do you possess a clear understanding of your client’s desired goals and objectives If they die, or If they live and become incapacitated? Are the right legal documents in place that would take effect upon that triggering event? How familiar are you with these topics? Could one of your clients be a foreign national and you are not even aware of those consequences?

What is our advice? People who accumulate significant wealth need someone to guide them. They need someone who has a deeper understanding of the federal estate tax laws as they pertain to that higher net worth marketplace and, particularly, those who may have a non–U.S. citizen in the family. It is incumbent on you to make sure that the right people and strategies are in place that would take effect. Remember, you don’t have to be an expert in all of these areas. You just need to know where to go for that right advice!