Beyond Trusts: 3 Strategies to Help High Net Worth Estates Protect Wealth
By: Barry E. Haimo, Esq.
August 26, 2021
You worked hard to achieve the wealth that you have. Not only for yourself, but for those who will one day inherit it — along with the responsibility of managing your legacy.
Because of that, you want to use whatever tools are at your disposal to protect that wealth. In this post, we will discuss three options that high-wealth families like yours can use for asset protection purposes. So more of what you have goes to the people and institutions you care about most.
1. Establish a Private Foundation
Nonprofit charitable private foundations are among the best ways to establish a legacy while ensuring that your wealth is protected. How so?
Starting your own private foundation or investing heavily in another provides both guardianship and autonomy over your wealth after you pass as well as supporting societal/scientific/institutional advancements that interest you.
Of course, there is a financial motivation in delving into the nonprofit sector as well: it enables you to take a sizable estate tax deduction.
Many clients also understand the potential negative influence that having large sums of cash may have on minors and young adults. By investing in a charitable foundation instead, you get to invest in the society in which your family lives — something that will indirectly benefit those you leave behind without the potential negative influence described.
2. Life Insurance
There are two big ways that life insurance can be incredibly valuable for families with a high net worth.
Paying Estate Taxes. Depending on how much of your assets are liquid, it may actually be undesirable for your beneficiaries to receive them after your passing. Why?
The current estate tax rate is 40%. If less than 40% of your assets are liquid, your beneficiaries may actually have to sell off a portion of those assets just to pay the tax.
Obviously, this is not a desirable situation to put them in. And with an appropriate life insurance policy, you can protect them from this situation. How so? The insurance can cover all or most of the taxes that will be due, allowing your heirs to maintain your illiquid assets.
Offering Balanced Inheritances. Quite often with high net worth estates, much of that worth comes from the value of a successful business. Unfortunately, it doesn’t always make sense to give each of your heirs an equal share of the business, leading to unbalanced inheritances.
The right life insurance policy can serve to make up the difference and make each heir feel like they were treated fairly.
3. Family Limited Partnership (FLP)
An FLP is a means of protecting your family’s wealth that enables a transfer of assets from general partners (usually the matriarch/patriarch of family) to limited partners (usually children or grandchildren) upon death to incur lower estate, gift, and income taxes.
Additionally, the FLP protects your assets if family dynamics are somehow soured in any way, including divorce and other unforeseen circumstances.
With all of the assets being primarily handled by the general partners, your wealth is protected from fees that would be incurred if your assets were managed through a trust.
Learn More About Asset Protection
No matter what you do, remember that one of the most important aspects of estate planning is to maintain a healthy discourse with your family and those closest to you about what your plans are. Simply doing this can go a long way towards avoiding conflict between your loved ones after you’re gone.
Want to learn more and speak to experienced estate planning professionals who are here to help you and your family achieve your goals and wishes? Get in touch by calling us at (954)-228-3369 or emailing us at email@example.com. We look forward to helping you and your loved ones protect what you have established.
Barry E. Haimo, Esq.
Strategic Planning With Purpose®
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