What Is Advanced Estate Planning?
Nearly everyone can benefit from developing estate plans, even if they’re not wealthy and their estate isn’t complex. However, when someone has a high net worth and considerable assets that may be complex to account for in an estate plan, estate planning isn’t just a good idea; they’ll likely need far more options than a standard will or trust.
Advanced estate planning can help handle the variables and nuances involved in complex estates, including ensuring assets go to the preferred beneficiaries and taxes involved in transferring assets are minimized as much as feasible. It can also specify how the estate should be managed going forward. Large, complex estates may need more ongoing attention than smaller, more straightforward estates.
What Advanced Estate Planning Strategies Could Be Valuable in Protecting My Inheritance?
There are many, depending on your estate’s specific circumstances and details. This is not an exhaustive list, but it represents some of the most common strategies used in advanced estate planning. To determine the best approach for your estate, contact an experienced advanced estate planning attorney.
Trusts
Developing a trust is a time-honored method of protecting assets, not just for the eventual beneficiaries but also for protecting yourself. A trust is a legal mechanism in which someone’s assets are placed. The trust owns the assets, not the estate owner. There are several types of trusts with different purposes. Some offer protection against creditors and lawsuits, making them invaluable for people whose careers may lead to lawsuits (doctors, lawyers, etc.).
These are not the only trusts available, but they can help give you an idea of their range and versatility.
- Grantor retained annuity trusts (GRATS). These are used to transfer asset appreciation to beneficiaries after a set term. If the grantor survives the term, the heirs receive the appreciated amounts that are usually not subject to estate and gift taxes.
- Generation-skipping trust. Individuals can leave up to $1,000,000 to grandchildren (or other remote relatives) and avoid the usual generation-skipping transfer tax. A trust is set up to make the amount available to spouses and children, and eventually, the amount is transferred to grandchildren. A variation on this is the dynasty trust, which uses the structure of the generation-skipping trust but has it last more than two generations.
- Qualified personal residence trust. Moving a home into a trust for a specific number of years can reduce the gift tax value of the house when it’s eventually distributed to heirs.
- Irrevocable life insurance trusts. Contrary to popular opinion, life insurance payouts can be considered part of a taxable estate. They may be safe from income tax, but not necessarily estate and gift taxes. An irrevocable life insurance trust owns the life insurance, not the person who took out the policy. It can be funded using cash gifts (as opposed to giving the gifts to the beneficiaries directly, as described above). After your death, the insurance payout can help the estate pay the remaining expenses and provide income to the beneficiaries.
- Charitable trusts. There are two types of charitable trusts.
- Charitable lead trust. This irrevocable trust provides financial support to charities for a limited time. Once that time has elapsed, the remaining assets are distributed to the heirs. This can reduce gift and estate taxes while benefiting nonprofit organizations.
- Charitable remainder trust. This is a tax-exempt trust, also irrevocable, which pays out income to the trust’s named beneficiaries for an established period of time. Once that period ends, the remaining assets are donated to charity. There are several financial benefits to this, including a one-time tax deduction, possibly lowered estate taxes, and a reduction of capital gains taxes. This may work most effectively if done in conjunction with a life insurance trust.
Gifts
This is a relatively simple thing to do: Give gifts of your assets to your heirs while you’re still living. By doing so, you can reduce the overall size and value of your estate, which could make an enormous difference to your heirs someday. The IRS has an annual gift tax exclusion that allows you to give a certain amount each year (in 2024, it’s $18,000 per individual) without incurring gift taxes.
Business Planning
If you own a business(es), it’s vital to factor that into your estate planning, or the business could be assessed harshly with taxes after you pass. In some cases, passing along interests in the company to your children while you’re alive may help avoid those taxes. There are ways to structure this that allow you to continue having control of the company while setting up the children to take over eventually.
It’s also worth considering developing buy/sell agreements, especially if your business is a family business. This can restrict transferring the interests of the business to others. It can also create plans for other business owners to buy out the share of the original owner after their death.
What Should I Do if I Need Help Protecting Inheritance in Estate Planning?
Call Celaya Law as soon as possible at 707-754-0977 to request a free consultation. We understand how important it is to ensure your inheritance is protected for yourself or for future generations. Our team of knowledgeable advanced estate planning attorneys understands what’s at stake and is experienced with the advanced strategies needed to manage a large, complex estate. We keep your best interests front and center and can help you develop a plan to protect those interests.