Key things to know
A comprehensive estate plan can result in lower estate taxes, preservation of wealth and fewer family disputes.
Effective estate planning strategies for ultra high net worth families include gifting money, making use of trusts and planning for business succession.
Key to a successful estate plan is involving a multidisciplinary team of experienced tax, financial and estate planning professionals.
Estate planning is important for every family, but it’s especially critical for ultra high net worth families. Having a comprehensive estate plan may help you preserve and transfer wealth to future generations, reduce the tax burden on your beneficiaries, and mitigate the potential impact of lawsuits, down markets and incapacitation.
“Due to the high estate tax exemption levels, the vast majority of families do not have taxable estates, but this isn’t the case with many ultra high net worth families,” says Elliott Stapleton, senior vice president and managing director of wealth strategy for Ascent Private Capital Management of U.S. Bank. “If these families don’t create a comprehensive estate plan, they could be exposed to estate taxes of up to 40% on the value of the estate that’s above the exemption.”
Here are six estate planning tax strategies for you and your family to consider.
The best way for an ultra high net worth family to minimize estate taxes is by giving away assets while the patriarch or matriarch is still alive to remove the assets from their taxable estate, says Stapleton.
In 2024, individuals can give away up to $18,000 per recipient each year (or $36,000 per year for married couples) in cash or assets without having to file a gift tax return.
“It takes a multidisciplinary team to devise and execute a comprehensive estate plan for ultra high net worth families.”
- Elliott Stapleton, senior vice president and managing director of wealth strategy, Ascent Private Capital Management
“This might not seem like a lot for a family with significant wealth, but it can really add up over the long term,” says Stapleton. For example, a couple gifting $36,000 every year for 30 years would reduce the taxable value of their estate by over $1 million.
Meanwhile, the lifetime estate and gift tax exclusion in 2024 is $13.61 million, or $27.22 million for married couples. This is the total amount that you can give away during your life, in addition to the annual gift tax exclusion, before federal estate and gift taxes are due. These taxes are paid by the heirs and assessed at a top rate of 40% on the value of estates that exceeds the lifetime exclusion when the owner dies.
“There can be tension when it comes to gifting assets while still retaining control of them, especially if a family business is involved,” says Stapleton. “The key is to retain enough ownership to maintain voting rights in the business while transferring some of the company’s value to future generations.”
When planning gifting strategies, it’s important to make sure your cash flow needs are covered. This comes down to basic budgeting.
“Determine what you plan to spend during the upcoming year,” says Stapleton. “This includes not just everyday living expenses but also discretionary items like vacation homes, yachts or private aircraft. Then you can figure out how much you can safely give away without impacting your lifestyle.”
An irrevocable trust can help you move assets out of your estate and into the trust, which can help to minimize estate taxes, protect assets, provide for a child with special needs or leave a charitable legacy, for example. They also allow your heirs to avoid the expensive, time-consuming and public probate process. However, you typically can’t change or amend an irrevocable trust after it’s created.
There are a variety of irrevocable trusts to choose frum, and these specialized trusts can be useful in certain situations, says Stapleton. Here are a few to consider:
These are only some of the trust types available. Your wealth team can work with you and your family to determine which type of trust best fits your needs.
“Many wealthy families give large amounts away to charity, but often without an overall plan,” says Stapleton. He encourages families to think strategically about philanthropy. This will help maximize the impact and tax benefits of these gifts for both charities and families.
Charitable trusts can serve an important role in a charitable giving strategy. With a charitable remainder trust (CRT), you or your beneficiaries will receive an annual income stream for a designated term. Any assets remaining in the trust after you die will be transferred to your designated charity tax-free. With a charitable lead trust (CLT), your designated charity will receive an annual income stream. Any assets remaining in the trust after you die will be transferred to your beneficiaries tax-free.
A donor advised fund (DAF) is another strategic charitable giving tool. This is a pool of money managed by a non-profit organization on behalf of multiple donors. You will receive a tax deduction for DAF donations during the year they are made and can decide later which specific charity or charities will receive your grants.
Business succession planning involves creating a detailed plan for how and when you will exit your business and who will own and manage the company after you leave. For example, you might want to sell the business in five years and use the proceeds to start a new business. Or perhaps you want to retire in a few years and use the proceeds generated from the business’ sale to fund your retirement lifestyle.
Succession planning also involves identifying potential candidates to take over the leadership reins of your business. This can be especially challenging in families where some, but not all, of the heirs are actively involved in the business.
“Owners need to think about what’s fair and equitable for all their heirs,” says Stapleton. “For example, they might decide to pass on a larger ownership share in the business to children who are involved in it than children who aren’t.”
Ultra high net worth families have much more complex estates and investment portfolios than most other families, which makes the selection of a trustee critical.
Stapleton believes it’s usually wise for families with significant wealth to choose a corporate trustee who specializes in settling complex estates. “There’s not much margin for error, which is why choosing a professional trustee usually makes sense for wealthy families,” he says.
It’s critical for families with significant wealth to partner with a team of skilled and highly trained professionals when crafting their estate plan. This includes a wealth strategist, portfolio manager and trust advisor, along with an attorney and accountant who specialize in tax and estate planning. Together, these experts can help you create holistic estate planning strategies to reduce estate taxes and ensure family wealth transfer in the most advantageous ways.
“It’s difficult, if not impossible, for one person to handle every aspect of estate planning for ultra high net worth families,” says Stapleton. “It takes a multidisciplinary team to devise and execute a comprehensive estate plan for these families.”
Learn how we can work closely with you and your family to lay the groundwork for a successful estate plan and family wealth transfer.
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