3 Estate Planning Tips the Wealthy Use

Are you the type of person who appreciates the finer things in life? Whether you’re already a high-net-worth individual with a dream boat and luxury cars or you’re aspiring to be, estate planning holds the key to safeguarding your lifestyle and passing it down to your heirs. 

At Lauenstein Law Firm, we concentrate on all the complexities of estate planning for you. Let’s dive into three important estate planning tips that the wealthy use to maintain their lavish lifestyles and fortify their legacies.

1. Consider Using a Trust to Maximize Control and Minimize Taxes

One of the most frequently used ways the wealthy acquire and maintain wealth is through trusts. A trust is a legal instrument established during an individual’s lifetime that contains assets to be distributed after death. Their main advantage is that they allow your heirs to bypass the probate process.

Before or after your death, whoever you designate as a trustee or guardian of your trust, can hold and manage assets on behalf of beneficiaries according to the terms outlined in the trust agreement. There are various types of trusts, each serving different purposes, such as revocable trusts, irrevocable trusts, and charitable trusts.

No matter which trust is right for your estate, the benefits are clear.

Trusts allow you to dictate precisely how and when your assets will be distributed to beneficiaries. This control can be particularly beneficial for managing young or financially inexperienced heirs. They can also significantly reduce estate and gift taxes. And offer greater privacy compared to wills, which go through probate and become public record. Additionally, trusts can protect your assets from creditors and legal challenges.

Strategic Trusts for High-Net-Worth Individuals

  • Dynasty Trusts: These long-term trusts are designed to pass wealth across multiple generations while minimizing estate taxes at each generational transfer.
  • Grantor Retained Annuity Trusts (GRATs): GRATs allow you to transfer appreciating assets to beneficiaries at a reduced gift tax cost, leveraging the growth of these assets during the trust term.
  • Charitable Remainder Trusts (CRTs): These trusts provide a stream of income to you or other beneficiaries for a specified period, with the remainder going to a designated charity. CRTs offer immediate charitable deductions and can mitigate capital gains taxes.

2. Leverage Life Insurance for Estate Planning

Life insurance is a powerful estate planning tool that can pay estate taxes, ensure equitable asset distribution among heirs, and give your loved ones quick access to funds after your death. High-net-worth individuals often use sophisticated life insurance strategies to address specific estate planning needs.

Advanced Life Insurance Strategies

  • Irrevocable Life Insurance Trusts (ILITs): Placing a life insurance policy within an ILIT excludes death benefits from your taxable estate. The trust can then provide liquidity to pay estate taxes, ensuring that other estate assets remain intact for your heirs.
  • Second-to-Die Life Insurance: Also known as survivorship life insurance, this policy covers two lives (typically spouses) and pays out upon the death of the second insured. This strategy is particularly useful for providing liquidity to pay estate taxes upon the second spouse’s death.
  • Premium Financing: Wealthy individuals may use premium financing to pay for life insurance premiums, borrowing funds at favorable rates, and using the policy’s cash value or other assets as collateral. 

3. Implement Family Limited Partnerships (FLPs)

What are Family Limited Partnerships?

A Family Limited Partnership (FLP) is a business entity designed to manage and transfer family-owned assets. In an FLP, family members can hold partnership interests, with senior family members typically acting as general partners who retain control over the partnership’s management.

Some of the advantages of FLPs for wealthy families include:

  • Asset Protection: FLPs can shield family assets from creditors and legal claims.
  • Valuation Discounts: Valuation discounts for lack of marketability and minority interest can significantly reduce the taxable value of these transfers.
  • Centralized Management: FLPs allow for centralized management of family assets.

Following these steps will set you up for success when it comes to having your estate planning in order. Please contact the Lauenstein Law Firm today to speak with a member on how we can help you manage your estate.

Contact Douglas Lauenstein Today For Your Estate Planning Needs

For a consultation tailored to your situation, reach out to the experienced team at Lauenstein Law Firm. We concentrate in estate planning, ensuring that your wishes are specified as outlined in your will. Your journey starts with a call to Lauenstein Law Firm— where your well-being is our priority. Contact us today to learn more about our services and the estate planning process.