How to Build an Estate Plan Based on Net Worth
A high-net-worth estate plan goes far beyond a simple will. It can ensure your assets are in the right hands without excessive taxation and fees.
Net worth is calculated by taking all your assets and subtracting your liabilities. Some assets are fixed, while others have variable value, such as a home mortgage or auto loan balance.
Estate planning is a financial strategy determining what happens to your assets and who receives them when you die or are incapacitated. It also allows you to control your affairs and minimize their cost.
Most people with a net worth of $1 million or more should consider working with an estate planning attorney. Estate planning based on net worth can help ensure that your property is titled correctly, which impacts whether your estate must go through probate, how your assets are distributed and your estate taxes.
A business succession plan is another crucial component of estate planning for high-net-worth individuals. This is important because many people in this category derive much of their income from family-owned businesses. They must work with an estate planning attorney to set up a plan that allows their business to run smoothly when they are gone.
Deciding what steps to take to build your estate plan can be overwhelming. You can find a financial advisor specializing in estate planning using a free tool. Our advisor matching tool connects you with up to three vetted financial advisors who serve your area. You can interview your advisor matches for free to decide which is the right fit.
For estate planning purposes, net worth is calculated as the total value of assets minus debts. Assets include cash, investments, the market value of your home and investment properties, vehicle values, life insurance policy death benefits, personal property such as jewelry and fine art, and business interests.
Considerable liabilities include mortgages, credit card debt, unsecured loans, and other outstanding financial obligations. These may be deducted from the gross total of your estate for tax purposes.
Many high-net-worth individuals own family businesses, and estate planning can help to ensure a smooth transition when they die. This involves setting up legal structures and creating clear succession plans. It can also help to mitigate potential family conflicts and maintain healthy family ties. Using a financial advisor specializing in estate planning is a good way to ensure the process goes smoothly. SmartAsset’s free tool can connect you with vetted advisor matches in your area. Start your search now.
High-net-worth individuals are more likely to be subjected to federal estate taxes, so they must minimize this burden. One strategy is to make annual gifts that reduce their total estate value, using techniques like spousal lifetime asset trusts (SLATs).
Another way to lower the amount subject to tax is to leave funds to charity. This can be done through a charitable remainder trust or directly, depending on the individual’s situation and philanthropic goals.
It’s also important for high net-worth individuals to keep their estate plans aligned with their current goals and needs. For example, they should evaluate their programs following major life milestones and after experiencing a significant change in their financial standing. This could include a new career, marriage, childbirth, a divorce, the death of a family member, or any other change that may require changes to their plan. This will ensure that their hard-earned money goes to the people and causes they care about.
A financial firm like Fort Worth Estate Planning law firm Baker-Heath PLLC can help prepare a well-documented business succession plan may help reduce the unforeseen issues affecting a successful small business. A proper method can relieve headaches, drama, and monetary loss for everyone involved. It includes a timeline for the transition, a clear leadership structure, a formalized standard operating procedure (SOP) document, an entity purchase agreement, and a method of valuing and funding your business.
Passing the business to an heir is often a popular option but can lead to complications. If the heir is ready to take over, there could be a power struggle that positively impacts operations. Having a plan in place can help prevent this from happening and can also help ensure that other family members will be compensated for their ownership interest.
Developing a comprehensive estate and business succession plan can be complex, especially for high-net-worth individuals. The best option is to collaborate with a team of professionals who are well-versed in the needs of high-net-worth clients and can provide specialized guidance for every situation.