What Qualifies as High Net Worth?
According to The Currency, a high-net-worth individual is one with $2.2 million or more in net worth or at least $1 million in liquid assets. Liquid assets generally include cash, stocks and bonds, mutual funds, etc., but not real estate and land. In 2020, 11.6 million United States households met the definition of high-net-worth, up 5.5 percent over 2019. The U.S. has more high-net-worth individuals than any other country. The U.S., China, Germany, and Japan make up 64 percent of all high-net-worth households.
High-net-worth individuals are typically allowed to participate in specific investments that are not available to “ordinary” investors and may also have more opportunities to get in on the ground floor of IPOs. While high-net-worth individuals may have many advantages, when engaging in estate planning, there are more factors to consider to ensure assets are protected for future generations.
Case Illustration of High Net Worth
Suzie has done very well with her medical supply business, expanding across the state of North Carolina, and into South Carolina over the past three decades. Suzie is widowed, with three children and 8 grandchildren. With more than $15 million in liquid assets, Suzie definitely falls in the high-net-worth category. While North Carolina has no state inheritance or estate tax, Suzie must consider the implications of federal inheritance and estate taxes. Suzie has spoken to a Cary high-net-worth estate planning and administration attorney at NC Planning to help determine how she can reduce her tax liability through specific retirement arrangements, donating to charitable organizations, or setting up trusts for her children and grandchildren.
NC Planning is helping Suzie consider capital gains taxes, estate taxes (which could potentially hit her estate at up to 40 percent at the federal level (which taxes wealth exceeding $12.92 million), and multiple state taxes that Suzie may incur because she has business interests outside of North Carolina. As a high-net-worth individual, Suzie requires much more than a bookkeeper. Her assets, investments, properties, and businesses require careful planning, analysis, and strategic decision-making to provide the insights and advice Suzie requires when it comes to estate planning.
Understanding Your Goals Regarding High-Net-Worth Estate Planning
A highly experienced Cary high-net-worth estate planning and administration attorney from NC Planning will discuss your goals before determining strategies that will help preserve your legacy for future generations. Our goals may include protecting your assets, securing your family legacy through the use of trusts, ensuring you have medical and disability directives, helping your loved ones avoid costly, lengthy probate, and implementing gifting to minimize estate and income taxes. We may recommend one or more of the following strategies:
- Wealth Preservation is something most high-net-worth individuals are concerned with. Preserving wealth could be achieved through comprehensive financial planning strategies that may include consolidation of assets, effective risk management, charitable donations, the use of testamentary trusts, and business succession planning.
- Security for Generations–In some cases, there are concerns regarding the way a beneficiary will use their future inheritance. If this is a concern of yours, you have the ability to impose certain designations or restrictions on his or her inheritance. You could, as an example, stipulate inheritance money must be spent on higher learning or medical use. You might also set up a trust with a trustee who will be responsible for approving distributions.
- Charitable Giving—Contributions to a Charitable Remainder Trust can provide a partial tax deduction, lowering the estate tax burden and capital gains tax, while earning a tax deduction. This type of trust can provide designated family members with a stream of income for a specified amount of time. When that time is over, the remainder of the assets in the trust will go to a designated charity. Lifetime charitable giving can provide tax advantages for the high-net-worth individual.
- Trustee Selection–Selecting a Trustee for a high-net-worth estate is extremely important. Many people choose an individual known to them, usually a family member or friend. If, however, your estate is complex, the average person will have no idea how to properly administer the trust or trusts. Your trustee should have at least some financial background that allows them to understand the assets in the trust or should be willing and able to speak to a knowledgeable Cary high-net-worth estate planning and administration attorney who can guide them through the process.
- Business Succession planning is a complex process that many privately held businesses fail to engage in. In the case of family-owned businesses, only about 30 percent will survive into the second generation, 12 percent into the third, and 3 percent into the fourth generation. A poorly managed transition to competent management can significantly devalue the company. Business succession planning not only focuses on the future, it requires a solid knowledge of the current business—how it operates, where the value lies, what the current and future needs are, and who the most vital customers are.
Foundational Tools for High-Net-Worth Estate Planning and Administration
Your specific situation will dictate which of the following foundational tools for high-net-worth estate planning and administration could potentially be of benefit.
- Financial Powers of Attorney legally allow a person you designate to handle your financial affairs should you become incapacitated, or in the event you will be out of the state or country at a time when financial transactions need to move forward.
- Healthcare Powers of Attorney, like financial powers of attorney, empower a named individual to speak with others and make decisions on your behalf regarding your medical condition, treatment, and care.
- HIPAA Authorizations allow one or more individuals named by you to receive updates on your medical condition.
- Living Wills allow you to state your wishes regarding future medical care in the event you are incapacitated and cannot make those decisions on your own. As an example, you may not want a feeding tube, or to be on a machine that breathes for you. You will select a person to act on your behalf and make medical decisions based on your wishes.
- Life Insurance can be beneficial for high-net-worth individuals. How it will benefit you and your chosen beneficiaries is a conversation you will want to have with your NC Planning attorney who will guide you to the right type of life insurance policy depending on your needs and financial goals.
- Guardianship Documents allow another named person to make decisions for your minor children, or for an incapacitated adult.
Asset Protection Plans for High-Net-Worth Estate Planning & Administration
If you have spent a lifetime securing your wealth, your goal is to keep that wealth and to ensure it is passed on to your chosen beneficiaries. There are many strategies that can allow you to do this. Having an experienced Cary high-net-worth estate planning and administration attorney from NC Planning can help you determine which strategies are necessary for your particular situation, including gifting, various types of insurance, and using trusts to protect your wealth.
- Charitable Planning may include Charitable Lead Trusts, Charitable Remainder Trusts, and Charitable Gift Annuities, qualified charitable distributions from IRA accounts, using donor-advised funds, naming charities in your estate plan, and donating appreciated assets.
- 2026 BBB Bill—is the Build Back Better legislation that raises revenues in three ways: requiring those with higher incomes to pay a fairer tax amount, reducing unwarranted tax advantages for large multinational companies, and improving enforcement of the nation’s tax laws to close the gap between taxes owed and taxes paid. Some of these provisions may expire at the end of 2026, or they may become permanent. Your knowledgeable Cary high-net-worth estate planning and administration attorney from NC Planning can help you determine legal ways to hold on to your wealth despite the BBB Bill.
- CRT (Charitable Remainder Trusts) allows you to receive a charitable deduction when you establish the trust while allowing you to receive income for life, or for a certain number of years. After your death, your beneficiaries may receive income for a specific number of years. At the end of that period, the remainder of the trust will go to a specified charity. CRTs allow you to avoid or minimize capital gains taxes on appreciated assets while helping you save on estate taxes.
Trusts are extremely useful tools for everyone. Trusts can be especially helpful for high-net-worth individuals. The types of trusts that could be particularly beneficial to high-net-worth individuals include:
- Revocable Trusts put you in control of your assets while you are still alive, then distribute your assets to named beneficiaries without those assets having to go through probate. When you set up a revocable trust you can name yourself as trustee, then select a successor trustee who manages the trust after your death. Because these trusts are revocable, you can make changes, or even dissolve the trust if necessary. Revocable trusts are flexible and are not subject to probate court.
- ILITs (Irrevocable Life Insurance Trusts) allow you to establish a trust that becomes the beneficiary of your life insurance proceeds, excluding the payout from your gross estate. If you are anticipating legal action against you, an ILIT can shield your life insurance proceeds on behalf of your beneficiaries. An ILIT can also prevent a life insurance payout from going to a minor, directing those funds to a spouse or trustee to hold for the minor.
- IDGTs (Intentionally Defective Grantor Trusts) are an estate planning tool that effectively “freezes” certain assets for the purpose of estate tax, but not for income tax. The IDGT has a purposely built-in “defect” that allows income to be received from certain trust assets with income tax paid on any generated income, but no estate taxes incurred when you die.
- SLATs (Spousal Lifetime Access Trust) are created by one spouse on behalf of the other. Assets are transferred into the trust, removing them from the taxable estate. The beneficiary spouse retains access to those assets, as does the gifting spouse, and can access the income from the trust and potentially the principal to cover unforeseen expenses. When both spouses have passed, the income from the trust goes to named beneficiaries, usually the children of the couple.
Business Succession Planning
Business succession planning is the key to the successful transfer of a business from one generation to the next. It is important that you start this process early, as waiting too long can have a negative impact on the future of your business. When you have a thorough business succession plan in place long before you need it, you have the necessary time to work with those you want to eventually take over the business. Family members can better understand your goals and aspirations for the business, as well as learn the day-to-day operations of the business. Tax issues can be addressed early on, and you can determine how your passing will impact the business, taking steps to overcome any negative impact.
How NC Planning Will Help You Plan for the Road Ahead
Having an experienced Cary high-net-worth estate planning and administration attorney from NC Planning by your side from start to finish can make a significant difference in the outcome of your estate plan. We don’t just talk about Client Care—we live it. We are compassionate, responsive, accountable, and highly experienced attorneys who believe in open communication. When you choose our firm, you can be secure in the knowledge that your legacy is secured through solid generational planning.
NC Planning has offices in Wilmington, Raleigh, and Cary for your convenience. Contact us today to schedule a consultation with a Cary high-net-worth probate and estate administration attorney from NC Planning.