What Qualifies as High Net Worth?
Net worth—measured by subtracting all a person’s liabilities or debts from their assets—of 2.2 million (or $1 million in “liquid” assets), is considered “high net worth” by The Currency. Liquid assets are assets that can easily be converted into cash in a short amount of time. This typically includes cash, stocks and bonds, money market accounts, and marketable securities. The number of high-net-worth individuals in the United States increased by 5.5 percent between 2019 and 2020, with more than 11.6 million households meeting the definition of high-net-worth in 2020. While there are definitely “perks” associated with being a high-net-worth individual, specific steps must be taken during estate planning to ensure as many of those assets are protected as possible. When you have an experienced Raleigh high-net-worth estate planning and administration attorney by your side, the process will go smoothly, and the outcome will be positive.
Case Illustration
Bob and Carol have a large construction business in Raleigh that has done well over the years. They are concerned about preserving their legacy for their children and grandchildren while paying the least amount of taxes—both now and after they pass. North Carolina has no state inheritance or estate tax; however, Bob and Carol may potentially meet the threshold for federal inheritance tax and are also anticipating a capital gains tax associated with some real estate they want to sell.
Bob and Carol have a bookkeeper and a financial advisor; however, they are ready to have a comprehensive estate plan prepared that will take their high-net-worth, business, and real estate holdings into consideration. Bob and Carol set up a meeting with a knowledgeable Raleigh high-net-worth estate planning and administration professional from NC Planning to discuss their goals and concerns. They are given several options for minimizing their tax burden now and for their children later on. These options include setting up trusts, considering charitable donations, using investment losses to lower capital gains, and engaging in business succession planning.
Understanding Your Goals Regarding High-Net-Worth Estate Planning
When you meet with a highly skilled Raleigh high-net-worth estate planning and administration attorney from NC Planning, we will ask you about your goals—both now and in the future. Do you want to minimize taxes now and for your heirs? Are you concerned about the future of your business? Do you currently make charitable donations and want that to continue after you are gone? Do you want to ensure your children are taken care of? Do you have adult children that you don’t believe could handle a large financial inheritance? Are you considering gifting to reduce your tax burden? Do you have real estate holdings in North Carolina or other states that you want to preserve? Regardless of what your estate planning goals are, we can help you determine the best way to plan your estate, so those goals are properly met. You may consider:
- Wealth Preservation is a key component in high-net-worth estate planning. Depending on your specific situation, we may recommend asset consolidation, careful risk management, charitable donations, the use of trusts, and proper business succession planning.
- Security for Generations—Depending on your situation, you may want to impose certain spending designations or restrictions on future inheritances of an adult child. Perhaps the adult has spent indiscriminately in the future and you want to ensure the entire inheritance is not gone through quickly. You can set up a trust that distributes the inheritance over a period of years, or you can appoint a neutral trustee who determines whether requests for money are appropriate. You could also have an adult child whose spouse is chronically in financial trouble, and you want to prevent that spouse’s creditors from being able to access inheritance funds. Discuss your concerns with your high-net-worth estate planning and administration attorney from NC Planning to determine the best way to address your specific issue.
- Charitable Giving—High-net-worth individuals can help preserve wealth by engaging in lifetime charitable giving, which provides significant tax advantages. This allows individuals to transfer up to the federal estate tax exemption amount during their lifetimes and upon their death. The gift tax exclusion can also apply, allowing individuals to gift up to this exclusion amount without necessitating a gift tax return filing. Over time, charitable giving can reduce the size of an estate and thus the amount owed in federal estate taxes.
- Selecting a Trustee can be difficult under any circumstances, but as a high-net-worth individual, your choice can be crucial. You need a trustee who has at least some knowledge of finances, including your specific finances. Since your trustee will act as a fiduciary who always considers the best interests of your beneficiaries, you want a trustworthy person as trustee, who has no conflicts of interest. Your chosen trustee must also have the necessary time to manage the trust or trusts, as there are many time and labor-intensive tasks associated with trust administration.
- Business Succession planning for the high-net-worth individual is never a one-size-fits-all proposition, bringing a host of complexities. Yet the importance of planning the future of your business is irrefutable to promote the seamless transition of business interests. If you have spent a lifetime building your business, you want to ensure it will endure through future generations. An NC Planning attorney who is a high-net-worth estate planning and administration professional has the experience and knowledge to help you plan for the future succession of your business.
Foundational Tools for High-Net-Worth Estate Planning and Administration
An NC Planning attorney can assist you in determining which of the following foundational tools for high net worth could benefit you and your situation.
- Financial Powers of Attorney are crucial in the event you become incapacitated, and unable to make necessary financial decisions. Financial powers of attorney can also be used when you are out of the state or country during a time when financial documents need to be signed. Of course, the choice of who you will authorize to make these financial decisions is crucial. Not only should it be someone you trust implicitly, but also someone with the necessary financial knowledge and skills.
- Healthcare Power of Attorney, like a financial power of attorney, gives another person the legal right to make healthcare decisions on your behalf in the event you become incapacitated and unable to make those decisions on your own. While some people will designate the same person to be both healthcare and financial power of attorney, it is usually a better idea to choose a different person for each.
- HIPAA Authorizations are detailed documents that specify the uses and disclosures of your private healthcare information. When you sign a HIPAA authorization, you are giving consent for your medical information to be disclosed to a specific person or persons.
- Living Wills are also known as advance directives. A living will allows you to choose a person to make medical decisions on your behalf in the same way a medical power of attorney does. It also allows you to state your wishes regarding your future medical care.
- Life Insurance for high-net-worth individuals is an important consideration. Life insurance will have a named beneficiary or beneficiaries and does not become a part of the probate process in most cases.
- Guardianship Documents are necessary if you have minor children or if you have a special needs adult child in some cases. You don’t want to leave your minor child’s future up to chance, rather you will choose who you want to raise your minor child and designate funds to be used for that purpose.
Asset Protection Plans for Raleigh High-Net-Worth Estate Planning and Administration
Making money and keeping money can be two very different things. At its most basic, protecting assets for high-net-worth individuals can include simple things like deposit insurance on bank accounts. Asset protection plans can also include personal injury coverage, liability coverage for home, auto, and business, umbrella insurance, professional liability coverage, business liability coverage, applicable trusts, the transfer of specific assets, consideration of gifting for family members, charitable planning, and tax planning strategies.
Charitable Planning
Careful charitable planning can help you now and can add to your legacy in the future. Some charitable planning strategies include: Donor-appreciated assets, donor-advised funds, qualified charitable distributions from IRA accounts, charitable gift annuities, a Charitable Remainder Trust, Charitable Lead Trusts, or naming charities in your estate plan plus much more. Your NC Planning professional can help you determine which charitable planning strategies are right for you and your situation.
- 2026 BBB Bill—The Build Back Better bill requires those with higher incomes to pay more in taxes, reduces unwarranted tax advantages for profitable corporations, and improves enforcement of current tax laws. A five percent surtax on high-net-worth individuals, along with an additional three percent tax for those with an adjusted gross income above $25 million is included in the BBB bill. The bill also limits the amount of business losses high-net-worth owners of pass-through businesses can deduct; this provision will expire at the end of 2026 but must be considered in the overall plan to protect wealth.
- CRT Trusts (Charitable Remainder Trusts) allow you to receive income for life or for a certain number of years, removing the property from your estate, which saves on estate taxes, and allows you to avoid or minimize capital gains taxes on appreciated assets. CRTs are irrevocable, meaning once they are set up, they cannot be altered or discontinued. Once you pass, the income could transfer to your beneficiaries for a specific length of time, then the remainder could go to a charity of your choice. The downside to a CRT is that if the trust property decreases in value, you or your beneficiaries could receive less income than anticipated.
Trusts
Trusts are used for all individuals; however, high-net-worth individuals can find them particularly helpful.
- Revocable Trusts are among the most powerful tools available to high-net-worth individuals. A revocable trust can allow you to pass your wealth along to beneficiaries while protecting your assets to some extent while you are alive. Revocable trusts offer flexibility, allowing you to manage funds, add or remove beneficiaries, or dissolve the trust if you choose. You can name yourself as the trustee while choosing a successor trustee who takes over after your death. Revocable trusts are not subject to probate court, which is another benefit.
- ILITs (Irrevocable Life Insurance Trust). To take advantage of an ILIT, you will establish the trust and make that trust the beneficiary of your life insurance policy, thus excluding the life insurance payout from your total estate. An ILIT will also shield your life insurance payout and your beneficiaries from any legal action against you, making it impossible for creditors to attach those funds.
- IDGTs (Intentionally Defective Grantor Trust) are estate planning tools used to freeze specific assets for estate tax purposes but not for income tax purposes. The trust is intentionally defective, with a loophole that allows you to receive income from specific trust assets.
- SLATs (Spousal Lifetime Access Trusts) are irrevocable trusts created by one spouse for the benefit of the other. A SLAT will also benefit the couple’s children when they have both passed away, as assets are transferred into the trust, effectively removing them from the taxable estate.
How NC Planning Will Help You Plan for the Road Ahead
Having a highly experienced Raleigh high-net-worth estate planning and administration attorney from NC Planning by your side can help the process go much more smoothly while ensuring the anticipated results. We know that Client Care is easy to talk about, but a firm that can consistently deliver is what NC Planning lives and breathes. We strive to have open communication with every client, while we remain responsive and accountable. Our family-like approach helps our clients feel comfortable with what can often be a stressful process.
While your high-net-worth planning process is unique to you, you want to ensure your assets are properly protected, while exposure to creditors is limited. Your tax burdens will be minimized, and you can be secure in the fact that your legacy is secure, through solid, generational planning. For your convenience, we have offices in Cary, Raleigh, and Wilmington, NC. Contact a Raleigh probate and estate administration attorney from NC Planning today!
