Wills and Trusts: Estate Planning for HNWIs

There are multiple options available for planning the transfer of your estate. While a will is the default, it’s not optimal for HNWIs. Trusts can save you from taxation, scrutiny, creditors, statutory heirship and more, leaving you with control.

Vincent Chok By Vincent Chok on 9 April 2019

Families or individuals with significant assets need to take additional care when planning their estates. Without such planning it’s likely that a significant proportion of your estate will be lost to taxation or bestowed on ‘forced heirs’ who may not be your first choice (and might not choose this outcome themselves, given the option).

So how should affluent families and individuals plan their estates?

Typically, the three main motivators to plan for your estate are taxation, probate and asset protection. Trusts can offer solutions in all three areas.

Taxation, trusts and estate planning

Many jurisdictions collect significant taxes when estates change hands, and planning can significantly reduce exposure to this.

For example, when an estate changes hands in the United States, whether as a gift or as an inheritance, it is subject to 40% taxation — the highest personal tax rate in America.

Transferring ownership of an estate to a commercial entity like an LLC can reduce taxation exposure. But the most effective method to reduce taxation exposure is to place the estate’s assets in a trust. Assets placed in a trust are not assessed as part of your estate and are not taxed when you pass on, so placing your estate in trust can eliminate taxation exposure entirely. The probate process and estate planning

Probate, the legal process of applying for and being granted access to the goods left you in a will, can be time-consuming and expensive; it also makes the contents of your estate public through the courts.

Technically, heirs have to lay claim to items left them in a will. The process of probate involves a judge checking that the will is valid legal document, then granting permission for the executors and trustees of the will to go about their duties. The value of the deceased person’s estate also needs to be ascertained for tax purposes — see above. This means that both the contents of your estate, and the monetary value of those contents, will be made public through the courts.

Valuation can be a complicated and expensive process. If the majority of your estate consists of money held in a savings account, valuation is obviously simple; but what about an estate consisting of art objects, fine wines, and a complex investment portfolio? Experts in each field must be consulted and there may be no commonly-agreed-upon valuation; markets in some assets fluctuate significantly and may also provide little clarity. Thus your estate could be valued far more highly than you expect, resulting in far higher estate taxes; or far lower, reducing your heirs’ financial independence.

Estates placed in trusts are not subject to probate, and beneficial ownership can be passed to heirs of your choosing without making the contents of the estate public or requiring additional valuation.

Exposure to creditors

Finally, assets can be exposed to creditors or broken up and passed on separately, fragmenting the estate. It’s also possible for family disputes, separation and divorce to affect your estate’s assets.

In addition to being targeted by creditors, estates can be broken up. In the case of real estate or fine art collections, for instance, separating items to pass them on to multiple heirs might reduce the overall value of the estate.

This can happen when you wish to leave your estate to more than one person, or it can occur during the probate process.

However, placing your estate in trust can ensure that it is not broken up. Beneficial ownership can be conferred on more than one person without separating the assets of the estate, and legal ownership resides in the trust rather than in you or another family member, placing assets beyond the reach of creditors.

Estate planning and trusts

A trust is the ideal estate planning vehicle for high net worth individuals and their families. Estates carefully built up over a lifetime of achievement can be preserved intact, protected from creditors, taxation and fragmentation, while you retain complete freedom to designate beneficiaries.

Legacy has been helping individuals manage their wealth for more than 25 years. To talk about how a trust arrangement could help you manage your assets and preserve your legacy, get in touch. We’d love to hear from you!

Disclaimer:

Disclaimer: This publication is general in nature and is not intended to constitute any professional advice or an offer or solicitation to buy or sell any financial or investment products. You should seek separate professional advice before taking any action in relation to the matters dealt with in this publication. Please note our full disclaimer here.

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