A Primer on Key Estate Planning Issues for High Net Worth Individuals | Meltzer Lippe

By Avi Z. Kestenbaum

The first and most important fact surrounding estate planning for high net worth individuals is that individuals are living longer due to advances in medicine, but those who wait too long to think about the next generation may no longer have all of their capacities  to make sure the planning is enacted and their families accept the decisions. Families typically won’t fight while the patriarch is strong out of fear, love and respect. Additionally, living longer often leads to second (and third) marriages, after the first spouse passes away. So each piece of the pie for those who think themselves entitled to inherit assets can shrink as the family sizes grows. We live in an “age of entitlement” so a family member disappointed with his or her slice is much more inclined to pull the trigger on a lawsuit and cause a lot of family disputes and friction. So while thinking about an estate plan need not be an obsession, it is an imperative.

One wonders why some people wait so long. High net worth individuals are often very proud; they’re often entrepreneurs who’ve built businesses, worked very hard, and the thought of estate planning – in their minds – may be perceived to be about transferring assets and giving up control. Fear of mortality and fear of facing death is certainly another excuse to hold off. If the estate planning process is stoic and cold, these individuals have a good reason to feel reluctant. But that’s not actually what estate planning has to be. If the high net worth senior is made to feel comfortable in the process and begins to feel good about what they’re doing to help their loved ones and the entities they have nurtured, he or she begins to see that they’re not giving up control at all.

In a proper and beneficial estate one need address matters that transcend economics. Very often, even wise attorneys focus primarily on saving and planning around estate taxes. But the other issues – diminution of capacity; blended families, business succession, sibling rivalries – need to be addressed in an empathetic and thoughtful way.

In estate planning, poor timing decisions can cause problems. Bad things come to those that wait, specifically with respect to death tax issues. Expecting that spouses from second marriages and children from third marriages are destined to get along, or thinking that a family business can be easily divided and that children are just going to proceed harmoniously can lead to unexpected legacies. Attorneys need to caution their clients to be more realistic and understand that potential beneficiaries may never see eye to eye, no matter what they do.

Changes regularly occur that affect estate planning decisions and require regular vigilance. For example, last year the Federal estate tax exemption doubled from roughly $5.5 million per person to approximately $11 million a person. So what that means is that a couple – at least for approximately another seven years or until the law is changed again – could have $22 million of assets and not pay any Federal estate taxes. Interestingly enough, in New York, the estate tax exemption is only approximately $5.5 million – and certainly with respect to the estates that we handle, almost all of which are above the $22 million mark – the change doesn’t help these estates as much.

So changes like this are a call to action and it means that more planning can be done right now; clients may have exemptions, and they may be making gifts, or other types of transfers, including to trusts, and it’s the right time to be doing estate planning, because these exemptions are scheduled to go back down in approximately seven years – and may go back down sooner, with proposals already introduced in Congress to lower them again.

Estate planning is intellectually rewarding for sure but it also has the side benefit of helping people transfer wealth in a legal, healthy way that can anticipate and work around potential economic and social problems within a family. My colleagues and I can really make a difference in their lives. The planning that we do can help them, and the generations to follow, achieve their wishes, which may be complicated in many situations.

Another point is that when clients are facing mortality and difficult family decisions, we do all that we can to provide them with a safe, empathetic, supportive, even loving environment that allows them to make the best decisions for themselves and their families and make them feel a lot better in situations that can really be difficult.

This blog posting is for informational and educational purposes only. It is general in nature and not person or circumstance specific. This blog posting is not intended nor should it be construed as rendering independent investment, legal or tax advice. It may but does not necessarily constitute attorney advertising.

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