10 Estate Planning Strategies for High-Net Worth Families and Business Owners

People often wonder if they are taking all the steps and strategies necessary to protect themselves. They want to know what other high-net worth families and business owners are doing to protect their families, wealth, businesses, and legacy. Here is a sampling of techniques that some families utilize:

1. Family Offices

For many families, there is a lot of coordination that goes into the management of their assets. This includes financial management, making sure that proper insurance is in place for all the risks they may occur, having an effective team that keeps the family abreast of tax strategies, investment planning and purchases (including other businesses and real estate), estate planning, managing charitable gifting, and many other purposes. High-wealth families have their own unique family office. These days, many families will share offices or use a fractional-type family office that will provide them with many of the things that they need, while other families are utilizing other services that are provided. The benefits for using a family office include great organization, preparedness, proper use of tax planning, and a broader type of investment class.

2. Training For Family Members On How To Use and Manage Wealth

The descendants of the very wealthy were once taught by their families the social responsibility of having wealth and how to use and manage that wealth. One would think that these are obvious points, but it is not necessarily so, and therefore training is necessary. A large amount of wealth can cause family members to be very adversarial with each other and to misuse their wealth on various addictions. This training is also to help preserve the assets of those descendants to protect their families going forward.

More Advanced Estate Planning Concepts

Most families have their basic estate planning documents already done. Here are some more advanced concepts that are used.

3. Gifting

Many families use a regular gift giving strategy to their children. Sometimes, this involves gifting an interest in a limited liability company, where their interest is subject to a strict operation agreement. Many times, this allows the parents to give more at a lesser tax cost. There are various other techniques in the gifting arena that can allow for more of the parents’ wealth to flow at a lesser tax cost to their families.

4. Charitable Giving

It has been often stated that a person can give their wealth to three places: their family, the Internal Revenue Service (IRS), or to charity. In various ways, the tax law limits what can be given to family. Rather than have the estate go to the IRS in taxes, a better route can be to make gifts to charities. There are many types of charitable gifts that can be given, which will result in either a charitable income tax deduction or a charitable estate tax deduction, or both. Some examples of this include donor advised funds, private foundations, charitable remainder trusts, charitable lead trusts, charitable annuities, direct gifts of property that is no longer used by the family, gifts of stock in a company before the company is sold to name a few. Most families of wealth want to instill in their children their social obligation to others by participating in charitable giving.

5. Life Insurance

Many times, families will have their assets invested in their businesses, which are the largest segment of their wealth. They need to have liquidity upon their death so that all their other assets do not have to be sold so that their family gets their wealth. They make use of an irrevocable life insurance trust to hold and pay the premiums for life insurance on their lives. At death, the proceeds are paid to this trust and is distributed tax free to the family. This is but one of the many uses for life insurance.

6. Business Succession Planning

Most business owners want to make sure that the company that they toiled over all their years has a life beyond their own life. The business owner derives a lot of their income, and thus lifestyle, from having this business. The business owner must have a plan of what happens to this business if they become ill and cannot operate the business or dies. Sometimes, this involves the children of the owner; sometimes, it involves other partners in the business; sometimes, the company needs to be operated until it is sold. If some children are involved in the business and others are not, you may want to have other assets to provide the children not involved in the business. Whatever the plan, it needs to be written, incorporated into an operating or shareholder agreement, and then documented on the estate planning side of things.

7. Vacation Homes, Farms, and Ranches

Many wealthy families have several homes in various places. These properties require special care regarding what will happen with them. A lot of times, the children are not attached to these properties, even though they have been passed to their parents from previous generations. One approach might be to have a life estate with a remainder to a charity that would be able to use the family farm or ranch. Vacation homes can be held in a limited liability company but may need separate rules for the use of the property, so everyone is not looking to use the property at the same time. Gifts can then be made of part of the membership interest in the vacation home limited liability company.

8. Plans For Accidents or Incapacitation

Most people of wealth have enough money to provide for their care in the event of an accident or stroke. That being said, they may also buy long term care hybrid insurance policies for such purpose, and if these are not used, the life insurance benefit will be paid to the family.

9. Help In Case of Incapacitation

It is a good idea to plan for the unexpected, as well. This type of plan should include a current financial power of attorney and a current power of attorney for healthcare. It will be important that your wishes are clear, and the people you need to assist you are ready and able to do so.

10. Making Gifts of Property With Income

If the parent’s income is large, they may consider gifting property to their children, where the future income would go to their children.

All these concepts will provide various protections for the family. Each family has unique needs and will need to apply a variety of options to make sure they are doing the most to protect their wealth for generations. It is important to find a great business and estate planning attorney who is experienced with high-net-worth estates and build a relationship with them for ongoing and changing needs.

If you haven’t addressed your estate needs in the last five years, then you want to make sure you plan an update soon. In most cases, the larger the assets, the more frequently the estate plan should be evaluated – which could mean every year. This will allow for adjustments needed for changing tax laws, new acquisitions or sales, family changes, and other factors that need to be reevaluated.

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Denice Gierach

Gierach Law Firm

Denice Gierach is an attorney, CPA, Northwestern University business master's graduate, and has owned several businesses from real estate to manufacturing. She is the lead attorney at Gierach Law Firm in the Chicago area. With more than 30 years of experience, she has been a respected and sought-after resource for businesses looking to grow, sell, solve problems, and succeed long term. Her insights across business areas gives a fuller lens to business issues and solutions, and helps businesses grow and succeed with less time spent on legal issues and other time-consuming problems.

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