Even if you never thought of yourself as especially wealthy, there may be a fair chance that you fall into the category of “high net worth individuals”—those who have liquid assets of $1 million or more.1 For many individuals who hope to leave a legacy for their loved ones, estate planning may take on new importance. Here are two estate planning tips every high-net-worth individual should consider.
Create a Will and Keep it Current
In America, 68% of adults do not have a will. This group includes those with no net worth and those with substantial assets.2 Someone with few assets who dies intestate (without a will) creates a hassle for their loved ones who must go through the legal process of court probate. However, someone with significant assets who dies without a will could be setting up their heirs for a long and expensive legal battle.
Without a will, you have no control over how your estate is managed and distributed. Instead, assets will flow to your heirs based on your state’s laws of intestate succession. Even a simple will may help you execute your wishes and help your loved ones after your death.
It is vital to review and update your will periodically. For example, if it refers only to children, you may want to update it after grandchildren enter the picture. And if you marry, divorce, or remarry, you likely want to amend the beneficiaries of your will as well.
Avoid Probate with a Trust
Many high-net-worth individuals hold their assets in a trust for several reasons:
- It may help manage taxes while still allowing for control of the assets.
- It bypasses probate upon the settlor’s death.
- It may allow the trust settlor to preserve assets for the heirs by shielding them from being counted in means-tested government programs such as Medicaid.
Bypassing probate is at the top of the list for those who desire privacy. Probate proceedings are matters of public record. In states where court records are available online, just about anyone may look up the details of an estate. Those with significant assets are unlikely to want their neighbors to know exactly how much was distributed and to whom. Trust information is private. Any funds transferred via a trust may remain confidential if the parties desire privacy.
Another benefit of a trust is it helps those who want to place conditions on their loved one’s use of their funds. For example, suppose you do not want your 18-year-old child to suddenly become super wealthy upon your untimely death due to concerns about how they might spend the money. In that case, you might require the trustee to provide them with income from the trust and limit other withdrawals. Other types of trusts, like spendthrift trusts, are specifically designed to help curb overspending and safeguard the principal asset to preserve its value.