What Is a UHNWI and How Should You Estate Plan if You’re One?

Technically, ultra-high-net-worth individuals (UHNWIs) are considered to be those with a net worth of $30 million or more. It’s a fairly exclusive category—only around 580,000 people globally cross this threshold.

With high net worths to protect, many UHNWIs use tools such as trusts and gift tax loopholes to help manage their assets. Careful estate planning is required to ensure assets are passed on to heirs to contribute to generational wealth. While all estate planning tips that are applicable to UHNWIs might not be appropriate for others, anyone with substantial assets can likely benefit from them.

Estate Planning Concerns Related to Ultra High Net Worth

UHNWIs—as well as individuals that have very high net worths—often have unique estate planning concerns. They can include, but aren’t limited to:

• Preserving wealth. Many individuals with ultra-high-net worths desire to preserve that wealth for future generations. They want estate planning options that protect assets now but also support the continual growth and responsible management of assets over multiple generations.
• Minimizing tax liability. On average, only about 0.1% of estates meet the threshold for federal estate taxes. However, ultra-high-net-worth estates more than meet the threshold for these taxes, and other tax liabilities may also apply. Because of this, UHNWIs may be concerned with tax planning to reduce those liabilities.  
• Maximizing privacy. Confidentiality can be a concern for anyone when passing on assets to others. High-net-worth individuals may be especially sensitive to privacy, as they may not want other family members, creditors, business partners, or others to know just how much wealth they are passing on. Estate planning that leverages trusts and other tools can help keep assets out of probate, which involves a public record.
• Asset Protection.  Protecting and preserving wealth for yourself and your family is another common concern for UHNWIs.  Because the United States is one of the most litigious countries in the world, proper asset protection planning can protect wealth from law suits, creditor claims, a future divorce of an heir and potential gift, estate and generation skipping transfer taxes.
• Engaging in philanthropy. Many people who have a lot want to give a lot to their communities or charitable organizations. During your life, you can oversee the mission and vision of this giving, but to ensure it falls within your desired scope and values after you’re gone takes solid estate planning.

Some other concerns that UHNWIs might have when approaching estate planning include governance and global asset management. Governance refers to using legal options such as trusts to create policies about how wealth should be managed and used. This can be especially important when leaving wealth to individuals who are not used to managing a lot of assets.

What Role Might Gifting Play?

Gifting can play a role in large estate management, as it reduces the amount of assets that must be passed to others during probate processes. It also allows someone with a high net worth to share their assets with others during their lifetime.

However, gifting should be approached with caution and a full understanding of the financial, legal, and tax ramifications. Without the right approach, large gifts can create serious tax issues for everyone involved.

Use of a Family Limited Partnership

One tool that UHNWIs might consider is the FLP. This consolidates family assets under a unique ownership structure that can reduce some burdens associated with probate and taxes. This is a fairly complex option that requires a lot of pre-planning and may involve more administrative time and expense than some other options. However, if you have more than $2 million in assets or your family holds numerous real estate assets, the benefits could outweigh those considerations.

Consider the Complexity of Your Family

For high-net-worth individuals who are concerned with leaving a legacy, family dynamics and complexity may be important. You may want to ensure, for example, that multi-generational wealth is passed on to your children, grandchildren, and great-grandchildren.

However, you don’t know what the future might hold for your loved ones and heirs. People may marry, divorce, and remarry, for example. Blended and non-traditional family units may evolve over the course of time. If it’s not clear how inherited assets are to be treated, your heirs may lose some of their wealth in divorces or other proceedings.

It is fairly well known that Cornelius Vanderbilt was one of the richest persons in the United States at the time of his passing. He had amassed a net worth of approximately $105 million when he died in 1877. But, according to “Fortune’s Children: The Fall of the House of Vanderbilt”:

“Within thirty years after the death of the Commodore Vanderbilt in 1877, no member of his family was among the richest people in the United States…. When 120 of the Commodore’s descendants gathered at Vanderbilt University in 1973 for the first family reunion, there was not a millionaire among them.”

Proper estate and wealth planning can prevent this tragic lost of wealth. Today’s estate & wealth planning and protection techniques can protect and preserve an estate. For example, a $1 million estate left to heirs through the right kind of planning can grow to be worth $10 billion over five generations. This is done by protecting the estate from taxes, divorces and creditor claims.

Good estate planning can protect your assets and ensure they stay with your family.

Consider Your Business Assets Too

Many high-net-worth individuals have a wide variety of assets, including business investments. Whether you own one or more companies or are a majority shareholder in an enterprise, these assets must be considered when you plan your estate.

You may want to consider succession planning, for example. What happens to businesses you own or manage if you pass away? If your business brand is part of your legacy, you may want to have a plan in place for it to be protected or to pass to someone you trust to manage it appropriately in the future.

Work With Experienced Attorneys to Protect and Pass on Your Wealth

It’s impossible to create a complete guide to estate planning for ultra-high-net-worth individuals. There are too many complex scenarios to consider, and too much relies on the unique factors associated with each individual or family.

However, you can see that the process is complex and that there are many legal, financial, and even social considerations to account for. Working with a legal team that is experienced in helping individuals with high net worths can help you make estate planning choices that protect your assets and your legacy. Reach out to the Law Offices of Boyd & Boyd, P.C., at 508-444-9688 to find out more about how we can help you achieve your long-term legacy goals.

Does Your Business Structure Protect Your Personal Assets?

When businesses flourish, it’s exciting and often worth the effort you put into them. A strong business of any size can help finance your future and be a legacy you can leave to your family.

Even when businesses intelligence software succeed long-term, however, they can create risks for their owners. Some people use trusts, Family Limited Partnerships, or Family Limited Liability Companies to try to safeguard business assets, including brands, stocks, or property. It’s also important to consider how to safeguard your personal assets if you’re a business owner.

Every business venture comes with risks. Statistically, 20 percent of businesses fail within the first two years and around 50 percent don’t make it past the five-year mark. Should a business fail, the owner is usually facing personal liability. Even successful business owners face significant liability – accidents, employee errors and contractual liability may cause a business owner to lose everything. But when a business is properly structured, the owner’s personal liability can be limited and often eliminated.

How Does a Business Put Personal Assets at Risk?

Your personal assets might be at risk if your business is unable to pay its bills or is sued by another party.

Here are a few examples of scenarios that might put a business owner’s assets at risk:

• The business is a sole proprietorship, which means there aren’t many boundaries between the business as an entity and the person who owns it
• A business owner or executive signs a contract agreeing to personally guarantee a debt
• A business and its owner are sued due to a liability or malpractice issue

While the outcome of each scenario depends on factors such as business structure, it’s not impossible in some cases that a person could lose their home, personal savings, or other assets because of a business issue.

How Can the Right Business Structure Help?

There are ways to protect your personal assets from creditors, family members, and others. There are also options for protecting those assets from your own business. One of the most important is to choose a business structure that’s right for your business and personal needs.

Sole Proprietorship

Many small businesses start as sole proprietorships because they are considered by many to be the easiest businesses to launch. The paperwork is minimal. But a Sole Proprietorship offers no liability protection.

In this structure, there isn’t a wholly separate business entity. You are the business, and that means that your personal and business assets may be treated similarly. A Sole Proprietorship may be owned only by one person – it can not have a co-owner. This means that without proper advance planning, the business and all of its assets are subject to court proceeding called a Conservatorship if you become incapacitated and probate at your death. Court proceedings like a conservatorship or probate can take months for the right person to get authority to continue the business or have access to the business assets, like bank accounts. This means that a spouse or other family members won’t be able to use the business assets, even for things like payroll software. So none of your employees (including family members) can get paid! And remember, if you enter into a debt for your business, the creditor might be able to come after your personal assets to settle the debt if you don’t pay it.

Partnership

General partnerships can also be very informal. When two or more people go into business together they are forming a general partnership. While no formal partnership agreement is required (because the government has written one for you), most partners choose to create a formal partnership agreement to outline the rules for the business owners. General Partnerships do not offer asset protection – in fact they create more liability than sole proprietorships because each partner is totally responsible for business related actions of the other partner(s). If one partner causes an injury in the course of the business, the injured person may sue both general partners to recover damages.

Limited Partnerships (LPs) are also a type of partnership. A limited partnership requires a formal agreement and registering with the state or states in which the limited partnership does business.

A limited partnership requires a that there be at least one General Partner who will have personal liability for the business. There are also Limited Partners, whose liability is limited to the investment made in the business. That means they won’t be held personally responsible for debts that the partnership as a business entity holds. They also may not be held responsible for actions taken by the general or other limited partners. Limited Partnerships are often used as an estate planning tool within families who want to transfer an on-going business or investment portfolio to the next generation and at the same time teach investment and management strategies. This type of LP is called a Family Limited Partnership (FLP). FLPs have a number of advantages in tax planning and asset protection planning.

However, not all partners have the same level of limited liability and not all partnerships are created equally. The level of protection you have depends on the details of your partnership agreement.

Corporation

A corporation provides significant protection for personal assets because it creates a “wall” between you, the person, and your business (and its liabilities) by creating a new and separate entity. A corporation requires significant legal compliance, which makes it a poor choice for business owners who want to concentrate on their business and not the legalities of keeping their corporation compliant. For example, corporations require annual filings (paperwork and fees) with every state in which the corporation does business. Additionally, corporations are required to document meetings (at least an annual meeting), elections of directors and corporate officers, like a President, Secretary and Treasurer, and creating of corporate resolutions, like a resolution to open a bank account for the company’s business account. When the owner(s) of a corporation fail to keep proper books a records, the protections offered by a corporate entity may no longer exist. This allows creditors to “Pierce the Corporate Veil” which permits a creditor to attach the personal assets of the business owner. Additionally, there are tax considerations when you start your corporation.

Corporate entities may choose between C-Corporation and S-corporation tax status. Which tax status is best depends on a variety of considerations which are unique to each business.

Limited Liability Company (LLC)

For many business owners a Limited Liability Company (LLC) may be the best choice because it provides more asset protection than a sole proprietorship or a partnership but without the all legal formalities of a corporation. LLCs require an Operating Agreement and annual filings with the state or states in which your business is organized and will operate. For income tax purposes an LLCs may be setup as (1) a disregarded entity, which means the income and expenses of the business are reported on your personal income tax return – much like a sole proprietorship – but this option is only available when there is only one owner of the LLC; (2) When there is more than one owner of an LLC the business may choose Partnership tax status – so your business will file partnership return which is helpful for real estate related businesses; (3) C-Corporation status so your business can take advantage of the 21% corporate income tax rate; and (4) S-Corporation status. With any business, if you do something wrong, like injure someone in the course of your business, you continue to have personal liability. However if an employee injures someone while on the job, your investment in the business may be at risk, but you probably won’t see your home or personal savings put at risk.

LLCs can also be used as a Family Limited Liability Company (FLLC) and offer many of the same benefits as a Family Limited Partnership, but without the need of a General Partner (and the on-going liability a General Partner must have). Today many planners prefer FLLCs as stronger asset protection vehicle.

Choice of Entity Chart – Some of the “Pros & Cons”

Business Entity	Pros	Cons
Sole Proprietorship	Simplicity: Easy setup and management. Direct Control: Full decision-making authority. Tax Simplicity: Profits and losses on personal tax return.	Unlimited Personal Liability: Personal assets at risk for business debts. Limited Credibility: May seem less trustworthy.
General Partnership	Shared Responsibility: Partners contribute and share duties. Tax Benefits: Pass-through taxation to partners.	Unlimited Personal Liability: Each partner liable for all partnership obligations. Internal Conflicts: Disagreements among partners can hinder decisions.
Limited Partnership	Limited Liability for Limited Partners: Limited partners have liability limited to their investment. Expertise and Capital: Limited partners contribute without operational involvement.	General Partner Liability: General partners personally liable for partnership debts. Complexity: Requires more formalities and documentation.
Corporation	Limited Liability: Shareholders’ personal assets shielded from business liabilities. Perpetual Existence: Continues to exist despite ownership changes. Credibility: High level of credibility in the business world.	Double Taxation: C Corporations may face double taxation on profits. S-Corp Taxation available by election Complexity and Formalities: Extensive administrative requirements.
Limited Liability Company (LLC)	Flexible Taxation: Choose taxation as a disregarded entity, corporation (C or S), or partnership. Limited Liability: Members’ personal assets protected from business liabilities. Simplicity: Fewer formalities than corporations.	State-Dependent Rules: Regulations vary by state, affecting legal protections. Limited Perpetual Existence: LLCs may dissolve upon member departure.

Safeguard Your Assets for the Future With Help From Legal Professionals

While limited liability companies (LLCs) tend to provide the widest lines between personal and business assets, the best structure for protecting your assets depends on your situation. There’s no single right answer as to which business structure is the right choice. Consulting with an asset-protection and estate-planning professional can help you understand what factors to consider and what options might be right in your case. 

An attorney experienced in trusts, Family Limited Liability Companies, Family Limited Partnerships, and other legal asset protection tools can do more than safeguard your wealth from business risks. They can help you plan for the future of yourself and your family by:

• Supporting you as you create a plan to leave a legacy for your children and other heirs
• Providing guidance in estate planning so you know what options might be right for you and how your wishes can be protected
• Creating trusts and other legal structures to protect your assets during your lifetime
• Administering your trust or estate in the future to ensure your preferences are upheld

If you have a business — or are planning to start one — and want to create a financially secure foundation for yourself before you begin, consider working with the team at the Law Offices of Boyd & Boyd, P.C. We can help you understand which personal assets might be at risk and how to protect them. Give us a call at 508-444-9688 to make an appointment to discuss our services.

Estate Planning vs. Legacy Planning: Understanding the Difference

Estate planning includes a wide variety of potential activities. Not all of those activities are right for everyone who engages in estate planning. For example, someone with relatively few assets may want to find out more about trusts in order to avoid a court process called probate (which is required for a Will), and those with estates with large values may want to know about avoiding estate taxes. However, almost anyone can benefit from basic estate planning that uses powers of attorney, wills, healthcare directives and revocable trusts.

One decision you might want to make as you approach estate planning is whether you simply want to protect your assets and your interests or prepare to leave a legacy for others. You don’t need millions in the bank to consider your legacy; for example, real estate, like raw land or even a cottage on Cape Cod that is used by the family, can be a part of your legacy.

Understanding the difference between estate planning and legacy planning — and speaking to an attorney experienced in these matters — can help you make those choices.

What Is Estate Planning?

Estate planning in general refers to the process of protecting your assets and personal interests legally during your life and after you pass away.

Some common activities in estate planning include:

• Understanding what you have. Many people start with an inventory of assets. This provides a comprehensive list of what you have now — and potentially an understanding of how you might grow that wealth in the future.
• Deciding what you want to do with your assets now and in the future. Once you know what assets you have, you can work with an experienced estate planning attorney to determine how best to protect those assets and how to ensure your wishes for them are carried out even if you’re incapacitated or pass away.
• Setting legal structures in place to safeguard your assets and wishes. Estate planning often includes the use of trusts, wills, and other legal documents to ensure your wishes are carried out and that your assets are protected – from creditors, lawsuits, divorcing spouses or taxes.
• Making and implementing plans for the future. If asked, most people want to remain at home should some form of long term care be required. Some estate planning attorneys help with issues such as elder law, which can involve considerations such as long-term care like in-home care.

What Is Legacy Planning?

Legacy planning is a specific part of estate planning that considers what happens with your assets when you pass away. When you engage in legacy planning, you may take a more comprehensive approach to this than you would with general estate planning.

For example, with general estate planning, you may create a revocable trust that makes it easy for people to identify what assets you have and what you want done with them when you pass away and to help keep those assets out of probate.

However, with legacy planning, you consider in a holistic manner the legacy you want to leave behind along with your assets. With legacy planning you goal is to structure your affairs so that your values are transferred together with your assets.  The aim is for your estate to achieve goals and objectives that are important to you long after you have passed away.

Some common goals of legacy planning can include, but certainly aren’t limited to:

• Emphasizing the importance of certain family values, like education, home ownership, marriage, entrepreneurial endevors and business ownership.  These goals may be encouraged through the use of a Family Bank. A Family Bank (often in the form of a trust or a business entity) may be created to provide grants or loans to family members at favorable terms to encourage the continuation of valued activities (ie. education, home ownership, etc.). 
• Creating charitable foundations or trusts. You can set up a variety of legal structures that allow philanthropic efforts you care about now to continue even after you’re gone — and in your own name or the name of your family. You may even structure these entities in a way that encourages family involvement. 
• Safeguarding assets against taxes. 
  • Individuals with larger estates may have the opportunity to leave larger legacies. However, they also may have to consider the impact of estate taxes on what they leave to heirs. Proper legacy planning can help to reduce the impact of estate taxes – often over multiple generations.
  • Almost every family is impacted by income taxes. Proper legacy planning will structure the legacy you leave so that income taxes are minimized. This is done by through basis step-up techniques, like powers of appointment, and qualifying an inheritance for lower ordinary income tax rates through proper design of the legal structures best suited for your situation.
• Protecting assets against confiscation. Approximately, fifty perscent of all marriages in the United States end in divorce.  A proper legacy plan will protect your loved so that any inheritance you leave will not be subject to claims in a divorce.  In other cases, an heir may have a hig risk of being sued, so structuring the legacy to protect against lawsuits may be critical.  Finally, you may want to leave assets for loved ones, but you don’t trust their ability to manage the assets correctly. Creating trusts can help you protect assets against  mismanagement.
• Setting guidelines for how assets can be used. You may have a specific purpose in mind for how heirs should use assets. Legacy planning helps you put legal provisions in place to ensure those guidelines are followed.
• Supporting the growth of wealth now and in the future. By safeguarding your assets legally, you can protect them now and help increase the chance that wealth grows in the future.

What Are Some Possible Tools Used in Legacy Planning?

Many legal tools exist to help you protect your assets now, better build wealth for the future, and ensure your wishes are carried out regarding the use of your assets. The best way to understand what legal options might be right for your legacy planning is to talk to an experienced estate attorney.

However, here are a few options that might come up, depending on your situation:

• Trusts. You can use trusts to protect your assets now and once you pass away. They can help streamline the process of passing assets on to others, keep assets out of probate, and ensure your guidelines for asset use are followed.
• Family Limited Partnerships (FLPs). In some cases, it may make more sense for family members to own and manage assets, like an investment portfolio, together. In this case, an FLP might be a good decision for legacy planning. FLPs are also a great tool for sharing ownership of a startup company with children at an early stage, before growth or a buyout occurs. FLPs can provide strong protection from the divorce of or creditor claims against an owner.
• Limited Liabiltiy Companies (LLCs) and Corporations. Many times clients want their children, and eventually their grandchildren, to own real estate together. For example, many clients want their children to continue to use their Cape Cod home for family use and enjoyment. But what you are really doing is placing your children into a business relationship with each other.  Effectively, they are managing your home for the needs of multiple families. This requires capital contributions from each heir to pay property taxes, insurances and maintenance and repairs. This can best be structured through a business entity, like an LLC or Corporation, that sets out what the rules are for each co-owner.  
• Annual gift tax exclusions. You may be able to start creating a legacy by gifting assets to your loved ones before you pass away. Understanding the tax implications of doing so is important.  In order to build a legacy out of annual exclusion gifts, it is often best to use an Gifting Trust that allows for pooling of the annual gift and can be managed in a more controlled manor.

To find out more about legacy planning and what options you have, reach out to the Law Offices of Boyd & Boyd, P.C., today by calling 508-444-9688.

What Are Your Estate Planning Goals?

When you prepare an estate plan with the guidance of a Cape Cod estate planning attorney, what are your goals? What is important for your estate plan to address? What documents will you and your estate planning attorney need to prepare?

Your estate plan should address five common goals. If you’ll keep reading this brief discussion of estate planning goals, each of these goals will be discussed:

1. testamentary disposition
2. incapacity care planning
3. probate avoidance
4. asset protection
5. tax avoidance

Goal #1: Testamentary Disposition – Passing Your Wealth to Your Loved Ones

Testamentary disposition is how you pass your wealth – in other words, the disposition of your assets and property – to one or more beneficiaries after your death, as spelled out (usually) by your trust document.

Historically, a last will and testament was commonly used for this purpose, but in recent decades, the use of revocable trusts has grown due to the advantages these trusts offer. The “contract to plan” is a newer estate planning tool that many married couples are now using as a supplement to their trust.

How Does a Contract to Plan Work?

A contract to plan is a legal document – usually prepared for a married couple – in which the spouses in effect say to one another, “I promise to give everything to you, you promise to give everything to me, and we both promise to give everything to our agreed-upon beneficiaries.”

Why is this important? If your spouse remarries after your death, whatever he or she inherited from you could go, upon your spouse’s death, to your spouse’s new spouse and not to your children or other chosen beneficiaries.

What Are Your Other Tools for Testamentary Disposition?

Many people use joint property, where your half of a home or bank account, for example, passes to the co-owner automatically upon your death. For several reasons, you shouldn’t use joint property for testamentary disposition, except perhaps for passing a car or a checking account to your spouse.

Beneficiary designations pass bank accounts, retirement accounts, annuities, and life insurance benefits to your designated beneficiary. A beneficiary designation overrides an estate planning document, like a last will and testament. Unfortunately, use of many beneficiary designations result in the need for conservatorships, unanticipated taxes, or the loss of asset protection. So beneficiary designations should be only a few types of assets and with the advice of an experienced Cape Cod estate planning attorney.

What Do Revocable Trusts Provide?

Revocable trusts are a popular and practical estate planning tool because, along with providing for testamentary disposition, a properly structured revocable trust:

1.  allows you to manage and enjoy your property and assets
2.  can protect your beneficiaries’ inheritance from a divorce
3.  allows your spouse or other beneficiaries to avoid probate
4.  can reduce or eliminate several types of taxes
5.  may be amended or revoked at any time while you are alive

A Cape Cod estate planning lawyer will offer you sound advice regarding your testamentary disposition. Depending on your needs, that lawyer can help you prepare a last will and testament, a contract to plan, and a revocable trust.

Goal #2: How Do You Plan for Incapacity Care?

How will your assets be managed and your medical decisions made if you can’t make those choices yourself? Several legal tools are available for incapacity care planning:

1.  If an adult is incapacitated, a concerned party may submit a Petition for Guardianship to the court, which may name a guardian to make the incapacitated person’s medical decisions. Guardianship requires a costly, time-consuming legal proceeding.
2.  A better option is preparing, in advance, a health care proxy. It’s a legal document that names someone you have chosen to act as your proxy to make medical decisions on your behalf. It may include your instructions regarding medical treatment and end-of-life care.
3.  A MOLST (Massachusetts Order for Life-Sustaining Treatment) may be prepared with your doctor to establish your wishes regarding life-sustaining treatment and end-of-life care. When you both sign it, it becomes a legally binding order in your medical record.

Incapacity Care for Financial Affairs

Who manages your financial affairs if you’re incapacitated? If you don’t plan in advance, a conservator will need to be appointed. The person who will be your conservator will be appointed by a court, and if there’s a dispute among your family and loved ones, that court proceeding could be lengthy, arduous, and expensive. You can and should nominate who you wish to have appointed as your conservator, but it is better to prepare two documents before there is an incapacity – a durable power of attorney and a revocable trust. With these documents, most people will never need the costly process of a conservatorship.

The solution is to prepare, in advance, a durable power of attorney, a legal document that lets you name the person who will make your financial decisions for assets you own in your name alone (like retirement plans) if you cannot make those decisions yourself. Most other assets should be owned by a revocable trust and not be governed by a durable power of attorney.

If you’ve established and funded a revocable trust, your designated successor trustee will manage the assets owned by the trust if you become incapacitated, while the person who holds your durable power of attorney will manage the property and assets that are in your name alone and do not belong to your trust. For most families who use a trust, the appointment of a successor trustee (the person who will manage the trust to take care of you if you are incapacitated), is one of the most important decisions you make when designing your estate plan.

Goal #3: Why is Probate Avoidance an Important Goal?

Probate is a legal process that delays the transfer of your wealth to your beneficiaries and takes a considerable percentage of that wealth. In Massachusetts, probate takes a minimum of one year, and probate typically “costs” about five percent of the probated assets.

Your estate will have to pay attorneys’ fees, accountants’ costs, appraisal fees, filing fees, and other expenses. Moreover, because it’s a legal proceeding, probate is public, and anyone can learn the details of your financial affairs.

Can you avoid the delays, the costs, and the public nature of probate? The key is having as few assets as possible in your name alone. As mentioned previously, joint property should usually be avoided, but assets owned by a trust and assets with beneficiary designations are not probated.

Goal #4: How Can Estate Planning Protect Your Assets?

Speaking frankly, persons with wealth are the “deep pockets” who are the likeliest targets for lawsuits, and even if an attorney successfully defends you against a lawsuit, it’s going to cost you substantial time and resources.

Proper estate planning protects your assets from lawsuits for as long as you are alive, and upon your death, it protects your assets for your beneficiaries. Once again, the key is having as few assets as possible in your name alone.

If your assets are owned, for example, by an irrevocable trust or a limited liability company (LLC), you can still have access to them for your use and enjoyment, but when irrevocable trusts and LLCs are set up correctly, they can provide protection from the claims of creditors, and in some cases, those who would sue may be discouraged from acting against you. Before a lawsuit happens, ask a Cape Cod estate planning attorney to help you determine which asset protection tools you need.

Can You Protect Your Assets for Your Beneficiaries?

Most trusts handle testamentary disposition in a similar way as wills do – by giving an inheritance to the heir. All of your assets—your “deep pockets”—are transferred directly to your beneficiaries. How can you protect your assets for your beneficiaries?

The key concept is to remember to leave things “for” your loved ones and not give an inheritance “to” your loved ones. Trusts can be established to continue after your death. With the right kind of asset protection language added to your trust, you can specify that each heir may act as the trustee of his or her inheritance. Then, once your loved one inherits, they may use your trust to own whatever they wish to invest in. Additionally, if they need money from your trust, it may be distributed out of trust for medical needs, educational needs, or the standard of living needs of your loved ones or their descendants. A Cape Cod estate planning lawyer will know what clauses and provisions you will need to include in the trust document.

Goal #5: Can Planning Reduce Your Estate’s Taxes?

Upon your death, your probate estate becomes a legal taxpayer. Any income, like interest, dividends or capital gains, that your estate generates while the probate process is pending is considered taxable income. Currently, probate estates hit the highest income tax bracket at a very low level of income – several hundreds of thousands of dollars under the personal tax brackets. This results in an inheritance being significantly reduced by high income taxes.

A trust may be written in a way that reduces taxes on the income (interest, dividends and capital gains) earned after your passing. The trick is to make the trust income taxed at the personal income brackets of the beneficiaries. The trust document must be carefully drafted, or the assets owned by the trust will be subject to income taxes for whatever income the trust generates.

The trust document must specify that income created by the trust belongs to the beneficiary and not by the trust. With the correct provisions in the trust document, a beneficiary will pay significantly less income tax than the estate would pay without the right language.

Can Estate Planning Reduce or Avoid Estate Taxes?

The federal estate tax exemption (for 2023) is $12,920,000, but Massachusetts levies a tax on estates worth more than $1 million. If your estate’s value is at or above the $1 million exemption figure, an inadequate estate plan could leave your beneficiaries with an estate tax burden that may be avoidable.

For married couples, a revocable trust can protect your assets from the Massachusetts estate tax. A revocable trust may be created in a way that passes up to $2 million without a Massachusetts estate tax liability.

If you are single with an estate of more than $1 million, or married with an estate of more than $2 million, an estate plan may be designed to reduce or even eliminate the estate tax. A Massachusetts estate planning lawyer will know how to best avoid an estate tax on your estate.

Should You Have Your Estate Plan Reviewed?

A Massachusetts estate planning attorney can help you prepare a comprehensive estate plan that meets all five common goals of estate planning. If you already have an estate plan in place, ask an estate planning attorney to review it to ensure that it still meets your goals and your needs.

What is the right way to leave your individual retirement account (IRA), 401(k), 403(b) or other qualified plan? Many people choose the wrong way. Do not be one of them. Instead, with help from a Cape Cod estate planning attorney, name an IRA Inheritance Trust™ as your IRA’s beneficiary.

If you’ll keep reading, you will learn about the advantages that an IRA Inheritance Trust™ provides.

Neglecting to name the right beneficiary for your individual retirement account can be a quite costly mistake. When you don’t designate a beneficiary, your retirement plan goes directly to your personal (probate) estate at the time of your death, and this can create a sizable tax burden.

You shouldn’t transfer your individual retirement account into a trust while you are still alive, but you can designate an IRA Inheritance Trust™ as the beneficiary of your IRA to provide asset protection for the retirement plan and allow for the longest stretch-out allowed by law.

How Does an IRA Inheritance Trust™ Work?

Trusts are excellent estate planning tools for protecting and preserving personal wealth and passing that wealth to the next generation. Qualified retirement accounts (IRAs, 401(k)s, 403(b), and Roth IRAs) allow you to save for retirement while allowing your savings to grow income tax deferred (or income tax free in a Roth). If you don’t use all of the savings in your qualified retirement plan you may eventually transfer those assets to heirs as beneficiaries.

When you designate a trust as the beneficiary of a qualified retirement account, like an individual retirement account (IRA), the trust inherits that IRA at the time of your death. Then the IRA is maintained as a separate account (an inherited IRA) that is an asset of the trust. This can be done for any qualified retirement plan, like Roth IRAs, 401(k)s and 403(b)s.

The IRA Inheritance Trust™ has been reviewed and accepted by the IRS as complying with all its regulatory requirements, as a tool for protecting inherited qualified retirement account funds. An IRA Inheritance Trust™ protects your beneficiaries from divorces, creditors, lawsuits, and estate taxes at the death of the beneficiaries.

Additionally, an IRA Inheritance Trust™ “stretches out” the required minimum distributions (RMDs) over the maximum term allowed for each separate beneficiary (typically this is ten years, but may be longer).

How Does an IRA Inheritance Trust™ Help You Avoid Risks?

If your beneficiary directly inherits your retirement account, there are potential disadvantages and risks. Instead of leaving your IRA, 401(k), or 403(b) retirement account funds directly to your children, create an IRA Inheritance Trust™ and make that trust the beneficiary.

You will need the guidance and insights of a Massachusetts estate planning attorney who is familiar with inherited IRAs.

What are the risks when beneficiaries directly inherit retirement account funds? Retirement accounts are protected from your creditors, but when the funds transfer to an individual beneficiary, that protection ceases. A direct inheritance from an IRA has no protection from divorces, lawsuits, creditors, or bankruptcy experienced by the beneficiary.

In fact, those threats could erode most if not all of the wealth you’ve labored to earn and leave to your loved ones, but by preparing an IRA Inheritance Trust™ with help from a Massachusetts IRA Inheritance TrustTM attorney, your beneficiaries may access their funds without those risks.

What Other Advantages Does an IRA Inheritance Trust™ Provide?

Because an inherited qualified retirement account that names an IRA Inheritance Trust™ as beneficiary is not considered an asset belonging to your beneficiary, it is protected from divorces, lawsuits, creditors, or a bankruptcy of that beneficiary.

Additionally, by naming a trust that allows for the longest deferral allowed by law, your individual retirement account funds will continue to grow tax-deferred and to compound over time.

Someone who inherits an individual retirement account has a right to larger distributions and may even withdraw the entire balance of the IRA as soon as it is inherited. On the other hand, when an IRA Inheritance Trust™ is the beneficiary, it is designed to encourage, but not force, a beneficiary of the trust to defer distributions.

What Can You Include in Your IRA Inheritance Trust™?

You may include provisions for special needs beneficiaries (for example, for someone receiving needs based government benefits, like SSI or Medicaid). Your Successor Trustee will decide when and how funds in your individual retirement account will be distributed. This lets you protect your beneficiaries and maximize their “stretch-out” benefits.

How Will an Estate Planning Attorney Help?

Anyone with retirement accounts currently worth at or above $150,000 should learn more about an IRA Inheritance Trust™. Especially if you are concerned about what may happen to your wealth after you’re gone, schedule a consultation with a Cape Cod estate planning attorney to learn more about establishing an IRA Inheritance Trust™ – or to begin the process.

Once your IRA Inheritance Trust™ has been prepared, you should review it with your attorney at least every three years. You may also need to update your trust immediately if you divorce, remarry, have a child, sustain a long-term or permanent disability, or suffer a death in the family.

Here’s another reason why your trust needs to be regularly updated. The laws that govern trusts are frequently changed. There were changes in 2019 and more changes are imminent. Changes in the law can affect the provisions of your trust, so those changes cannot be ignored or overlooked.

Have You Prepared Your Estate Plan?

An IRA Inheritance Trust™ is only one part of a comprehensive estate plan. If you do not already have a comprehensive estate plan in place, now is the time to begin the estate planning process. It can’t be done in haste, and you will need an attorney’s guidance and advice.

If you have a family, own a business, own significant assets, or if others count on you, your estate plan assures that your finances and assets will be handled properly after your death.

Without the right estate plan, there is no way to guarantee that your instructions will be followed after your death or that your assets will be distributed according to your wishes. Your estate plan also leaves instructions for your loved ones if you become incapacitated while you are still alive.

When Should You Schedule a Consultation?

After reviewing your assets, properties, liabilities, and your current financial situation, a Cape Cod estate planning lawyer can recommend a specific, comprehensive estate plan that will protect your assets – and more importantly, protect your loved ones – for many years to come.

A good estate planning lawyer will ensure that your estate plan is easy to understand, that nothing has been overlooked, and that you have the time and information you need to consider and review your estate planning options and make informed estate planning decisions.

Whether you need to prepare an IRA Inheritance Trust™, begin the estate planning process, update your estate plan, or if you simply need to learn more, make the call – right away – and schedule a consultation with a Massachusetts estate planning lawyer.