Navigating the complexities of estate planning can be overwhelming, particularly for those with significant assets. Ensuring your estate passes seamlessly to your chosen beneficiaries — whether family, friends, or charitable organizations — requires careful consideration and strategic foresight. Minimizing the potential for disputes and avoiding lengthy probate processes are top goals but equally important is managing estate taxes effectively. While every high-net-worth individual’s situation is distinct, proactive planning addresses these challenges as well as safeguards your legacy with precision and efficiency.
Think of a trust as a foundational tool
A revocable living trust is a private legal document that directs the transfer of assets upon an individual’s death and can help avoid probate. Because it’s revocable, the trust can be changed over time. The document allows for appointing a trustee who can manage the assets if you become incapacitated for any reason. Importantly, it can also help with minimizing the impact of estate taxes, both state and federal, to ensure that your beneficiaries receive more of your hard-earned assets.
To help ensure inherited assets are used responsibly, you can outline specific instructions for when and how beneficiaries receive their inheritance. A revocable trust can detail a gradual distribution of assets to children at different ages, or a co-trustee structure that allows for more control over time. You might choose the staged approaches to help children develop financial responsibility by receiving portions of their inheritance over time rather than all at once.
There are many other types of trusts to consider, including:
- Irrevocable life insurance trust (ILIT): An irrevocable trust created for the management and distribution of a life insurance policy. An ILIT may help provide liquid assets so that the beneficiaries may pay any estate taxes owed upon receiving their inheritance. Potential benefits may include reducing the estate tax burden, avoiding gift tax, and protecting assets.
- Intentionally defective grantor trust (IDGT): A type of irrevocable trust that can remove assets from an individual’s estate. With an IDGT, the grantor keeps paying income tax on the assets, reducing the taxable estate and helping to preserve the trust.
- Spousal lifetime asset trust (SLAT): An irrevocable trust created for married couples, established by one spouse for the benefit of the other during the beneficiary spouse’s lifetime. The SLAT reduces the taxable estate of the grantor spouse and assets in the SLAT can appreciate within the trust free of additional transfer taxes.
Explore life insurance options
Life insurance is an important consideration. Proceeds from a life insurance policy can be used to accomplish various objectives for inheritors, such as paying their estate taxes or passing on the assets to their successors. Importantly, life insurance proceeds may get added to the net worth used for estate tax calculations, so it is vital that your plan for these assets can help with minimizing taxes rather than increasing them.
Prepare for unexpected events
A critical part of estate planning is deciding who will manage your assets or make health care decisions if you’re unable. These are some of the documents you might want to consider including in your estate plan:
- Financial power of attorney allows you to appoint an individual to oversee your day-to-day finances if you’re unable to do so yourself.
- Health care power of attorney permits naming an individual to make medical decisions in case you’re incapacitated.
- HIPAA authorization allows you to list individuals who may consult with your doctors and have access to your private medical information.
- Living wills provide an opportunity to specify your wishes regarding medical treatment and end of life care.
- Guardianship documents enable you to nominate individuals to be responsible for taking care of your minor children in the event of your death or incapacity.
Consider charitable giving
Lifetime charitable giving can offer significant tax benefits for an estate. The 2024 estate tax exemption is $13.61 million and $27.22 million for couples.1 (This amount could be reduced to $7 million starting in 2026.) This means that, in 2024, you may be able to donate up to $13.61 million during your individual life and upon your death without paying any estate tax.
- If charitably inclined, an individual or couple can give to charities or organizations of their choice, a donor advised fund, or a family foundation. The donations have tax benefits and reduce the overall estate, and thus reduce the tax liability.
- A charitable remainder trust (CRT) is an irrevocable trust that can potentially reduce overall tax liability. The structure is distinct — the trust offers designated family members a stream of income for a specified period. At the end of the term, the remaining assets go to a charity of choice. Contributions to the trust can result in a partial tax deduction, based on the amount of assets that will go to the charity. In this way, a CRT can lower the estate tax burden, earn a tax deduction, and potentially lower any capital gains tax as well.
Get started
When it comes to estate planning, there’s no universal solution that can meet every individual’s needs. Each situation is different and requires careful analysis. The most suitable solutions often involve identifying the appropriate tools that make sense for the specific goals of a person, couple, or family. Our estate strategists, wealth advisors, tax and trust specialists, and financial planners are happy to discuss the options so you can determine what may be the right fit for your needs.
If you want to incorporate a comprehensive estate plan into your total financial picture, let’s talk.
1.“IRS provides tax inflation adjustments for tax year 2024,” IRS, Nov. 8, 2023.
Mercer Advisors Inc. is a parent company of Mercer Global Advisors Inc. and is not involved with investment services. Mercer Global Advisors Inc. (“Mercer Advisors”) is registered as an investment advisor with the SEC. The firm only transacts business in states where it is properly registered or is excluded or exempted from registration requirements.
All expressions of opinion reflect the judgment of the author as of the date of publication and are subject to change. Some of the research and ratings shown in this presentation come from third parties that are not affiliated with Mercer Advisors. The information is believed to be accurate but is not guaranteed or warranted by Mercer Advisors. Content, research, tools and stock or option symbols are for educational and illustrative purposes only and do not imply a recommendation or solicitation to buy or sell a particular security or to engage in any particular investment strategy. For financial planning advice specific to your circumstances, talk to a qualified professional at Mercer Advisors.
