High Net Worth Estate Planning

 

This is me and our firm. We specialize here in only a couple of things: estate planning, so it’s drafting of documents; the administration side—probate administration, trust administration. We do guardianships and prenups. So part of our estate planning side is tax-related, and we help clients reduce their estates so that they don’t pay estate tax, hopefully.

All right, so we’re going to start with some basic overview: the 2025 exemption and the 2026 exemption. Some of you might have heard in the news the exemption is now permanent. It’s permanent until it’s not permanent. It is not scheduled to sunset like it was previously scheduled.

At the end of 2025, it was going to revert back to some older numbers that were probably about $6 or $7 million, but now they did make the law permanent. So in 2026, the exemption is going to be $15 million per person. So an individual won’t pay estate tax unless their estate exceeds $15 million. A married couple can shelter $30 million for the most part.

So most estates are not going to pay estate tax, at least at the federal level, unless you’re over this. Some states also impose a state-level estate tax, and a few states have an inheritance tax. Florida does not impose an estate tax or an inheritance tax. So here, if you live here, you’re just looking at the federal exemption—unless you own property in other states.

If you own real property or assets in other states, then you will also potentially be subject to estate tax in those states. Some of them are very unforgiving, so it’s very important that you look at that and plan for that.

If you are a non-U.S. person—and this is based upon domicile, not residence—the landscape looks very different. They only get a $60,000 exemption. Hugely different from a U.S. person.

Domicile is a tricky thing because it’s a subjective analysis. If you have a green card, you’re not necessarily domiciled here. If you have a visa, you’re not necessarily domiciled here. Domicile is based upon a lot of factors.

Having a green card is certainly a great place to start. If you’re a citizen, you’re a citizen—that’s it, you’re a U.S. person. But if you’re not a citizen, then we have to look at all these different factors to determine whether or not you might be domiciled here.

Domicile is really about whether you have an intent to remain in the United States permanently. Is this where you plan on staying? You could work in the United States for 30 years and always intend to go back to your home country, in which case you are not domiciled here, and you only get a $60,000 exemption.

You could own a $100,000 condo and you’re going to pay estate tax.

The only country that has a very impressive exemption would be Canada. So citizens or residents of Canada who own property in the United States have a very nice treaty that they can avail themselves of, but you have to file—or your estate has to file—a 706, which is an estate tax return for a non-resident in order to use those treaty benefits.

You get a percentage of our exemption, which is currently almost $14 million or $15 million next year. So Canadians usually make out okay, but most other people do not, and they’re usually caught off guard with that.

So there are strategies that you can use to try to avoid estate tax if you are not domiciled here.

Annual Exclusion Gifts

This is one of our first strategies. This is a no-brainer if you have a taxable estate. You can give away $19,000 per person every single year. If you’re a married couple, you can give away $38,000 per recipient.

Fun fact: if you have four children and eight grandchildren, you can give away $456,000 annually.

It might not seem like a lot per person, but if you’re doing this consistently and giving to multiple people, it really adds up over time. This is a complete freebie—it does not use any of your $15 million exemption.

You can make these gifts outright or into a trust structure so the recipient can’t access the money immediately.

Unlimited Medical & Education Payments

These are also freebies. You can pay medical and education expenses in unlimited amounts for anyone.

You must pay the provider directly—you cannot reimburse the individual.

This includes things like tuition and medical insurance premiums. This is another powerful way to reduce your estate without using your exemption.

Irrevocable Life Insurance Trusts (ILITs)

These are very common, but often used incorrectly.

Many people have an ILIT that:

• Is not funded
• Does not own their life insurance policy
• No longer serves a purpose

Estate planning should not be “set it and forget it.” You should review your plan regularly.

For an ILIT to work properly:

• The trust must own the life insurance policy
• The trust must be the beneficiary
• The insured is typically you

The ILIT should:

• Have its own tax ID number
• Have its own bank account
• Receive contributions for premiums
• Pay premiums from the trust

If you pay premiums directly, that creates an “incident of ownership,” and the policy proceeds may be included in your estate—defeating the purpose.

Trust Flexibility & Trustees

You cannot be the trustee of an ILIT. You must appoint someone else.

Issues arise when:

• The trustee is no longer appropriate
• The trustee passes away
• No alternates are named

It’s important to build flexibility into irrevocable trusts. One option is a trust protector, who can make changes if needed.

Qualified Personal Residence Trust (QPRT)

This strategy is typically used for a second home or vacation property.

You place the property into an irrevocable trust and retain the right to use it for a fixed term (e.g., 10 years).

• If you die during the term → it’s included in your estate
• If you outlive the term → it passes to beneficiaries

After the term ends:

• You must pay fair market rent to continue using the property

The benefit:

• You reduce the taxable value of the gift
• You move future appreciation out of your estate
• Rent payments further reduce your estate

Married Planning Strategies

You can leave unlimited assets to your spouse without estate tax (marital deduction).

However, when the surviving spouse dies, estate tax may apply.

You can use a QTIP trust to:

• Provide for your spouse
• Maintain control
• Preserve assets for future beneficiaries

Lifetime QTIP & SLATs

A lifetime QTIP trust allows you to transfer assets for your spouse’s benefit while maintaining control and providing creditor protection.

A SLAT (Spousal Lifetime Access Trust):

• Uses your lifetime exemption
• Moves assets (and future appreciation) out of both estates
• Still allows indirect access through your spouse

Risks:

• Divorce
• Death of spouse
• Loss of access

GRATs (Grantor Retained Annuity Trusts)

Used to transfer appreciation of assets.

You place an asset into a short-term trust and receive annuity payments.

If the asset grows:

• The appreciation passes to beneficiaries
• Minimal or no exemption is used

Often used with:

• Stocks
• Appreciating assets

Dynasty Trusts & GST Tax

A dynasty trust allows assets to pass across generations without repeated estate taxes.

The IRS imposes a Generation-Skipping Transfer (GST) tax to prevent skipping generations.

Proper planning:

• Allocates GST exemption
• Avoids double taxation

Intentionally Defective Grantor Trust (IDGT)

This trust is:

• Recognized for estate tax purposes
• Ignored for income tax purposes

Benefits:

• You pay income tax → reduces your estate
• You can sell assets to the trust without triggering tax
• Future appreciation is removed from your estate

Portability

If one spouse dies, the surviving spouse can use their unused exemption.

Important:

• Must file an estate tax return (Form 706)
• There are strict deadlines

Limitations:

• Does not apply to GST exemption
• Can be lost upon remarriage

Post-Death Planning & Step-Up in Basis

When someone dies:

• Assets receive a step-up in basis
• Capital gains are wiped out

However:

• Some strategies eliminate this benefit
• Must weigh estate tax vs income tax

Special rules apply for:

• LLCs
• Partnerships
• Corporations

Roth Conversions

If you have a taxable estate:

• Converting to a Roth IRA can reduce estate tax
• Paying tax now reduces your estate
• Future growth is tax-free

Charitable Strategies

Options include:

• Direct gifts
• Private foundations
• Donor-advised funds
• Community foundations

Benefits:

• Reduce estate
• Maintain charitable control
• Provide tax advantages

That is the end of our webinar.