Key Components of an Effective Estate Plan
While all estate plans share a few common components, high-net-worth individuals may need to consider additional options for more effective outcomes. The three main estate planning tools to consider are a last will and testament, trusts, and a power of attorney.
Last Will and Testament
A last will and testament is the most basic requirement for effective estate planning. This document is important for all Texas residents, whether they are young, old, healthy, sick, rich, or poor. The primary function of a will is to designate beneficiaries and determine which assets they should receive.
Most high-net-worth individuals in Texas should consider the potential benefits of trusts. Middle-class residents with net worths of $100,000 might also benefit from establishing trusts – even if this wealth bracket does not fall into the traditional definition of “high-net-worth.” Trusts are effective estate planning tools because they can control how beneficiaries receive assets. In contrast, a will may only have the power to control who receives assets.
For example, you might have a family member who is not yet ready for a big financial responsiblity. You may feel uncertain about leaving this individual large sums of money, but you may still be concerned about their financial security after your passing.
This obvious strategy in this scenario is to consider a spendthrift or “drip-feed” trust. As the name implies, this trust distributes funds on a gradual basis rather than paying out a lump-sum amount. This provides financial security for your beneficiary while protecting them from issues such as gambling, debt, substance abuse, or poor investment choices.
Trusts also provide a range of tax planning advantages, and they have the potential to reduce or eliminate federal estate tax obligations. Popular choices among high-net-worth and ultra-high-net-worth families include charitable remainder trusts (CRTs) and generation-skipping trusts (GSTs). There are almost too many different types of trusts to list, and the best option depends entirely on your family’s unique needs. To discuss a trust that meets your specific priorities, consider consulting with a high-net-worth estate planning lawyer in Texas.
Power of Attorney
Also known simply as “POA,” a power of attorney allows you to designate a representative to handle your finances if you ever become incapacitated. For financially savvy individuals who play an active role in their investments and business activities, this estate planning tool may be crucial. The thought of leaving these decisions to a family member who has no idea how to run your business or manage your investments may seem unthinkable. Without designating a financial power of attorney, your business and investments could suffer tremendously while you are incapacitated.
There are many situations where a POA might be helpful, not just for those who are in poor health. For example, you can also designate a POA to handle your real estate transactions while you are abroad, or a POA to handle financial matters when you are unable to do so.