Estate Planning For The Large Estate

“The rich aren’t like you and me,” wrote F. Scott Fitzgerald in “The Great Gatsby.”

That means that your usual approach to insurance sales may not be as effective with the very wealthy as it is with prospects of more modest means. Estate planning for the large estate has different considerations and tools but can easily increase your value to wealthy clients.

The usual topics of A-B trust planning–the need for a will, the wonders of an irrevocable life insurance trust and annual exclusion gifting–are not likely to capture the attention of the ultra-rich. What might is an arsenal of sophisticated planning topics.

The goals are to bring something new to the table and to discuss techniques that are advantageous and do not require related “cost recovery” or “liquidity funding” with life insurance. For many, prevailing themes include asset protection, discounted transfers of substantial assets and, perhaps most importantly, control from the grave.

One very common tool among the mega-rich is the grantor retained annuity trust or GRAT. This estate freeze device allows the grantor to transfer assets to the next generation at a discount, take back fixed dollar annuity payments for a period certain and remove future growth of the asset from the estate.

Clients who prefer to sell an asset to a child rather than give it outright should consider a private annuity, which provides an income stream to the original owner for life. Since the payments stop at death, this contractual obligation has no value at that point; so nothing is included in the original owner’s estate. In addition, all future growth inures to the benefit of the buyer.

You also may want to discuss the private foundation with your clients. If so, be sure to point out the strict limitations placed on such entities.

Perhaps your prospect really needs a charitable remainder trust to avoid capital gains tax, take back an income stream and receive an income tax deduction. The CRT also allows individuals to liquidate an underperforming investment or diversify their portfolio, and do something nice for their favorite charity. It pays not to be a one-trick pony in the charitable giving market.

Trust planning is a popular topic among the very wealthy. There are numerous variations of trust planning that address particular concerns of your well-to-do clients.

A dynasty trust is used to provide funds for the grandchildren and the many generations that follow behind them. These trusts can last forever if established under the laws of states that have repealed the rule against perpetuities.