Protecting your assets and wealth
However complex or simple your portfolio is, if you have assets, there is a risk that someone would love to get their hands on it. Simple steps to help protect your wealth are available.
By Steve Seel
Senior Wealth Strategist
If outsiders take aim at your wealth, there are planning tools and strategies that can help protect your family from financial harm.
What is asset protection?
One of the top priorities for many wealthy families is finding ways to help protect their assets–the adoption of strategies to guard one's wealth. It’s one of the most important aspects of wealth planning today. The people we work with universally want to protect assets for themselves, their spouses, their children, and their grandchildren. Yet, many obstacles can stand in the way. For example:
- After a divorce, a child’s ex-spouse may try to lay claim to family wealth.
- Litigation can expose family assets to court judgments, and business creditors can execute against family property.
- Even under the current federal estate tax laws that greatly expanded federal estate tax exclusions, U.S. families paid nearly $18.4 billion in estate taxes in 2021†.
- Potential errors in planning, such as choosing the wrong estate planning tools can put transactions at risk, compromise a family’s privacy, and risk the efficient shielding of wealth from transfer tax and/or creditors.
- Additionally, choosing the wrong assets to donate to charity can negatively impact the family by reducing the size of the charitable donation and limiting the tax benefits.
The good news is that early and ongoing planning can help you avoid common mistakes. When we know the full scope of what you’re trying to accomplish, we can work with you and your legal and tax advisors to find ways to help meet those goals. Your broad goals will be at the heart of your plan to protect your legacy.
Asset protection planning and strategies
Protection starts with a competent trustee
Failing to appoint executors and trustees who have family members’ best interests at heart can take an emotional toll on everyone from the wealth creators, whose cherished hopes may be dashed, to the intended beneficiaries, whose own future may be upended.
Inadequate or misguided planning can shatter a family, ruin a business, and deplete an estate with payments to lawyers in seemingly endless litigation.
Asset protection and control
For many people, a primary objective is to structure their wealth using trusts to help make it off limits to creditors and predators, while leaving the current generation with a say in how a business is run or how family assets are used. That can be a balancing act because some trusts require the grantor or settlor—the person establishing the trust—to cede control of trust assets to a trustee.
But with careful planning, you can retain some degree of control over assets without complete ownership. You can own a fraction of an entity—an S-Corp, a C-Corp, limited liability company, or limited partnership—and still be in charge of what matters most to you.
Many people don’t understand that passing assets through their will makes it part of the public record. If someone puts a bequest into a will, that information will be available to anyone looking to find out who the heirs are and how much they’re getting. Someone who has just inherited a large amount of money could be an attractive target for all kinds of predators.
A variety of trust structures can help protect assets in an estate plan from public view. Yet even then, there could be problems. Delays in funding the trust or neglecting assets in another state, could still leave much of your estate exposed to public view.
"For families with large business interests, federal estate tax remains an issue—and not getting the planning right can be very costly."
Senior Wealth Strategist Huntington Private Bank®
The 2017 federal tax law included major changes both to rules that govern lifetime gifts as well as money passed through your estate at death. Today’s higher tax exemptions mean that many families no longer have to worry about federal estate and gift taxes–at least until 2026. But for families with large enough estates–especially those with business interests–federal estate tax is still very much an issue. And not getting the planning right can be very costly.
I recently reviewed a family’s trust created to help protect and preserve a very large estate. It was perfectly fine in isolation, but it failed to take into account the full picture of that family’s circumstances. The language of the trust opened a hole that would have lost at least a quarter of the family’s wealth to unnecessary taxes.
Estate and gift taxes are not the only concern–capital gains tax has become a major focus of planning. That’s because assets passed along as part of an estate may qualify for a “step-up” in basis—an adjustment, for the purpose of calculating capital gains from an asset’s original value to its value at the owner’s death‡. A higher tax basis may greatly reduce capital gains when the asset is sold. That basis adjustment could be significant for someone who started a business for, say, $10,000 many years ago, and grows it to $5 million at death. A step-up in basis can mean substantial savings for that person’s heirs.
Because tax laws seem to constantly change, it’s important to revisit all tax-related aspects of an estate plan frequently with knowledgeable tax and investment advisors.
For those with philanthropic goals, there are several ways to structure charitable gifts to provide possible benefits for the family.
For example, it might make sense to gift an appreciated asset such as a building or a stock holding either directly to the charity or through a charitable remainder trust, which lets you retain an interest in the trust as long as you’re alive and then sends the remainder to charity.
It’s also possible to use either Qualified Charitable Distributions from IRAs, or annual required minimum distributions from IRAs and other retirement accounts, to make charitable gifts.
Communicate and adapt to shifting needs
None of your goals should be considered in isolation. Talking with your advisors and your family will help you to understand and accommodate their shifting needs.
I worked with a family where the father had died, the mother was elderly, and the two daughters were concerned about the future of an extremely valuable family business.
The situation ultimately called for a very specialized solution—the sale of a majority interest in the business to a grantor trust. But the big point is that this planning both saved the family a large amount in taxes and helped preserve the family’s legacy for multiple generations.
Paying attention to the considerations described above allows you and your advisors to create an estate plan that helps preserve and protect your family’s wealth with minimal disruptions and maximal impact.
Huntington is here to help
Connect with your Huntington Private Bank® advisor to outline a plan that can help alleviate your concerns. To learn more, please contact your Huntington Private Bank team to see how we can help, or find a Huntington Private Bank Office near you.
† Tax Foundation. (Nov. 7, 2022.) Putting a Face on America’s Estate Tax Returns. Retrieved Feb. 22, 2023.
‡ La Rosa, Bridget, and O’Donnell, Susan. (Nov. 2, 2020). Estate planning toolbox: spousal lifetime access trust. Retrieved Feb. 22, 2023.
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