Preserving your assets and wealth

If others seek access to your wealth, there are planning tools and strategies that can help protect your family’s assets. A proactive approach to asset protection can help safeguard wealth from potential risks while supporting long-term financial stability.

What is asset preservation?

A top priority for many of today’s wealthy families is finding ways to help preserve and protect their assets for themselves, their spouses, their children, and their grandchildren.

Some of the biggest risks include:

• In a divorce, a child’s ex-spouse may claim entitlement to family wealth.
• Litigation can expose family assets to court judgments.
• Even under the current expansive federal estate tax laws, U.S. families have paid tens of billions of dollars in estate taxes in recent years¹.
• Potential errors in planning, such as selecting estate planning tools that improperly affect a family’s privacy or failing to follow the formalities of legal documents, can jeopardize the tax-efficient transfer of wealth to future generations or result in poor coordination with other planning tools.
• 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 the full scope of a family’s goals is understood, it becomes easier to coordinate with legal and tax advisors to help meet those objectives. Your broad goals will be at the heart of your plan to protect your legacy.

Asset preservation planning and strategies

These strategies play an important role in asset preservation, helping ensure wealth is maintained and transferred according to your intentions over time.

Preservation starts with a competent trustee

Failing to appoint executors and trustees who place the family’s interests at the forefront can take an emotional toll on everyone from the wealth creators, whose hopes may be dashed, to the intended beneficiaries, whose future may be upended.

Rather than appointing family members as fiduciaries, consider the benefits of a professional corporate trustee. It offloads family members from liability and hassle, and increases the odds of competent preservation and growth of family assets.

Asset preservation and control

For many, a primary objective is to structure their wealth using trusts to help make it off limits to the future generation’s creditors and “predators,” while leaving the current generation with a say in how the business is run or how the family’s assets are invested or used.

With careful planning, you can retain some degree of control over assets without complete ownership. This common desire for control leads to a delicate balancing act because many trusts require the grantor or settlor, the person establishing the trust, to cede control of trust assets to a trustee.

Family privacy

Many individuals may not understand that passing assets through their Will makes them 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 are getting. A beneficiary who recently inherited a large sum could be an attractive target for a variety of financial predators.

In most jurisdictions, a revocable trust structure will help protect assets in an estate plan from public view. However, failure to fund the trust or neglecting assets located in another state could still leave part of your estate exposed to public view.

Tax-efficient structures

Changes to the federal tax law have affected rules governing lifetime gifts, as well as assets passing through an estate at death. Today’s higher tax exemptions mean that many families may no longer have to worry about federal estate and gift taxes. But for families with large enough estates, especially those with business interests, federal estate tax may remain a looming issue. Not taking proactive steps to plan for this possibility can be very costly.

In one example, a family’s trust was created to help preserve a very large estate. While the trust seemed perfectly fine in isolation, it failed to consider the other planning that had been done by the family. The language of the trust inadvertently created an imbalanced distribution of wealth among the children and was entirely due to a lack of coordination.

Estate and gift taxes are not the only concern. Capital gains taxes have become a major focus of planning in recent years, particularly preserving basis adjustments where appropriate. When assets are included in a person’s estate at death, tax basis is adjusted (usually a step up, but sometimes a step down) to date of death values for purposes of calculating capital gains, rather than retaining the asset’s original value². A higher tax basis will 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 by his or her death.

Preserving basis adjustment where appropriate may be more important than estate tax savings and could 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.

Inadequate or misguided tax planning can reduce a family’s wealth, threaten a business’s future, and expose beneficiaries to drawn-out litigation.

Charitable objectives

For those with philanthropic goals, there are several ways to structure charitable gifts to provide possible benefits for the family.

For example, it may be prudent to gift an appreciated asset, such as a building or a stock holding, either directly to a charity or through a charitable remainder trust, which lets an individual retain an interest in the trust as long as he or she is alive, then transfers 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

Goals should not be considered in isolation. Talking with your advisors and your family will help you to understand and accommodate their shifting needs.

In some situations, preserving wealth requires more tailored planning. For example, one family faced uncertainty after the father passed away, leaving an elderly spouse and a highly valuable family business. By implementing a specialized strategy that included the sale of a majority interest in the business to a grantor trust, they were able to reduce the potential tax exposure while helping preserve the family’s legacy across 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.