To round out our conversation about estate planning, I’m going to talk about two last topics: tax planning and asset protection planning. These are really what set our practice apart from others, as many estate planning attorneys don’t focus on these areas. But for high-net-worth clients, these are the two most important aspects to consider.
First, let’s discuss asset protection. What are we protecting our assets from? Many high-net-worth individuals—such as business owners, executives, white-collar professionals, doctors, lawyers, CPAs, engineers, and architects—face a level of legal scrutiny that others don’t. People are often looking to sue them for negligence, malpractice, or a variety of other reasons. So, we’re protecting your assets from lawsuits.
There are a variety of trust strategies we can implement to help shield your assets from creditors and lawsuits. In the U.S., South Dakota is by far the best jurisdiction for this. While other jurisdictions have their benefits, we wholeheartedly believe that South Dakota offers the best asset protection planning. They have no state income tax, and their trust laws are top-notch, making it an ideal location for implementing asset protection strategies.
For those who need even more robust protection, we also use Cook Islands trusts. The Cook Islands, a small Polynesian country off the coast of New Zealand, has some of the strongest offshore asset protection laws in the world. Depending on your circumstances, either domestic or offshore asset protection could be appropriate. It’s not a one-size-fits-all solution—different strategies work for different situations, but there are effective ways to protect your assets from a whole host of potential lawsuits and creditor issues.
Now, let’s talk about tax planning. This is probably the most overlooked opportunity in estate planning. Using trust planning, you can reduce or potentially avoid state income tax and capital gains tax. If you’re selling a business or have a large investment or stock portfolio, you should be having a conversation about this. Additionally, when passing assets on to others, we need to discuss how to get a step-up in basis to reduce capital gains tax. These strategies are crucial and often overlooked.
Finally, there’s estate tax planning. You may not have an estate tax issue if you were to die today, but what about 10 or 20 years from now? Maybe you won’t have one, but your children might because of the wealth you pass to them. This is where effective estate planning comes into play. Good estate planning ensures that, regardless of when you pass away or what the tax laws are at that time, you’re avoiding estate tax for yourself and future generations.
Don’t wait until you have a tax problem to do tax planning. Proper tax planning occurs way in advance, long before any issues arise. That’s something many people don’t realize. So, make sure you’re having these conversations with your estate planning attorney now before it’s too late.