Rob Hamrick: “Perfect. All right, well hi and welcome! I’m Rob Hamrick. I’m the Director of Development and Client Relations at Stuart Green Law, and I’ll be one of your hosts for today’s webinar. Stuart Green, our founding attorney, is with us as well. I’ll let him introduce himself here in a moment.
Today’s webinar is an introduction to estate planning for high-net-worth clients, business owners, and their families. To paint a picture, the sad reality is that nearly 90% of us do not have an up-to-date, comprehensive estate plan in place to protect ourselves, our families, our wealth, and our businesses. So, we’re excited to introduce the fundamentals of estate planning.
Of course, this is a webinar, so we have some administrative items to go through first. This is not legal advice and should not be construed as such. If you have questions about your estate or today’s presentation, schedule a consultation with Stuart.
Second, we’re going to try to keep this as non-technical as possible, as a lot of this is new for many of us. We want to help you understand why it’s important rather than all of the mechanics. We’re going to keep this around 30 to 45 minutes—probably 30 or 40 minutes unless Stuart, you know, starts rambling on. I’ll try and rein him in and pull him back here. We shouldn’t go over 45 minutes, though.
Regarding Zoom, we’ve turned off your mics and cameras just to minimize distractions and background noise. For the most streamlined viewing experience, there’s a little ‘View’ button in the upper right-hand corner of your Zoom window. If you click that ‘View’ button and then click ‘Hide Non-Video Participants,’ that will give you the most streamlined view.
All right, so I’ll go ahead and kick it over to Stuart at this moment.”
Stuart Green: “Great, thanks Rob. So, like Rob said, I’m Stuart Green, the founding attorney of Stuart Green Law. We are an estate planning practice headquartered in Houston, Texas. We also have an office in Louisville, Kentucky. We’re a bit unique in that we focus on solving several problems that other attorneys don’t really focus on.
First of all is tax—not just estate tax, which a lot of attorneys do—but also income tax planning, which we’ll talk about in more detail. Second is asset protection. A lot of times, people are thinking about asset protection in terms of Medicaid planning, but that’s not relevant to our client base. We’ll explain what that looks like for high-net-worth clients and business owners. Lastly, multi-jurisdictional estate planning issues, and we’ll talk about what that means in more detail as well. These are three things that are pretty unique to our practice.
A little bit more about me: I’ve spent my entire career working with estate planning law firms or in public accounting. The law firms include national boutique high-net-worth estates and trust practices, and then in public accounting, I was with Ernst & Young, one of the Big Four international public accounting firms, focused on international multi-jurisdictional tax issues.
I’m going ahead and sharing our contact information here. You can see that you’ll probably have questions after today’s webinar, so feel free to reach out to me or Rob. It’s pretty simple: Stuart at stuartgreenlaw.com, Rob at stuartgreenlaw.com. Give us a phone call or go to our website to learn more about what it is that we do and how we help clients. We also have a lot of content on YouTube, so you can go there and check out other videos as well.
There are two things that we’re excited about today. I’ll explain the first one, and then Rob can explain the second one. Anyone who has registered for the webinar can sign up to have a free consultation with us to discuss anything that you may have heard in the webinar or anything regarding your own estate plan that you might want to do. The easiest way to do this is probably to go to the website and fill out our online questionnaire, which just asks for a snapshot of some personal information and gives us an idea of where the conversation should go. Then we’ll coordinate with you the best time to have that consultation. So, take advantage of that; there’s a lot of value there. And then I’ll let Rob talk about the other thing.”
Rob Hamrick: “Yeah, absolutely. So, we focus on our legal services for high-net-worth individuals and business owners, but really, we’re trying to do everything we can to help them grow and maximize their businesses. We’ve partnered with Cultivate Advisors, one of the largest business growth and value advisory firms in the nation. Cultivate is going to offer any business owner that we refer to them a free two-hour valuation and growth assessment.
They’re fantastic because they’re going to be looking at sales, profit, talent, leadership, marketing, performance improvement, and they’re going to provide strategies and benchmarks in all these areas. So, if you have questions even about what Stuart and I are talking about regarding estate planning, but you want us to introduce you to Cultivate Advisors, we’ll be happy to go ahead and do that. You can take advantage of that free two-hour business valuation and growth assessment. Just reach out to us, and we’d be happy to put you in contact with them.
So, jumping into estate planning, Stuart, you always put a particular emphasis on comprehensive estate planning. I think it will be helpful if you explain to everyone what you consider the five pillars of comprehensive estate planning.”
Stuart Green: “Yeah, so, five pillars—you can probably break it out to more or less, but this is just what we focus on.
First is estate planning. These are the documents that every person needs regardless of age. Next is asset protection, which I kind of talked about a second ago. We’re focused on protecting assets and wealth from lawsuits, divorcing spousal claims, bankruptcy, and other types of legal risks. Succession and legacy planning: business owners and wealthy clients need a documented plan for the continued success of the family business or wealth once he or she becomes incapacitated, retires, or dies. One of those is inevitable, so you’ve got to have a documented plan.
Income and estate tax planning: like I said, we’ll dive into that a little bit. Lastly, charitable giving: most wealthy clients have causes that are very close to their hearts, and they want to give back and contribute. We talk about doing that during your lifetime as well as maybe what a charitable legacy might look like. There’s tax planning aspects to that as well as a few other things.”
Rob Hamrick: “Yeah, so let’s talk about why estate planning is so important. I always tell people that effective estate planning is your documented, legally binding plan to protect you and your family from a variety of legal and financial obstacles, you know, in the worst of situations. Probably most importantly, it’s going to preserve family unity. Recently, I was talking with a couple, and unfortunately, there was a lot of family infighting because estate planning wasn’t done correctly. That key piece of family harmony is extremely important.
So, it doesn’t matter if the legal and financial obstacles are foreseeable; an effective estate plan is going to make sure that you cover all your bases regardless of what happens. To begin to understand why it’s so important, I think it would be helpful to understand what happens when you pass away from a legal perspective. Stuart, can you provide some guidance on that?”
Stuart Green: “Yes, I can.
[Music]
Regardless of whether you have a last will and testament or if you’re married, assets owned in your individual name have to go through the legal process known as probate. Most people have heard of probate; maybe they’ve gone through probate when they’ve lost a loved one. To give you an idea, each state has its own version of probate, but in general, someone will have to be appointed and serve as your legal representative, or your executor. People are familiar with that term.
They will serve as the executor of your estate in legal proceedings, prepare numerous court documents, pay any of your remaining debts, distribute your assets, and change legal ownership of your assets. This is all done while a judge at the local district court oversees this entire process.”
Rob Hamrick: “Yeah, I have yet to meet a person that likes going through probate, except for, you know, probate attorneys. That’s where they make their money; they get paid when they go through probate or help people go through probate. Why do people dislike probate so much?”
Stuart Green: “First, the obvious: someone you love just died, right? Now you’re having to deal with attorneys, judges, courts, financial institutions, and lots of paperwork. It’s just burdensome at a particularly vulnerable and sensitive time in your life.
Bottom line: it can be very expensive, it takes a long time, and assets can get frozen, leaving you without access to them. To give you an idea, on average, probate cases cost anywhere between 3% to 8% of an estate’s value. Additionally, on average, it takes approximately one to two years to close a probate case. A lot of times, states will say there has to be a six-month window where creditors can make a claim, even if there aren’t any creditors. A probate has to be kept open for six months for creditors to be able to make a claim. So, at the very least, you’re looking at probably eight or nine months to get things really closed out. But again, it can take a lot longer.
You see this ‘7’ on the slide. I keep meeting people who just keep pushing the bar up and up. So, until a few weeks ago, the longest I’d seen anyone in probate was five years. I was having a conversation with a lady, and she told me they were dealing with year seven. They were in year seven of her husband’s parents’ estate. I think her husband’s father’s estate. There was, to Rob’s point, a lot of fighting within the family, and there were challenges being made to the estate plan.
The point is, relationships within a family can sour pretty quickly and break a family when there’s bad estate planning or just not proper care for the actual estate plan when it is carried out.”
Rob Hamrick: “Yeah, but you know, the good news is you can avoid all that, right? You can avoid all that probate. So, with that said, let’s talk about the documents that every person needs. Everyone needs to make sure that they have their legal, financial, tax, business, and family affairs in order to avoid probate and to avoid these emergency situations and unnecessary obstacles. These are the first-step estate planning documents you referred to earlier. Can you just walk us through these documents?”
Stuart Green: “Yeah, absolutely. And again, this is focused on high-net-worth clients, so maybe you see ‘revocable living trust’ on there. That may not be for everybody, but for the certain clients that we’re dealing with, 100%, it’s part of the basic documents.
So, we’ll start with the last will and testament. If you die with an executed will in place, you’ll have laid out all your intentions and your wishes regarding the distribution of your assets, who will raise any minor children, if that’s applicable to you, and appointed someone to be your legal representative or your executor to carry out your remaining legal affairs.
Two things to keep in mind: first, if you die without a will, each state has its own laws that will determine how your assets will be distributed. Second, a last will and testament doesn’t keep you out of probate; it just makes sure that, throughout the probate process, your intentions are honored.”
Rob Hamrick: “So, the last will and testament isn’t keeping you out of probate. Why is it so important?”
Stuart Green: “Great question. In addition to what I just said, it’s going to appoint a legal representative, typically known as the executor, to handle those affairs. There can be affairs that happen outside of the probate process. Let’s say you were in a car wreck and died; maybe somebody ran a red light and hit you, and you passed away because of that accident. Your estate, your family, might want to bring a wrongful death suit on your behalf. Someone has to be able to do that. Someone that has a legal claim or legal standing has to be the one to do that, and that would be the executor.
Or maybe someone’s going to sue your estate. Maybe it’s a creditor, or maybe it was your loved one who ran the red light, caused an accident, and passed away. Maybe someone’s going to sue them. You need that legal representative to be able to take care of that.
Then lastly, there’s likely a final tax return that’s going to have to be filed on your behalf. That’s something the executor or the legal representative would take care of as well.”
Rob Hamrick: “Do you have any unfortunate examples of maybe a business owner who hadn’t set up a last will and testament?”
Stuart Green: “Yeah, I think a quick Google search will show a few different examples out there. I think one of the most recent is the CEO of Zappos, the online shoe and clothing retailer. I forget all the details about how he passed away, but I think it was maybe in a house fire that he started.
He was young, in his mid-40s, and he died without a will. He was worth approximately $500 million. I think this was two or three years ago. It’s still going through the court system. There have been a lot of challenges. Friends and family are coming out of the woodwork, saying he promised them a few million dollars if they did this or that for him. It’s just a huge, huge mess.
On a more personal level, during COVID, I had a friend’s father come to me. We had an initial meeting, sat down, and talked about his and his wife’s estate plan. Long story short, he ends up dying two weeks later unexpectedly, before we could do anything to update his plan. When we sat down and started looking at his previous will, we realized that when he did it 25 years ago, it was not properly executed. He ended up dying without a valid last will and testament in place.
So, here we are, over two years later, and the estate is worth about $10 million. Most of that was in a closely held business interest. Now, we’re going through the court system, fighting with partners, fighting with the actual business itself, and other family members, trying to make sure all this gets sorted out. The spouse receives all of the business interests; otherwise, the spouse doesn’t really have any assets because everything was in the deceased spouse’s name. So, a lot of issues just come up, and it takes a long time to work through the process.”
Rob Hamrick: “Yeah, and probate is a public process, right? So, it can result in assets being frozen for months or even years. Now, if you have real estate or business interests in other states, you might get pulled into probate in another state. It sounds like a lot. So, how can a client and their family avoid having to deal with probate?”
Stuart Green: “This is where the revocable living trust is really important to wealthy families. At the very minimum, they really do need it. In general, you can use beneficiary designations to transfer some of your assets upon your death—think about investment accounts, maybe some bank accounts—but other assets have to be titled in the name of the revocable living trust if you want to avoid having to go through probate.
The way it works is, assets titled in the name of the revocable living trust, rather than in your individual name, avoid probate simply because they aren’t in your individual name. So, it’s just a matter of changing the legal ownership. The great thing about this is that with the revocable living trust, you yourself remain the trustee, the beneficiary, so that just means that you manage the assets, and you use the assets. You benefit from them in the same way as if everything were in your individual name.”
Rob Hamrick: “Speaking more to business owners avoiding probate and the use of the revocable living trust, how does that all play out?”
Stuart Green: “If you intend on passing a business interest through the probate process via your will, you run the risk of bringing the business operations to a complete stop until the business interests can legally be transferred to the new owner, whether that’s someone in your family or someone else. So again, if you go the route of a last will and testament and go through probate, it could take months at the very least. If there are challenges or other issues that might pop up—maybe with a shareholder agreement or an operating agreement—then you could be looking at years before this gets resolved. This obviously is not a recipe for continued success for any business.
Using the revocable living trust to transfer ownership outside of probate circumvents any of these issues.”
Rob Hamrick: “Yeah, only 20% of organizations have a formal, documented succession plan in place for a transition, which is crazy—20%. I feel like there could be other implications for business owners though. So, let’s say something happens well before that formal succession plan is worked through. What happens if the business owner has a wreck, is involved in a car accident, has a stroke or heart attack, or develops Alzheimer’s and becomes incapacitated? Who runs the business at that point?”
Stuart Green: “It just depends. We don’t always know off the top of our heads; it has to be worked out. If you do become incapacitated, you need someone who can step in and make decisions regarding your financial and legal affairs, pay your bills, apply for public benefits if that’s a thing, and, to your point, run your business.
In a power of attorney, the document gives an individual or individuals the authority to do just that. Otherwise, you’re potentially looking at a jury trial, psychiatric evaluations, and other medical assessments to have someone appointed as your legal guardian or conservator. Again, you’re leaving it in the hands of the state, the judge, and potentially a jury to figure out what’s best for your business and who’s going to run it.
I know we’re going to talk about a formal succession plan here in a little bit, but these simple things are easy ways to make sure you don’t run into huge legal and financial obstacles.”
Rob Hamrick: “The last three documents all have to do with healthcare. Concerning healthcare, the term is ‘advanced directive,’ but in reality, it’s three documents. Can you just walk us through those documents and how they work?”
Stuart Green: “An advanced directive includes these three items. I like to break them out into three separate documents for different reasons, but I won’t go into that here.
The healthcare surrogate designation, or medical power of attorney, works similarly to the regular power of attorney. It gives an individual or individuals authority to make healthcare decisions on your behalf if you do become incapacitated.
The HIPAA authorization works in conjunction with that. It gives your medical agent—the medical power of attorney or healthcare surrogate—access to your healthcare information to be able to make informed decisions when something happens to you.
Lastly, the living will specifies your wishes regarding end-of-life issues—think about medical treatment, ventilators, food, water, medication, pain relief, that type of thing. It makes your wishes known to your medical agent as well as your doctors and anyone else. These are by far the most important documents that everyone has to have to begin having an effective estate plan.”
Rob Hamrick: “Yeah, absolutely. With my wife being an ER nurse, those are some very important documents there when it comes to healthcare.”
Stuart Green: “Absolutely.”
Rob Hamrick: “So, we’ve spent a lot of time on the basic first steps, which is that first pillar that we talked about. Let’s transition into the other pillars that you mentioned earlier, which is where we’re going to start looking at more advanced estate planning techniques. I hear you say that the most overlooked aspect of estate planning is asset protection. Why is asset protection important to business owners and high-net-worth individuals and families?”
Stuart Green: “This is where estate planning starts to really take on its nuances and add a lot of value to high-net-worth families, individuals, and business owners. Business owners and high-net-worth clients are under a level of legal scrutiny that others are not. Approximately—this is pretty crazy—94% of the world’s lawsuits happen in the U.S.
Whether it’s a negligence or malpractice suit, bankruptcy, divorcing spousal claim, or some other type of legal risk, if you don’t protect yourself, then a creditor can obtain your business or personal assets from you. There are different strategies and different ways to go about this, but asset protection trusts really are the most effective way to do it.”
Rob Hamrick: “You said it’s the most effective way, those asset protection trusts. Are there other asset protection strategies out there that are falling short or aren’t working?”
Stuart Green: “Yeah, absolutely. There are a lot of strategies out there that aren’t strategies at all.
First is retitling your assets in the name of a spouse or a child. There may be some theory behind it, but the problem is with this approach you could end up getting divorced or there could be an unexpected death. In that event, you lose access to those assets. If your spouse or child ends up with a creditor claim against themselves, then this could potentially cause you to lose the asset to that creditor as well.
Second strategy that’s not really a strategy is expecting your umbrella policy, business insurance, or malpractice insurance to cover everything. Insurance—and rightfully so—insurance policies have limits that are clearly defined. Every injury isn’t necessarily going to be covered, and there are policy limits on how much is covered. Sometimes creditors are awarded much more than whatever insurance might cover.
Lastly, LLCs—limited liability companies—are really strong options. We love them and certainly use them as part of our strategies, but they too have limitations. We won’t go into that here, but just to give you an idea, LLCs are best used in conjunction with an asset protection trust.”
Rob Hamrick: “So, the examples that you just mentioned—insurance and putting an asset in the name of someone else—they’re falling short. That’s why we need asset protection trusts. How do asset protection trusts provide the best asset protection?”
Stuart Green: “Great question. First, they remove assets from your personal name, going back to that idea of getting assets out of your personal name, but you’re not giving them to your child or spouse; you’re giving them to a trust. The trust owns the assets, not you, not anyone else. That’s really important because, secondly, you will benefit from the trust assets either directly or indirectly. Even though you don’t own the assets, someone else doesn’t either—the trust does. We can orchestrate it so that you will still benefit from the assets in the same way as if they were in your personal name.
Third, effective asset protection trust planning is not going to be impacted by death or divorce. The trust will always own the assets, and we will always have a way to access the assets, regardless of what happens.”
Rob Hamrick: “Are there specific types of trusts that provide asset protection?”
Stuart Green: “There are two situations where trusts provide asset protection.
First is what’s called an ‘inheritor’s trust.’ It’s known as a third-party settled trust, meaning someone else sets it up for the benefit of another person. A typical example of this would be when mom and dad are passing an inheritance to a child and they set up a trust for the child rather than giving it outright to the child. An inheritance should always be transferred to an irrevocable trust rather than outright to the child.
The reason for this is that, to the extent that the inheritance is passed to someone inside an irrevocable trust and those assets remain in the trust, those assets are protected from any type of claim from a divorcing spouse, any type of lawsuit, negligence suit, malpractice, bankruptcy, whatever it may be. I’ve yet to meet a person that didn’t want to protect the family wealth from creditors and ‘predators,’ as we say.
Next is first-party settled trusts. These are domestic asset protection trusts and foreign asset protection trusts.
To give you a little historical context, a little background here, these are known as self-settled trusts, meaning that you can set it up for the benefit of yourself. Historically, you yourself have not been able to set up a trust for your own benefit and have the assets be protected from creditor claims.
Back in the ‘80s, all of this changed. Several offshore jurisdictions passed laws changing the trust industry and allowing a person to set up an irrevocable trust for their own benefit while protecting the assets inside the trust from creditors. The Cook Islands and Nevis—both small island countries—became really well-known for their foreign asset protection trusts. We like the Cook Islands as the premier jurisdiction for a few different reasons, but we won’t go into that here.
Since then, domestic jurisdictions have started passing legislation to replicate what these countries were doing. South Dakota, Nevada, Alaska, and Delaware tapped into this and created statutes that allowed for what’s called a domestic asset protection trust.
South Dakota and Nevada are known for having the best asset protection trust statutes within the U.S. Because of other reasons as well, South Dakota is recognized as the best trust jurisdiction in the country, and that’s where we prefer to do our asset protection trusts domestically.”
Rob Hamrick: “The pillars that we were talking about at the beginning of the webinar are interrelated with one another and, really, they often build on one another. You talked about succession planning earlier related to the revocable living trust, avoiding probate, and the power of attorney. What else do business owners and high-net-worth individuals and families need to be thinking about?”
Stuart Green: “We could do an entire presentation on business succession planning, but just to throw out a few quick ideas when it comes to succession planning, you need to be thinking about valuations, key employees, operating and shareholder agreements, buy-sell agreements, how to fund those buy-sell agreements with life insurance, the gifting of business interests, the selling of a business interest, and all the tax consequences that come along with that.
Just as important as that, you also need to be thinking about family dynamics and preserving family harmony. You spoke about that a little earlier. You might love your family, but leaving your kids unfettered access to money or the family business isn’t necessarily helping them or anyone else out. That’s something to keep in mind and something to think through, something that we help clients with.
Also, just because a business owner has a plan in their mind doesn’t mean it’s actually a plan. It has to be documented, it has to be written out in a legally binding document, it has to be understood, and it has to be communicated. A succession plan isn’t something that happens overnight. You need to bring all the key players to the table, your key advisors—whether it’s your attorney, your CPA, your financial advisor, whoever your closest advisor is—to help facilitate and organize that process.”
Rob Hamrick: “That documentation and considering family dynamics and background are obviously very important. Is there anything else that a wealthy client or business owner needs to consider when it comes to succession planning and building a legacy?”
Stuart Green: “Not a lot of attorneys talk about this, but the jurisdiction that you choose to do your trust planning in matters. You might not need to select a jurisdiction other than the one where you reside, where you live, but it can definitely impact your estate plan. Depending on your situation, you might really want to consider South Dakota for a handful of reasons.
First, asset protection. We talked about that in detail, so I won’t go into it more. Next is privacy. Privacy is a big thing for wealthy clients and business owners. In South Dakota, they perpetually provide a seal on any trust details that come out in court proceedings. It’s sealed from any public record and will never become part of the public eye whatsoever.
Also, South Dakota has what’s called ‘quiet trust laws.’ Unlike other states, if you don’t want beneficiaries of a trust that you created to know about it or to have access to any information, you can completely eliminate them from being able to accomplish that. In other states, as soon as a beneficiary hits 18, you have to start letting them know about the details of that trust that they benefit from.
Flexibility is another big, big thing. South Dakota allows for irrevocable trusts to be updated, so there’s a lot of flexibility that South Dakota provides that other jurisdictions don’t. That doesn’t mean that we can’t make updates to an irrevocable trust in another jurisdiction, but South Dakota just makes it really easy to be able to accomplish that.
No state income tax. We’ll talk about that in more detail here in a second, but that’s one of the reasons to leverage South Dakota.
Lastly, dynasty trusts. You can have a trust that holds the family wealth in businesses forever, meaning that it will never be subject to any estate or inheritance tax because it’s allowed to stay inside of that dynasty, that irrevocable trust, in perpetuity. A lot of states don’t allow for a trust to exist forever. That’s something you have to worry about. Some states, it’s 21 years; some states, it’s 200 or 300 years; it just varies. Some people will say, ‘Hey, I don’t care. 300 years is a really long time,’ but if you’re a wealthy client and you’re doing your trust planning now, why not go ahead and think through that? Maybe it’s something you don’t take into account because you don’t want to for whatever reason. The thing is, know about it and plan accordingly.”
Rob Hamrick: “I mean, they’re incredible, all those reasons. I love the privacy, I love the flexibility, the dynasty, and, of course, the no state income tax as well. You’re talking about multi-jurisdictional planning. A client could be in California or Texas, and they might be interested in these superior laws of South Dakota. How is Stuart Green Law able to help clients that live in different jurisdictions than where you’re located or licensed?”
Stuart Green: “Yeah, this is kind of interesting. I was having a conversation with some financial advisors this morning about this. One of them was like, ‘Interesting. In 30 years of doing financial advising, I’ve never really heard anyone talk about this.’
We work with clients that live everywhere. The thing with high-net-worth clients and business owners is they have very complex and unique circumstances. That means needing to leverage the best laws that are available to accomplish the client’s goals. Let’s say the client is located in California or New York, but they’re interested in tax, privacy, asset protection, and the benefits of South Dakota. But let’s say it goes beyond there. Let’s say they have a child that lives in Texas, a child that lives in Florida, maybe they own some real estate in Wyoming, and they like to vacation there during the summer and get away, maybe they like skiing, so they’re going to Wyoming, maybe they have another home in Colorado. There could be a lot of different things that are presenting these multi-jurisdictional issues.
You can’t piece together this type of planning and expect the client to find an attorney in Wyoming, one in California, one in Florida, and one in New York. Our strategy here is to basically be the personal family attorney and coordinate. We’re going to come up with the entire strategy. We’re going to look at all of the jurisdictions and figure out where it makes the most sense to implement the planning. We’re going to coordinate the entire plan. That means working with local counsel in the jurisdictions where we’re not licensed. We’re going to make sure they’re on board, and we’re going to make sure that the entire plan is legitimate in the eyes of all these various jurisdictions. Then we’re going to make sure that everything is correctly drafted and implemented according to those various jurisdictions that are involved.
It’s a very concierge approach. Otherwise, it would be impossible for a client to really address all the moving pieces that must be handled. Estate planning isn’t one size fits all anymore, and these multi-jurisdiction issues that pop up speak to that. It’s a very nuanced, very comprehensive approach that must be carried out to truly serve the needs of business owners or high-net-worth clients.
Maybe there are even international implications as well. Maybe it’s a client who’s in another country that has assets based in the U.S., or maybe it’s a client who lives here but isn’t a U.S. citizen and is a U.S. citizen of somewhere else. There are just a lot of different moving pieces, and so this multi-jurisdictional aspect of planning is more and more important, and we do a lot of it.”
Rob Hamrick: “Yeah, and with estate planning, especially the complicated estate planning, there are going to be tax implications. I’ve yet to meet someone who wants to pay more than they need to in taxes. Often, business owners and high-net-worth clients are just paying more than necessary. A lot of people don’t realize that you can leverage trust planning to minimize income taxes. Can you explain how that works?”
Stuart Green: “Along with asset protection, income tax planning leveraging trust is greatly overlooked. For clients in high-income states like California, New York, New Jersey, Massachusetts, Oregon—really, any state with income tax—there’s a huge opportunity to implement South Dakota trust planning. Going back to that idea that they don’t have a state income tax there—we’re located in Texas, so this isn’t really a Texas strategy for Texas residents—but for clients with large investment accounts or closely held business interests, we can transfer those assets into a South Dakota trust to avoid paying state income tax when you’re liquidating that business interest or selling off securities or whatever it may be.
We structure the trust in a way that gives you control over the assets, removes them from your personal name, and avoids state income tax.”
Rob Hamrick: “Trusts are also used to reduce or avoid estate taxes. Let’s turn the conversation in that direction. Tell us more about estate taxes.”
Stuart Green: “There is a federal estate tax, and depending on where you live, there might also be a state inheritance tax or estate tax. I’ll talk about the federal piece.
An estate tax means that your estate pays taxes on your cumulative wealth over a certain threshold. Inheritance tax means you pay taxes on the value of assets that you receive as inheritance. There’s a slight nuance there. These laws have thresholds, and they’re constantly changing all the time. The main takeaway is that you don’t have to wait until you have a taxable estate to do estate tax planning.”
Rob Hamrick: “Is there a perfect time to do estate tax planning?”
Stuart Green: “It just depends, and it’s different for everyone. For business owners, you might be worth, say, a few million dollars today. You may not even be worth that, right? But as soon as you sell your business, you might be worth $20 million, $30 million, $40 million, or even more. We need to do planning before you ever have that liquidity event. If you wait until you have a taxable estate to do the planning, it’s much more difficult. It’s not impossible, but it just becomes more difficult. I think we’re likely able to save you a lot more in tax—maybe even completely eliminate estate tax—if we’re able to do the planning well in advance of a liquidity event.”
Rob Hamrick: “A minute ago, you mentioned that estate tax laws are always changing. Can you tell us more about that, and is this why you shouldn’t wait until you have that taxable estate to do tax planning?”
Stuart Green: “Exactly right. Today, your estate is taxed on anything over $12.92 million per person, as of 2023. A couple would be closer to $26 million, right? However, that changes in 2026 and will change to $5.5 million plus whatever inflation is, so it may be around $6 million or something like that.
Here’s something else to think about: even though you yourself may not have an estate tax issue when you pass away, your kids very easily could. Let’s say you’re able to pass each of your children $5 million or $10 million. Maybe that doesn’t fit you within a taxable estate, but by the time your kids pass away, that money could grow significantly. Maybe they’re doing really well on their own. The tax laws are pretty conservative as far as who gets taxed and what gets taxed. You doing planning today could be very, very helpful for your children and future generations down the road when it comes to estate tax issues.
The point is, it should always be on your radar. Just because it’s not an issue today doesn’t mean it won’t be an issue tomorrow. I like to have the conversation now, educate the client, and put it on their radar—something for them to think about.”
Rob Hamrick: “All right, let’s talk about that last pillar, which is charitable planning. Most high-net-worth individuals and business owners have missions that are close to their heart. There are organizations that they love to donate to. There are different approaches to charitable planning, including charitable trusts, donor-advised funds, and outright gifts during their lifetime. Tell us a little bit more about some of these strategies.”
Stuart Green: “I won’t go into great detail here—just some of my favorite things. I love donor-advised funds. Most financial institutions have donor-advised funds. A lot of people aren’t familiar with them, but a DAF account, as it’s called, is just a charitable investment account that appreciates tax-free, and you can recommend grants from your account to go to a public charity at any time, whether you do it immediately, during the year that you make the contribution to the account, or years down the road. You do receive a charitable deduction in the year that you donate money to your account. It’s a way to reduce your taxable estate. It’s also a way to reduce your income tax by being able to take a deduction on your contribution to charity—a charitable deduction.
If you’re facing a liquidity event with your business or you have low-basis securities, then maybe moving assets to the DAF account makes a lot of sense. It could bring a lot of tax relief from an income and estate tax perspective.
You see charitable remainder trusts on the slide here. They work very similarly to DAFs as far as the benefit they provide. There are obviously some nuances because it is a trust. I won’t go into the complexities of that here, but know that, whether it’s low-basis securities or a liquidity event, you could put assets into the charitable remainder trust to reduce your income tax as well as your estate tax.
There are a lot of different approaches; it just depends on whatever the client wants to do. What I’ve realized from clients is that they want to see the benefit of the contributions that they’re making. A lot of people like to build their charitable legacy during their lifetime. They like to begin it during their lifetime, so there are a lot of things that we can do to help facilitate that and make sure they’re developing that legacy during life. Then, if they want to continue a family legacy after they pass away, we may look into things like charitable remainder trusts or a few other things.”
Rob Hamrick: “That’s fantastic. All right, that’s all we have for today. We’re confident that you’re going to have more questions about estate planning and how it relates to your personal circumstances or maybe your clients, so feel free to reach out to us if you have any questions.”
Stuart Green: “Like Rob said, reach out to us. Here’s our contact information again. We’re going to send a recording of this webinar out to anyone who registered for it. Like I said earlier, if you signed up, we’re offering the free consultation, so take advantage of that—there’s a lot of value there—as well as, as Rob mentioned, with Cultivate Advisors and the business evaluation they can do to help grow your business. Free two-hour consultation there, no commitment.
Something else that’s really interesting with them is they have a proprietary tool that they use to help give business owners some idea of what their business may be valued at. It’s just a good starting point. I wouldn’t necessarily use it for selling your business or anything like that; you would want something more official. But a lot of business owners think their business is either worth a lot less or a lot more than it’s really worth, so it helps give you an idea of maybe what it’s worth. Then, if you want to get it to that—maybe you think it’s worth $10 million, you do this valuation and realize it’s only worth $3 or $4 or $5 million, but you want to get it to that $10 million spot because you’re looking for a liquidity event, you’d like to get out, you’d like to receive $10 million—they can help you come up with a game plan of how to increase the value of your business, looking at sales, profitability, leadership, marketing—the entire spectrum of things.
So take advantage of that. Reach out to Rob. He really quarterbacks that process. We want to thank you again for joining today. Reach out with any questions, and we hope to hear from you soon. Thank you.”