Estate Planning Answers for High-Income Families and Singles

You may never come close to Taylor Swift’s $92 million payday—and that was in 2022. And the CEO of JP Morgan Chase, Jaime Dimon, received a hefty $36 million in compensation in 2023. But there are some issues people with healthy incomes need to plan for, according to a recent article from mondaq, “Planning For Wealth: Lessons From Athletes, Entertainers, And Executives.”

This is especially relevant with the possible sunsetting of the historically high federal estate and gift tax exemptions created by the Tax Cuts and Jobs Act of 2017. You’ll want to start using estate, gift, and generation-skipping transfer tax exemptions before the law ends.

If you anticipate a large performance bonus, a profitable sale of a business, or a large award in a lawsuit in 2024, now is the time to get your estate planning underway.

In 2024, the estate and gift tax exemptions are $13.61 per person, as is the generation-skipping transfer tax. On January 1, 2026, the exemptions will be $5 million, plus the amount indexed for inflation. If this is a concern, you might consider giving a completed gift of the full exemption amount as soon as possible.

A dynasty trust could be a solution. You could name “future descendants” as the trust's beneficiaries, and if there are no children, name charities, siblings, or even parents as contingent beneficiaries.

A married person should speak with their estate planning attorney about the possibility of using Spousal Lifetime Access Trusts (SLATs) and Inter Vivos QTIP Trusts. These trusts allow indirect access to gifted access while utilizing exemptions.

What if $13.61 million is just a small portion of your wealth? An “incomplete gift plan” –a self-settled domestic asset protection trust—is an option. If exemptions increase by some chance, you can move assets from the self-settled trust to a dynasty trust. The “incomplete gift” self-settled trust is intact if the exemption goes down.

You might also want to consider using an Irrevocable Life Insurance Trust, or ILIT, to create liquidity with life insurance used to pay for estate taxes. This is especially useful if your estate includes illiquid assets.

There are some strategies to adopt in case of a large liquidity event. A Charitable Lead Annuity Trust (CLAT) is a trust funded with a one-time transfer. Payments are made to a qualifying charity for a set number of years. At the end of the term, any remaining trust property is paid to the named beneficiaries.

Another trust to consider is a Flip Charitable Remainder Trust. A Flip CRUT is also funded with a one-time transfer, but the trust creator delays distributions until a set period of time or until a triggering event. Until the “flip,” the trust remains invested. When the grantor dies, the assets in the trust are distributed to the named charity.

High-income earners also need to be mindful to have their estate planning attorney prepare Power of Attorney and Health Care Power of Attorney documents so a trusted person can take charge of their finances and be involved in medical decisions in case of incapacity.

If you're looking to maximize your estate planning before the federal tax exemptions change, our Los Angeles probate attorneys are here to help. Contact The Werner Law firm today to protect your wealth and optimize your estate plan.

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Reference: mondaq (Aug. 2, 2024) “Planning For Wealth: Lessons From Athletes, Entertainers, And Executives”