High-net-worth clients present unique challenges in estate and trust planning due to the size and complexity of their assets, tax considerations, and the desire for control and protection.
Step-by-Step Drafting Guidance
Step 1: Understand the Client’s Goals and Asset Profile
- Meet with clients to fully understand their wealth structure, family dynamics, charitable interests, and legacy goals.
- Identify taxable assets and potential tax exposures (estate, GST, income tax).
- Determine client preferences for control, flexibility, and asset protection.
Step 2: Use Precise and Clear Language
- Draft documents with unambiguous terms to avoid confusion or litigation.
- Clearly define terms such as beneficiaries, distributions, and fiduciary powers.
- Avoid outdated or boilerplate language that may conflict with modern tax laws.
Step 3: Address Tax Planning Proactively
- Include provisions to maximize federal and state estate tax exemptions (e.g., portability, credit shelter trusts).
- Plan for generation-skipping transfer (GST) tax, using inclusion ratio techniques when appropriate.
- Provide instructions for income tax management within trusts to minimize tax burdens.
Step 4: Incorporate Asset Protection Measures
- Draft trusts to shield assets from creditors, divorcing spouses, and poor financial decisions by beneficiaries.
- Consider spendthrift clauses, discretionary distributions, and trustee powers for protection.
- Use irrevocable trusts or other vehicles where appropriate.
Step 5: Build Flexibility for Future Changes
- Include trustee powers to adapt trust terms in response to changing laws or circumstances (decanting, trust protector clauses).
- Allow for modification or termination under certain conditions, preserving client intent while offering adaptability.
Step 6: Facilitate Efficient Administration
- Clearly outline fiduciary duties, reporting requirements, and administrative procedures.
- Provide for successor fiduciaries and contingency planning.
- Address practical issues such as document storage, accounting methods, and beneficiary communications.
Step 7: Review and Coordinate with Other Advisors
- Collaborate with tax professionals, financial advisors, and insurance agents to align estate documents with overall planning.
- Regularly review documents to ensure they remain current with tax law changes and client circumstances.