Strategies for Executives to Achieve Their Estate Planning Objectives

Strategies for Executives

As a business executive, you strategize and set goals for your professional endeavors. Have you taken the time to apply these skills to ensure the well-being of your family? If you still need to, our assistance is available to provide strategies for executives when estate planning.

Protection from Lawsuits and Creditors

Many executives enjoy protection from job-related liability. However, certain situations could expose executives to potential lawsuits. With increased responsibilities, there is an elevated risk to their personal finances and assets. Fortunately, there are methods to safeguard these assets. For example, you can secure directors and officers liability insurance. Another valuable approach involves utilizing specialized irrevocable trusts.

Domestic Asset Protection Trust

A Domestic Asset Protection Trust (DAPT) provides a method for safeguarding wealth. This trust transfers a portion of your assets, rendering it irrevocable and unalterable. The appointed trustee can potentially make distributions to you, allowing you to retain certain benefits associated with the trust property. However, it is typically required that the trustee be an impartial entity with no inheritance rights.

The primary objective of establishing a DAPT is to protect your assets from potential future creditors. DAPTs operate on the legal premise that one cannot claim ownership of something formally relinquished. It’s crucial to recognize that DAPT regulations are continually evolving. Therefore, it is imperative to collaborate with an expert estate planning attorney to navigate these trusts’ intricacies.

Lifetime Qualified Terminable Interest Property Trust

A Lifetime Qualified Terminable Interest Property (QTIP) Trust is an irrevocable trust established to benefit a spouse. The trust-creating spouse can initiate and fund this trust without utilizing gift tax exemptions. This trust relies instead on the unrestricted marital deduction, which permits spouses to transfer money and property to each other without incurring tax liabilities.

Throughout the lifetime of the beneficiary spouse, they receive all trust-generated income. Furthermore, they may have access to the trust principal. Upon the beneficiary spouse’s death, any remaining accounts and property become part of their estate.

Discretionary Trust

In a discretionary trust, the trustee holds the authority to decide when to make distributions of wealth to the beneficiary. Since the beneficiary is not entitled to request a specific sum of money, this arrangement provides enhanced protection. A discretionary trust can be integrated into a revocable living trust or established as a distinct trust entity.

Irrevocable Life Insurance Trust

An Irrevocable Life Insurance Trust (ILIT) is a strategy aimed at securing the financial well-being of your family. Within this arrangement, the ILIT assumes ownership of a life insurance policy and receives the policy’s death benefit. This trust structure effectively shields the death benefit from potential threats, such as creditors, by directing the death benefit to the trust instead of to beneficiaries.

In addition to the asset protection advantages, an ILIT can significantly reduce estate tax liability. This tax reduction is achieved because the life insurance policy is owned by the trust and payable to the trust. Therefore, it is not considered part of the estate.

Standalone Retirement Trust

A Standalone Retirement Trust (SRT) is designed to be the sole beneficiary for retirement accounts. When formulated as an accumulation trust, an SRT protects the inherited retirement account against potential creditors. Any required minimum distributions taken from the retirement account are reinvested back into the trust’s principal. Similarly, if the retirement account necessitates liquidation, the remaining funds from the retirement account are consolidated into the trust’s principal. There are some drawbacks to an accumulation trust—for example, the potential for distributions to be taxed at the trust income tax rate. Nevertheless, many find the benefits are worth the potential tax burden.

Protecting Your Wealth from the IRS

Most people want to minimize tax liabilities. To achieve this goal, engaging in proactive tax planning is necessary. This is especially true for executives who have been granted stock options. While you may not be facing an estate tax issue now, the estate tax exemption is scheduled to decrease in 2025. Therefore, prudent planning in collaboration with a professional is crucial to navigate these evolving tax scenarios effectively.

If You Have No Estate Plan

Without an estate plan, your family will undergo the probate process. This process includes crucial information in the public court record, including an inventory of your entire estate. Consequently, the public can access these documents. Furthermore, without a plan, state law will dictate the recipients of your assets and the allocated amount each receives.

If You Have a Will

Having a will allows you to specify the recipients of your wealth. Even so, the court still manages collecting and distributing your assets. Moreover, all the related information may still be accessible to the public.

If You Have a Trust

A trust empowers you to specify the recipients of your wealth and the respective amounts they are to receive. Furthermore, it gives you the authority to determine the timing of their distributions—all without the need for court intervention. You’ll designate a trustee responsible for managing all aspects and collaborating with the named beneficiaries to ensure your assets are distributed in accordance with your wishes. The trust is not submitted to the probate court. Therefore, the financial information remains inaccessible to the public.

We are dedicated to assisting you in achieving your financial goals. Contact our team of experts today to schedule a meeting to discuss estate planning.