The Three Levels of Estate Planning

Your goals usually depend on your point of view. Learn how to tailor your estate planning to fit your individual needs.

Level One - Net Worth under $4 Million

level one planning

Essential Lifetime and Estate Planning

As your assets build through investment, your lifetime and estate plan should include federal estate tax planning to minimize federal estate tax up to the current "applicable exclusion amount" (for 2007, $2 million per person) using marital and family trusts. This planning is typically done with a Revocable Living Trust as the centerpiece with various companion documents, including durable financial and health care powers of attorney, living will and pourover will. This planning will let a couple shelter up to $4 million of assets from federal estate tax.

Level Two - Net Worth over $4 Million

level two planning

Planning to Pay the Federal Estate Tax

At this level, some defensive planning against death taxes is going on. Clients seek to reduce asset values (the Family Limited Partnership), provide for payment of taxes without causing more tax to be due (the Wealth Replacement Trust), and enhance their income while giving unneeded assets to charity to benefit their community. Planning at this level typically includes a design plan (a set of detailed financial calculations giving realistic projections of growth), and various legal documents to carry out the plan.

Level Three - Net Worth exceeding $10 Million

level three planning

Planning to Eliminate the Federal Estate Tax

For the clients who seek perfection in their lives. They have all the material possessions of their dreams and have become affluent. They have the financial ability to do things that the ordinary person cannot do. They don't plan to leave all their after-tax property to their children because - in Warren Buffett's words - they wish to leave their children enough to do anything they want but not so much that they'll do nothing. These clients look for a way to use their assets - both those that they will keep in the future and those that will be lost to taxes, thereby making them "involuntary philanthropists." They have the money to make a difference and leave their mark on the world. These clients are ready for Wealth Strategies Planning.

In Wealth Strategies Planning, clients use their "Social Capital," i.e., the substantial amount of their assets that will disappear into taxes. They desire to steer that money to enhanced income during their lifetimes, control of the principal after their deaths, and replacement of the principal in the hands of their children. They organize their wealth to support their values, typically with a family foundation or an organization that supports one or more charities that they've served as a board member or other volunteer. They now wish to become voluntary philanthropists, not involuntary (tax paying) philanthropists. These clients recognize that the next best thing to owning property is the ability to control it.

For clients seeking this level, the work is done in three phases: 1) Review and analysis of planning to date; 2) Design of the Wealth Strategies Plan; and 3) Preparation and implementation of the Plan with various legal and accounting documents.