Building a Lasting Legacy: Personalized Estate Planning Strategies

As a high pursuer, you’re likely in a unique financial situation. You may have sold a business or exercised a substantial stock option recently. You may be feeling overwhelmed by the magnitude of the tax bills. And it’s about preserving the wealth that will fund your retirement and your legacy for future generations. This is where sophisticated estate planning strategies help you keep more of what you’ve worked so hard to acquire.

Estate planning plays a key role in protecting your assets. Think of its legacy planning applications as your way of passing your wealth down to your kids and grandkids more smoothly. More comprehensive estate plans can also project your values, beliefs, and interests long after you are gone. 

At Cogent Wealth Strategies, our experienced financial advisors can use sophisticated tools to create plans for complex estates that can endure for generations in the future. 

Today, we’ll share some personalized estate planning strategies that you can employ to build a lasting legacy for your family.

Establish a Durable Power of Attorney

A Durable Power of Attorney (DPOA) is a legal tool that lets someone you trust, called an agent or attorney-in-fact, make various decisions and act on your behalf. This becomes especially important if you or a spouse are unable to handle your affairs, perhaps due to a catastrophic illness or an accident.

Set Up a Healthcare Power of Attorney

This document specifically grants an agent the authority to make healthcare decisions on your behalf if you or your spouse cannot make the decisions for you. The agent’s decision-making power is generally limited to medical, healthcare, and personal care decisions. It becomes active when you have been medically determined to be incapable of making healthcare decisions independently.

Watch our founder, Michael Evans, discuss three ways to make paying taxes less taxing.

Consider the Annual Gift Tax Exclusion

The Annual Gift Tax Exclusion is a provision in U.S. tax law that allows you to give a certain amount of money or property to another person each year without incurring a gift tax or a requirement to report the gift to the IRS. In 2024, that exclusion amount is $18,000 per recipient. Over time, this strategy can reduce your taxable estate while providing financial support to people you care about. 

This strategy allows you to gift loved ones without triggering federal or state estate and gift taxes, preserving your lifetime gift tax exclusion.

Create an Irrevocable Life Insurance Trust

An Irrevocable Life Insurance Trust (ILIT) is a specialized trust to hold and manage a life insurance policy. Once established, the trust cannot be altered or revoked. The grantor is required to relinquish control over the policy.

The ILIT is the owner and beneficiary of a life insurance policy. This setup separates the policy from the grantor’s estate. Since the ILIT owns the policy, the proceeds are not included in the grantor’s estate, potentially reducing estate taxes.

In many cases, assets within an ILIT are shielded from creditors, providing financial security for your beneficiaries. 

Consider a Family Limited Partnership

A Family Limited Partnership (FLP) is a legal structure families use to manage and control family assets while providing flexibility regarding asset protection and estate planning. 

By allocating limited partnership interests to family members, parents can reduce estate taxes by lowering the value of their estate. Also, FLPs can offer tax benefits like income splitting, where income is distributed among family members in lower tax brackets.

You can place assets like real estate, family businesses, or stock portfolios into an FLP. This protects the assets from creditors and can effectively prevent the fragmentation of valuable assets over generations.

Set Up an Education Trust for Children or Grandchildren

This type of trust is used explicitly for earmarking assets for your future generations’ education, ensuring the funds are used solely for educational purposes.

Explore a Charitable Remainder Interest Trust

A charitable remainder trust (CRT) is a smart way to handle taxes while supporting a cause or nonprofit organization you care about. It’s designed to serve as a tax-exempt irrevocable trust that assists in reducing your taxable income. Here’s an example of how it can be part of your estate plan. 

Let’s say you own highly appreciated stock worth $1 million, with a cost basis of $200,000. Selling the stock would result in a significant capital gains tax. You decide to set up a charitable remainder trust and transfer the stock into the trust.

Since the trust is tax-exempt, it doesn’t pay capital gains tax on the sale. The trust then reinvests the proceeds into income-generating assets, and you receive a fixed percentage of the trust’s assets as income annually for a specific period. This income is taxable. 

After the term ends, or upon your passing or your spouse’s passing, the remaining assets in the trust go to the designated charity of your choice, say a local hospital, religious institution, or university. 

The gift to the charity reduces the size of your estate, potentially lowering any estate taxes. Additionally, you receive an immediate charitable deduction on your income taxes for the present value of the estimated remainder interest that will eventually go to the charity. 

This strategy allows you to support a charity you care about, receive income during your lifetime, and lower your potential estate tax burden.

Open and Fund a Donor Advised Fund

By opening a donor-advised fund (DAF), you can give more by maximizing the value of your gifting for your intended recipient, pay less by minimizing or eliminating your capital gains taxes on highly appreciated holdings, and live better by making philanthropy a meaningful and lasting family activity. You’ll be able to build wealth and give to causes you care about without sacrificing either pursuit.

Establish a Private Foundation

Creating a private foundation can provide you and your family with various tax deductions while keeping control over the foundation’s assets within the family.

Get to Know Cogent Strategic Wealth

As someone with significant assets, you know how important it is to protect your wealth and ensure it benefits your family for years. Our team of experienced financial advisors can help you create a tailor-made estate and legacy plan that fits perfectly with your goals, values, and beliefs.

Think of preparing your future estate as more than deciding who gets what after you’re gone. Comprehensive estate planning helps streamline control of your affairs during your living years. It also entails preparing your heirs for their role after they receive your assets. Part of their legacy is continuing what you started.

Our approach includes smart tax planning, safeguarding your assets, creating a family legacy, and setting up ways to support the people you love and the causes you care the most about. 

You create your definition of success. We help you pursue it.
Connect with us to learn more about our estate planning services.

For informational and educational purposes only and should not be construed as specific investment, accounting, legal or tax advice. Cogent Strategic Wealth provides investment advice only through individualized interactions. Certain information is based upon third-party data, which may become outdated or otherwise superseded without notice. Third-party information is deemed to be reliable, but its accuracy and completeness cannot be guaranteed. Indices are not available for direct investment. Their performance does not reflect the expenses associated with the management of an actual portfolio nor do indices represent results of actual trading. Information from sources deemed reliable, but its accuracy cannot be guaranteed. Performance is historical and does not guarantee future results. Neither the Securities and Exchange Commission (SEC) nor any other federal or state agency have approved, determined the accuracy, or confirmed the adequacy of this article. © 2024, Cogent Strategic Wealth®