For estate planning, what constitutes high net worth?

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RevFran
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For estate planning, what constitutes high net worth?

Post by RevFran »

I am finally getting around to a comprehensive estate plan. A trusted colleague and attorney has recommended several different lawyers to me, all of whom specialize in estate planning, some of whom also deal with real estate LLCs (which is of interest to me), and some of which describe themselves as EP for “high net worth individuals.”
I’m trying to decide what I really need in this process.

What constitutes “high net worth” for estate planning purposes? (If that’s simply short hand for “11 mil,” ie because of the inheritance tax exemption, I am well below that!)

Thank you for your help!
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Re: For estate planning, what constitutes high net worth?

Post by snackdog »

Net worth over one million dollars puts you in the top 10%. That is high.
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Re: For estate planning, what constitutes high net worth?

Post by adamthesmythe »

I consider "high" to be significantly more than I have, after retiring from a professional job with a solid but not high income.

Certainly above 1 and maybe more than 10 million.

I have a feeling that "high" may also refer to the fees.
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Re: For estate planning, what constitutes high net worth?

Post by Lee_WSP »

Either 10, 20 or 50 million depending on the practitioners perspective.
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Re: For estate planning, what constitutes high net worth?

Post by 22twain »

Wikipedia: High-net-worth individual

According to the above, the customary definitions are:

HNW: $1 million (excluding principal residence)
VHNW: $5 million
UHNW: $30 million

For the definitions used by the estate planners in question, you had best ask them.
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Re: For estate planning, what constitutes high net worth?

Post by prairieman »

:arrow:
22twain wrote: Fri May 20, 2022 5:16 pm Wikipedia: High-net-worth individual

According to the above, the customary definitions are:

HNW: $1 million (excluding principal residence)
VHNW: $5 million
UHNW: $30 million

For the definitions used by the estate planners in question, you had best ask them.
Maybe need to double or triple those due to inflation.
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Re: For estate planning, what constitutes high net worth?

Post by Lee_WSP »

22twain wrote: Fri May 20, 2022 5:16 pm Wikipedia: High-net-worth individual

According to the above, the customary definitions are:

HNW: $1 million (excluding principal residence)
VHNW: $5 million
UHNW: $30 million

For the definitions used by the estate planners in question, you had best ask them.
It's not bad as a whole, but you cited the wrong section (world instead of US only). It's 2.2 million excluding home.
https://en.wikipedia.org/wiki/High-net- ... egulations
The U.S. Securities and Exchange Commission requires all SEC-registered investment advisers to periodically file a report known as Form ADV.[4] Form ADV requires each investment adviser to state how many of their clients are "high-net-worth individuals", among other details; its Glossary of Terms explains that a "high-net-worth individual" is a person who is either a "qualified client" under rule 205-3 of the Advisers Act (currently a person with at least $1,100,000 managed by the reporting investment adviser, or whose net worth the investment adviser reasonably believes exceeds $2,200,000 without counting their primary residence) or who is a "qualified purchaser" as defined in section 2(a)(51)(A) of the Investment Company Act of 1940). The Dodd-Frank Wall Street Reform Act mandated that the definition of a qualified client be reviewed every five years and adjusted for inflation.[5] The net worth of an individual for SEC purposes may include assets held jointly with his or her spouse. Unlike the definitions used in the financial and banking trade, the SEC's definition of HNWI would include the value of a person's verifiable non-financial assets, such as a primary residence or art collection.[6]
edit:
So, if we go by the SEC definition, then it appears they're using the top 3 or 5% of household wealth. In 2020, that starts at 2.5 million or 4.6 million depending on 3 or 5.
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Re: For estate planning, what constitutes high net worth?

Post by lostcoast »

Lee_WSP wrote: Fri May 20, 2022 6:00 pm
22twain wrote: Fri May 20, 2022 5:16 pm Wikipedia: High-net-worth individual

According to the above, the customary definitions are:

HNW: $1 million (excluding principal residence)
VHNW: $5 million
UHNW: $30 million

For the definitions used by the estate planners in question, you had best ask them.
It's not bad as a whole, but you cited the wrong section (world instead of US only). It's 2.2 million excluding home.
https://en.wikipedia.org/wiki/High-net- ... egulations
The U.S. Securities and Exchange Commission requires all SEC-registered investment advisers to periodically file a report known as Form ADV.[4] Form ADV requires each investment adviser to state how many of their clients are "high-net-worth individuals", among other details; its Glossary of Terms explains that a "high-net-worth individual" is a person who is either a "qualified client" under rule 205-3 of the Advisers Act (currently a person with at least $1,100,000 managed by the reporting investment adviser, or whose net worth the investment adviser reasonably believes exceeds $2,200,000 without counting their primary residence) or who is a "qualified purchaser" as defined in section 2(a)(51)(A) of the Investment Company Act of 1940). The Dodd-Frank Wall Street Reform Act mandated that the definition of a qualified client be reviewed every five years and adjusted for inflation.[5] The net worth of an individual for SEC purposes may include assets held jointly with his or her spouse. Unlike the definitions used in the financial and banking trade, the SEC's definition of HNWI would include the value of a person's verifiable non-financial assets, such as a primary residence or art collection.[6]
edit:
So, if we go by the SEC definition, then it appears they're using the top 3 or 5% of household wealth. In 2020, that starts at 2.5 million or 4.6 million depending on 3 or 5.
So according to this statistic since I'm probably in the top 2% I should stop shopping at Goodwill and rethink using Nolo press for my estate planning?
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Re: For estate planning, what constitutes high net worth?

Post by Lee_WSP »

lostcoast wrote: Fri May 20, 2022 6:10 pm So according to this statistic since I'm probably in the top 2% I should stop shopping at Goodwill and rethink using Nolo press for my estate planning?
Adjusted for recent returns, that'd be around 8-10 million, so... yes.

https://dqydj.com/average-median-top-ne ... rcentiles/
Data comes from the Federal Reserve's 2019 SCF
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Re: For estate planning, what constitutes high net worth?

Post by fyre4ce »

Just ask them. You would definitely need additional planning with assets above the estate tax exemption. But even well below this, you may want trusts and other more complex planning that you would need someone specialized in that area.

A general point about the estate tax exemption: for many folks (excluding those with limited assets) it can be hard to predict whether you'll end up being over or under the exemption. Most planning around level of assets focuses on retirement (ie. "I need X assets to retire"), but estate taxes apply when you die, which could be many decades later. It's true that many folks deplete assets during retirement, but that's not always the case. Skillful investing and reasonable spending with a low safe withdrawal rate mean that many folks will die with more assets than when they retired, sometimes much more. In the Trinity study I think the average case with a 4% withdrawal rate was dying with something like 2.7 times the assets they had at retirement.

On the other side of the equation, estate taxes tend to be a political issue and the exemption could be highly variable in the future. Discussion of possible tax law changes is prohibited, but at a minimum, the exemption will revert to $5M+inflation in 2026 under current law. The point is, if you're in 7-figure territory, there's no harm in working with a planner who deals with estate taxes; it could be needed later on.
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Re: For estate planning, what constitutes high net worth?

Post by afan »

It has nothing to do with arbitrary definitions of high net worth or percent of the population at a given level.

Your net worth determines whether you need to plan for state or federal estate taxes. It also determines whether things like irrevocable trusts, set up in life or in your will, with paid trustees, are suitable. If your assets are too low, these can be prohibitively expensive.

There are things that would be useful for a married couple with $20M that would be pointless for a married couple with $2M.

If you describe your situation, the estate planning experts can give you pointers as to what you should be considering.
Last edited by afan on Fri May 20, 2022 7:53 pm, edited 1 time in total.
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Re: For estate planning, what constitutes high net worth?

Post by bsteiner »

I think at the point when you're likely to pay estate tax. If you don't expect to pay estate tax, then you probably don't have to consider making transfers during lifetime. Wills with marital and credit shelter trusts (for married clients) and trusts for issue should be routine.

Of course, even if you won't pay Federal estate tax, you may want to plan for state estate or inheritance taxes, state income taxes of trusts, planning for retirement benefits, the degree of control the surviving spouse should have, the degree of control each descendant should have, and at what point (and who should control until that point).
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RevFran
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Re: For estate planning, what constitutes high net worth?

Post by RevFran »

Thank you! This is all very helpful. It has raised a separate EP-related question that I will post in a separate thread.
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Estate planning: revocable trusts

Post by RevFran »

[Thread merged into here --admin LadyGeek]

As I posted in separate thread, I am finally getting serious about estate planning. I’ve gotten diametrically opposed advice about revocable trusts from the first two attorneys I consulted and what I have taken away from those conversations is: these are time consuming to set up and can be expensive to set up, and I should do that if I want to save my executor the very real headache of probate. What am I missing? If it matters, I am unmarried with no children and am leaving most of my estate to charity. At present, anyway. I am 45; I could change my mind in 10 or 20 years, should I make it that long!
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Re: Estate planning: revocable trusts

Post by marcopolo »

RevFran wrote: Fri May 20, 2022 7:45 pm As I posted in separate thread, I am finally getting serious about estate planning. I’ve gotten diametrically opposed advice about revocable trusts from the first two attorneys I consulted and what I have taken away from those conversations is: these are time consuming to set up and can be expensive to set up, and I should do that if I want to save my executor the very real headache of probate. What am I missing? If it matters, I am unmarried with no children and am leaving most of my estate to charity. At present, anyway. I am 45; I could change my mind in 10 or 20 years, should I make it that long!
In that situation, it seems a simple will would suffice.
If you change your mind in 10 or 20 years, you can always update your plan.
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Re: For estate planning, what constitutes high net worth?

Post by HomerJ »

lostcoast wrote: Fri May 20, 2022 6:10 pm So according to this statistic since I'm probably in the top 2% I should stop shopping at Goodwill and rethink using Nolo press for my estate planning?
No, the REASON you are in the top 2% is because you shop at Goodwill (well, one of the reasons).

I used to eat my lunch at work every day, and the guys would say "Come on, you can afford eating out... You own a lake condo and a boat!"

And I would say, "The REASON I can afford a boat is because I bring my lunch to work every day"

Although in recent years, I did indeed loosen up the purse strings... Still ate at my desk for lunch, but didn't mind hitting the bar after work with the guys (at happy hour, so still somewhat frugal!)
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Re: For estate planning, what constitutes high net worth?

Post by HomerJ »

bsteiner wrote: Fri May 20, 2022 6:41 pm I think at the point when you're likely to pay estate tax.
This.
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Re: For estate planning, what constitutes high net worth?

Post by MathWizard »

RevFran wrote: Fri May 20, 2022 4:37 pm I am finally getting around to a comprehensive estate plan. A trusted colleague and attorney has recommended several different lawyers to me, all of whom specialize in estate planning, some of whom also deal with real estate LLCs (which is of interest to me), and some of which describe themselves as EP for “high net worth individuals.”
I’m trying to decide what I really need in this process.

What constitutes “high net worth” for estate planning purposes? (If that’s simply short hand for “11 mil,” ie because of the inheritance tax exemption, I am well below that!)

Thank you for your help!
Federal estate tax exemption in 2022 is $12.06 million.
If you are married, this can be effectively $24.12 million by selecting an option
on the estate tax return to allow the surviving spouse to use the remainder of the estate exemption.
(Not sure why that is not automatic).

You can also give $16K per person in 2022 if you are at all worried about it.

Now, states can have inheritance taxes, that is probably more important than the federal estate tax for most.
You need to be a member the 1% at the time of your death, even as a single, before you need to worry
about the federal estate tax (at current levels).
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Re: Estate planning: revocable trusts

Post by WoodSpinner »

OP,

What state do you live in?

What assets would you put in the Revocable Trust?

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Re: For estate planning, what constitutes high net worth?

Post by LadyGeek »

RevFran - In order to provide appropriate advice, it's best to keep all the information in one spot. I merged your update back into the original thread. If you have any questions, ask them here.

(Thanks to the member who reported the post and provided a link to this thread.)
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Re: Estate planning: revocable trusts

Post by Lee_WSP »

RevFran wrote: Fri May 20, 2022 7:45 pm [Thread merged into here --admin LadyGeek]

As I posted in separate thread, I am finally getting serious about estate planning. I’ve gotten diametrically opposed advice about revocable trusts from the first two attorneys I consulted and what I have taken away from those conversations is: these are time consuming to set up and can be expensive to set up, and I should do that if I want to save my executor the very real headache of probate. What am I missing? If it matters, I am unmarried with no children and am leaving most of my estate to charity. At present, anyway. I am 45; I could change my mind in 10 or 20 years, should I make it that long!
Let charity probate the will then. What do you care about their headache. They've got lawyers who donate their time and can just hire one anyway.
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Re: For estate planning, what constitutes high net worth?

Post by RevFran »

Thank you for all these helpful replies!
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Re: Estate planning: revocable trusts

Post by bsteiner »

RevFran wrote: Fri May 20, 2022 7:45 pm ... if I want to save my executor the very real headache of probate.
Why do you think that probating a Will is a "real headache"? In most cases in most states, it's a matter of filling out (or having a lawyer or paralegal) fill out some forms, getting them signed, and submitting them to the court with the Will, a death certificate, and a modest filing fee.
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Re: For estate planning, what constitutes high net worth?

Post by Jack FFR1846 »

bsteiner wrote: Fri May 20, 2022 6:41 pm I think at the point when you're likely to pay estate tax.
But if you're dead, why do you care what bills you're racking up? (haha)

As a Massachusetts resident, I'm well over the $1M where estate tax kicks in. Let me get my walking stick, top hat and monocle.
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Re: Estate planning: revocable trusts

Post by Jack FFR1846 »

bsteiner wrote: Sat May 21, 2022 3:45 pm
RevFran wrote: Fri May 20, 2022 7:45 pm ... if I want to save my executor the very real headache of probate.
Why do you think that probating a Will is a "real headache"? In most cases in most states, it's a matter of filling out (or having a lawyer or paralegal) fill out some forms, getting them signed, and submitting them to the court with the Will, a death certificate, and a modest filing fee.
DW (executor) and I and her father have been dealing with DW's aunt's estate. It has been a ton of work, a ton of paperwork, lots of reading, lots of forms. I'd say we've got 200 hours into it so far. Not a lot of money in the estate, but all kinds of various accounts, assumed abandoned stocks, finding the will (was stored for safe keeping with aunt's lawyer who died and nobody in his office could find it) and taking care of savings bonds from as far back as 1941....none of which were less than 30 years old. Oh, and we had to re-open grand parents' probate because the bonds were in their names.
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Re: Estate planning: revocable trusts

Post by Lee_WSP »

Jack FFR1846 wrote: Sat May 21, 2022 3:57 pm
bsteiner wrote: Sat May 21, 2022 3:45 pm
RevFran wrote: Fri May 20, 2022 7:45 pm ... if I want to save my executor the very real headache of probate.
Why do you think that probating a Will is a "real headache"? In most cases in most states, it's a matter of filling out (or having a lawyer or paralegal) fill out some forms, getting them signed, and submitting them to the court with the Will, a death certificate, and a modest filing fee.
DW (executor) and I and her father have been dealing with DW's aunt's estate. It has been a ton of work, a ton of paperwork, lots of reading, lots of forms. I'd say we've got 200 hours into it so far. Not a lot of money in the estate, but all kinds of various accounts, assumed abandoned stocks, finding the will (was stored for safe keeping with aunt's lawyer who died and nobody in his office could find it) and taking care of savings bonds from as far back as 1941....none of which were less than 30 years old. Oh, and we had to re-open grand parents' probate because the bonds were in their names.
That's all part of the estate administration which would be done regardless.

A better plan is what you desire.
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