An Estate Plan Can Be a Wealth Preservation Plan in Kentucky

Use these links to jump to different sections:

• What to Know About Estate Planning and Taxes
• Strategies to Protect Your Wealth May Be Implemented Now
• Wealth Preservation Plans Must Be Personalized

Wealth preservation is a key part of estate planning. A well-structured legacy and wealth plan should provide asset protection and put you in the best position to provide for your loved ones and causes that you care about most. For high-income and high-asset individuals in Kentucky, taxes pose one of the main threats to wealth preservation.

There are proactive legal strategies that you can implement to minimize your estate’s tax burden. Below, you will find an overview of how wealth management and tax planning can help to protect your family’s financial interests.

What to Know About Estate Planning and Taxes

Turney P. Berry is an estate planning attorney at Wyatt, Tarrant & Combs in Louisville, and there are two main prongs to his job: “One part is getting assets where folks want them to go. And the other part is minimizing the tax consequences of getting those assets there,” he says.

Depending on your circumstances, both parts can be fairly easy and straightforward. Often people are more worried than they should be, Berry adds. “They’re all worried at the beginning, but it’s often a question of, ‘Should they worry?’”

When a person passes away, their remaining assets may be subject to an estate tax. As explained by the Internal Revenue Service (IRS), an estate tax is a tax on the right to transfer property. The top federal estate tax rate is 40 percent.

In 2023, an individual can leave $12.92 million to heirs without paying estate tax or gift tax. A married couple can leave up to $24.84 million. The reason for this is that there are currently large estate tax exemptions in place—though, under current law, these exemptions will be cut in half in 2025. “Having said that, $6 million is still a fair amount,” Berry says. “So, for many people, even reasonably well-off people, they may not have an estate tax issue at all.”

There is also the Generation Skipping Transfer Tax, which imposes certain taxes when a transfer is made by a person who is 37.5 years older than the intended recipient. But even if you will be subject to tax implications, Berry says it’s not all that worrisome so long as you get a gameplan.

“The estate tax system is very porous, so if you are willing to plan, then there’s a lot you can do to reduce your estate taxes, particularly if you have a long period of time to work,” he says. “You can have people who have a lot of money, $100 million or more, but if they come in when they’re 60, and they live until they’re 85 or 90, they may pay very little estate tax. Obviously, if they don’t come in until they’re 90, well, it’s going to be a lot harder, because you don’t have nearly as much time to work. If you start early, then you won’t have to do things that are drastic and complicated.”

Strategies to Protect Your Wealth May Be Implemented Now

High net worth families in Kentucky should be aware that the estate tax exemption is set to fall significantly in the coming years. Many more estates will be subject to estate tax liability if no action is taken. There are some proactive strategies that may help protect wealth, including:

• Early gifting to take advantage of the maximum available estate tax exemption
• Preservation of portability through a spousal transfer
• Protection of assets through tax-protected expenditures
• Creation of a qualified trust

Berry lays out an example of how you can give away assets to your benefit. “Let’s say you had $100 million today and you are 60 years old,” he says. “You and your spouse can give away roughly $24 million. Let’s just suppose that you are willing to do that. Well, the income made from that $24 million can go to your children, but you could pay the income tax on it. Let’s suppose on that $100 million you were spending 2% a year [in taxes]. Well, now I’ve gotten rid of roughly a quarter of that, so I’m down to $1.5 million instead of $2 million. Well, all of a sudden, what’s happened is you’ve reduced your income and you can start spending your principal in one way or another. We’ve got a million other ways that we can build on simple things like that to deplete people’s estates and move money back and forth. So, on the tax side, almost all those things can be solved.”

Wealth Preservation Plans Must Be Personalized

Estate planning is complicated—especially for high-income and high asset individuals who are looking to implement strategies to protect their wealth. A wealth preservation and legal plan should always be customized to meet the unique needs and objectives of each person. Some potential issues that must be considered include:

• The available tax exemptions, including portability
• The viability of early gifting as an option
• Whether business interests need to be transferred
• Whether foreign assets need to be domesticated

A family looking to develop and implement an effective wealth preservation strategy in Kentucky must pay careful attention to the specific nature and structure of their property/assets. For more information on this area of law, see our tax overview and estate planning overview. If you have any specific questions about wealth preservation planning, an experienced Kentucky estate planning attorney can provide legal advice to help you find the best solution for your family members.

“The most important [piece of advice] is really that people need to start early and they need to work with their team: their lawyer, their accountant, if they’ve got a banker, for long enough that they develop some confidence in them,” Berry says.