Estate planning for UHNW families: Strategies to help avoid costly surprises

Key Concepts

• Estate Planning: The process of anticipating and arranging for the disposal of an estate during a person's life and after death.
• Ultra High Net Worth (UHNW): Individuals or families with significant investable assets, requiring complex, bespoke financial and legal strategies.
• Alter Ego/Joint Partner Trusts: Tax-efficient vehicles for individuals over 65 that act as "will substitutes," allowing for asset transfer with retained control.
• Probate: The legal process of validating a will and administering an estate.
• Graduated Rate Estate (GRE): A tax status allowing an estate to be taxed at graduated rates for up to 36 months post-death.
• TEP Designation: A professional designation from the Society of Trust and Estate Practitioners, indicating specialized expertise in estate planning.

1. Selecting Legal Counsel

Elise Pulver emphasizes that estate planning is not a generalist task. Clients should seek lawyers who:

• Possess a strong tax foundation rather than just general drafting skills.
• Hold specialized designations (e.g., TEP, family enterprise training).
• Understand the specific complexities of UHNW assets, such as private company shares and cross-border holdings.

2. Strategic Will Structures

For complex estates, a single, simple will is often insufficient. Pulver recommends:

• Multiple Wills: Using a primary will for assets requiring probate and a secondary (non-probated) will for private company shares, partnerships, and personal effects to minimize probate fees and administrative complexity.
• Third Wills: Used specifically for unique collections (art, wine, antiques) that may require auction or donation, preventing the need to probate the entire secondary will.
• Jurisdictional Wills: For "global citizens" or snowbirds, Pulver advises drafting separate wills in foreign jurisdictions (e.g., the U.S.) to avoid the complications of "resealing" a Canadian will, provided the lawyers coordinate to ensure the documents do not inadvertently revoke each other.

3. Critical Clauses for Tax and Legal Efficiency

Pulver identifies several essential clauses that should be included in a robust estate plan:

• Post-Mortem Planning Clause: Grants executors the power to perform tax-efficient reorganizations of private company shares after death.
• Family Law Act Clause: Explicitly clarifies that both the inheritance and the income generated from that inheritance are excluded from a beneficiary’s net family property in the event of a marriage breakdown.
• Graduated Rate Estate (GRE) Clause: Authorizes the executor to extend the estate administration period up to 36 months to utilize graduated tax rates.
• Business Continuation Powers: Provides executors with the legal authority to manage and operate an owner-operated business immediately upon the owner's death.

4. The Role of the Executor

Choosing an executor is as critical as choosing a lawyer.

• Corporate Executors: Recommended for UHNW families due to their professional consistency and lack of bias.
• Hybrid Approach: Combining a professional corporate executor with a trusted family member to balance technical expertise with personal family knowledge.

5. Managing Personal Articles and Collections

A common pitfall is the ambiguity surrounding "personal articles."

• Definition: Pulver defines these as items that would fall out if you turned the house upside down.
• Intent-Based Classification: Executors must determine if a collection (e.g., wine, art) was intended for personal enjoyment or as an investment asset. If the latter, it should be treated as part of the estate's residue rather than a personal effect.

Synthesis and Conclusion

Effective estate planning for UHNW families requires moving beyond "boilerplate" documents. The process must be rooted in a deep understanding of the client’s specific intentions, family dynamics, and tax landscape. By utilizing specialized legal structures like alter ego trusts, multiple wills, and precise, power-granting clauses, families can prevent conflict, ensure business continuity, and maximize the legacy passed to the next generation. The primary takeaway is that estate planning is a dynamic, ongoing process that requires professional coordination between legal, tax, and financial advisors.