The Basics
- Asset location matters just as much as estate tools: Beyond trusts and wills, where and by whom assets are owned dictates how much wealth is lost to taxes versus transferred to future generations.
- Planning begins with a balance sheet review: Identifying inside-the-estate versus outside-the-estate assets ensures high-growth holdings are positioned outside the taxable estate while retaining necessary client liquidity.
- Effective strategies balance deliberate trade-offs: Every tax-reduction technique involves give-and-take between estate tax savings, capital gains step-up benefits, administration costs, and overall risk.
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Estate Planning Starts With Two Key Questions, Not a Strategy
The most effective estate planning doesn’t start with trusts, wills, or tax-saving acronyms. It starts with understanding what you own, how it’s owned, and where each asset sits relative to your estate. Asset location — positioning the right assets in the right places — often shapes income taxes, estate taxes, and generational wealth transfer as much as any single strategy.
But ask most families about their estate plan, and the conversation quickly fills with familiar terms: trusts, wills, gifting strategies, and a long list of tax-saving techniques. Don’t misunderstand me: All of these tools matter. But they tend to dominate the discussion before a more fundamental question gets asked, one that carries just as much weight.
Which assets are owned where, and by whom?
This question sits at the heart of asset location, a frequently overlooked planning opportunity with outsized impact for high-net-worth and ultra-high-net-worth families. It may sound less glamorous than a conversation about a sophisticated trust structure, yet the answer is crucial. It has a major impact on how much wealth reaches the next generation, how much goes to income and estate taxes, and how well a family’s plan actually reflects its goals.
Why Estate Planning Starts With a Balance Sheet
Here’s something most families don’t realize: you already have an estate plan. Whether you’ve drafted documents or not, some plan governs what happens to your wealth. If you die intestate — that is, without a valid will — state law decides how and to whom your money, property, and belongings are distributed. That’s a plan. It just may not be your plan.
This is why sophisticated estate planning should never begin with choosing a strategy. It must begin with understanding what’s already in place and asking: Does this reflect your goals?
That’s why starting with the balance sheet is so important. Before any recommendation makes sense, you need a clear picture of what you own and, just as importantly, how each asset is owned:
Inside the Estate: Assets held in your personal name, possibly jointly, or revocable trusts that are subject to federal estate tax upon your passing.
Outside the Estate: Assets held in irrevocable trusts, outright by individuals or charities, or in closely held business structures or family entities that are removed from your estate for tax purposes.
Only after mapping this can you confirm whether your current goals and objectives actually align with the documents you’ve already signed.
This review becomes the foundation for everything that follows. Skip it, and even a beautifully designed strategy risks solving the wrong problem.
Essentially, until we know what’s already in place and what your goals are, all the estate planning strategies are just alphabet soup. I’ll show you why below.
The Hidden Impact of Asset Location
To understand why asset location matters so deeply, consider the following scenario of a hypothetical client that holds two distinct assets. Asset A is mature and income-producing — steady, reliable, and unlikely to change dramatically in value. Asset B is a private business opportunity expected to multiply significantly over the coming years.
Should both be owned in the same place, under the same structure? Not necessarily. And that difference is how asset location earns its keep.
If the client owns both assets inside a revocable living trust (inside the taxable estate), the massive appreciation of Asset B will compound directly inside that estate. Under today’s rules, when the client passes away, the growth will be taxed at the 40% estate tax rate.
Conversely, if the client transfers Asset B into an irrevocable trust early, when its valuation is still low, all future compounding occurs outside his taxable estate. Asset A remains inside the estate, where its slower growth presents less estate-tax exposure while retaining valuable tax benefits for his heirs.
The Three-Question Asset Location Framework
To evaluate where an asset belongs from a tax perspective, three questions are essential:
1.Which assets have the highest appreciation potential?
Assets with explosive growth projections are prime candidates for removal from the taxable estate early in their life cycle.
2. Should that growth occur inside or outside the estate?
Growth inside the estate increases potential estate tax liability, but for most assets retaining assets inside the estate at death grants heirs a step-up in cost basis, effectively eliminating built-in capital gains taxes. Growth outside the estate avoids estate taxes entirely, but heirs do not receive a step-up in basis when the grantor dies.
3. What liquidity must the client retain?
Moving assets outside the estate often requires relinquishing direct ownership and control. A plan is only successful if it leaves the client with sufficient income and liquidity to maintain their lifestyle.
As applied to our example, Asset B, the high-growth business, may be a strong candidate for shifting outside the estate, so its future appreciation escapes estate tax. Asset A, already mature, may be better held inside the estate to benefit from a step-up in basis. Same client, two assets, two very different homes.
Why There’s No Free Lunch in Estate Planning
Here’s a truth that gets lost in the enthusiasm for advanced techniques: sophisticated estate planning isn’t about eliminating taxes. It’s about making informed trade-offs.
Every meaningful strategy involves a give-and-take. Consider a few:
- Reducing estate taxes may mean giving up the step-up in basis your heirs would otherwise receive.
- Shifting appreciation outside the estate can create future capital gains considerations for the next generation.
- Building complex trust structures May introduce real, ongoing administration costs.
- Using specialized trust jurisdictions may require professional trustees and the fees that come with them.
None of these trade-offs is inherently bad. The point is that each one has a cost, and that cost should be weighed against a clear benefit. This is where a strong, collaborative team of advisors earns its value. Clients need to see their full financial picture holistically and understand the real cost, risk, and benefit of each option before committing. That’s how goals inform strategy rather than the other way around.
I always encourage people to be wary of planning trusts, wills, gifting strategies, or even tax-saving techniques until they’re absolutely clear on their goals and their balance sheet. There is no magic wand to wave, no magic beanstalk to find and climb to the “best” outcome. There are no perfect strategies. There are only strategies that are well or poorly matched to a family’s goals.
Great planning, then, isn’t about avoiding every tax. It’s about optimizing outcomes based on what your family wants to achieve.
The Most Effective Planning Is Goal-Based Planning
If trade-offs are the mechanics, goals are the blueprint. So the real question becomes: What does your family actually want?
Do you want to maintain a certain lifestyle indefinitely? Fund education for grandchildren? Transfer a business to the next generation while retaining income? Support a philanthropic mission? Each answer points toward different tools. A few that may be considered:
- Family LLCs/LPs: Ideal for consolidating family assets, retaining management control, and transferring non-voting economic interests to younger generations at discounted valuations.
- Grantor Retained Annuity Trusts (GRATs): Excellent for transferring rapidly appreciating assets outside the estate with minimal gift-tax exposure, provided the grantor survives the annuity term.
- Spousal Lifetime Access Trusts (SLATs): Allow one spouse to transfer assets into an irrevocable trust for the benefit of the other spouse, removing growth from the estate while allowing the spouse trustee and beneficiary to maintain access to the transferred property.
- Intentionally Defective Grantor Trusts (IDGTs): Enable grantors to pay income taxes on trust earnings personally, allowing trust assets to compound tax-free for beneficiaries while further reducing the grantor’s taxable estate.
But here’s the key insight: The tool isn’t the strategy. The strategy determines the tool. A GRAT is neither good nor bad on its own; it’s simply the right instrument for certain goals and the wrong one for others.
Start with the tool, and you risk forcing a family’s life into a structure that was never built for it. Start with the goal, and the appropriate tools reveal themselves.
A Different Way to Measure Success
How do you know whether a plan is actually working? The answer requires a better yardstick than the one most people reach for.
I approach this through what I think of as a north star framework, a way of evaluating outcomes on a risk-, tax-, and fee-adjusted basis. The idea is straightforward: The highest headline return isn’t always the best result for a family.
A portfolio that posts an impressive gross return but generates heavy taxes, exposes the family to more risk than they can tolerate, and carries steep implementation costs may deliver less real value than a more modest, better-aligned plan. We believe the best outcome pulls four things into a single coherent picture: family goals, tax consequences, risk tolerance, and implementation costs.
Measured this way, success isn’t a number on a statement. It’s how closely the plan’s real net results track the family’s actual objectives.
Why the Best Estate Plans Are Never Finished
Another estate planning tenet (and one you must insist on if your financial advisor doesn’t reach out to you or revisit your estate plan regularly): A plan built once and filed away starts aging the moment it’s signed. Estate planning is an ongoing process that needs regular, proactive tending, because the circumstances it’s built on rarely hold still.
Several things can shift a family’s planning position significantly:
- Market fluctuations that change the size and composition of the balance sheet
- Business sales or liquidity events that convert illiquid holdings into cash overnight
- Family changes—marriages, births, divorces, deaths—that reshape both goals and beneficiaries
- New tax laws that alter the math behind existing strategies
Consider a family worth $50 million today. Within twelve months, a private business might double in value or sell outright. If the plan hasn’t kept pace, that growth may be sitting in exactly the wrong place — inside the estate when it should be outside, or held in a structure that no longer fits the family’s goals. The cost of that mismatch can be substantial.
This is why regular review shouldn’t feel like a burden. It’s an opportunity. Monitoring ownership, growth, liquidity, and goals on an ongoing basis keeps the plan aligned with the family’s evolving reality. And it’s far easier to manage when you have a proactive team of specialists who stay close to the details rather than a set-it-and-forget-it document sitting in a drawer.
Wealth Transfer Is More Than Minimizing Taxes
Sophisticated estate planning is often portrayed as a collection of advanced strategies and clever acronyms. But the most successful outcomes rarely begin there. They begin with two questions: What do you own, and what are you trying to achieve?
The goal isn’t to find a magic strategy. It’s to design a plan that is perfectly aligned — tax-, fee-, and risk-adjusted — around what the family wants to accomplish.
That philosophy sits at the core of Rehmann’s Private Client Advisory approach. Rather than pulling from a menu of pre-packaged solutions, we build bespoke, proactive plans around each client’s specific goals, then tend to them as lives and circumstances evolve. A hands-on, integrated team of wealth, business, and tax specialists ensures you can see your complete financial picture and fully understand the cost, risk, and benefit of every option. From there, we build a plan that fits your goals and regularly evaluate and adjust it as opportunities, challenges, and life changes arise.
If you’re not certain the right assets are in the right places, that’s a conversation worth having. Reach out to a Rehmann advisor for a personalized balance sheet review and a goal-based planning discussion. It’s an easy first step toward a plan that reflects what your family wants — and a clear, actively maintained path to get you there.
Frequently Asked Questions
Q. What is asset location in estate planning?
A: Asset location refers to which assets a family owns, how those assets are owned, and where each sits relative to the taxable estate. Positioning high-growth assets outside the estate and mature assets inside it can meaningfully affect income taxes, estate taxes, and the wealth ultimately transferred to future generations.
Q. Why does a balance sheet review come before estate planning strategies?
A: A balance sheet review reveals what’s already in place—what you own, how it’s owned, and whether current documents align with your goals. Without this foundation, even well-designed strategies risk solving the wrong problem. As one Rehmann advisor puts it, until you know what’s in place and what the client wants, the strategies are “just alphabet soup.”
Q. What’s the difference between step-up in basis and carryover basis?
A: Assets held inside the estate at death may receive a step-up in basis, which can eliminate unrealized capital gains for heirs. Assets moved outside the estate to avoid estate tax generally keep their original, or carryover, basis—preserving a future capital gains liability. Choosing between the two is a central trade-off in asset location.
Q. Which estate planning tools should high-net-worth families consider?
A: Common tools include family LLCs, Irrevocable trusts, GRATs (grantor retained annuity trusts), Incomplete gift non-grantor trusts, and SLATs (spousal lifetime access trusts). Each serves different goals. The right choice depends on what the family wants to achieve—the strategy determines the tool, not the other way around.
Q. How often should an estate plan be reviewed?
A: Estate plans should be reviewed regularly and after any major change—market swings, a business sale or liquidity event, family changes, or new tax laws. A family worth $50 million today could look very different in twelve months, and an outdated plan may leave new growth in the wrong place.
Investment advisory services offered through Rehmann Wealth, a Registered Investment Advisor. Securities offered through Rehmann Financial Network, LLC, member FINRA/SIPC. Insurance Services offered through Rehmann Insurance Group.