Estate tax planning used to be the preferred path to prospecting wealthy clients. This is because estate tax exemptions were as low as $2 million just eight years ago for wealthy families, and they were hungry for advice on how to reduce their tax exposure. For advisors who felt comfortable discussing the impact of estate taxes, the pre–$11 million exemption years were filled with opportunity.
But since 2018, the $11 million estate tax exemption put estate tax planning on the backburner. This wasn’t a surprise considering the fact that only 1%—or 3.3 million American families—had a net worth over $11 million With the possibility of a Biden administration on the horizon, the opportunity to engage in meaningful estate tax planning is once again upon us. With estate tax exemptions rumored to be lowered to $5 million, the number of American families whose wealth will be exposed to federal estate taxes will now be closer to 3%. That means 7 million more families will be looking for estate planning, which means 7 million more opportunities for savvy financial advisors.
Advisors Growth Tips
Many advisors would agree that competing for the affections of wealthy families and their investment portfolios was more challenging over the past 10 years than ever before. The stock market was propelled to new heights, and as more advisors moved to “model” portfolios, the opportunity to truly stand out from the investment management crowd was difficult. Here are the tips for advisors.
- Many more wealthy families will need estate tax advice.
- Having estate tax expertise will place in RIA in a position to be seen as a ploblem solver.
- Being a problem solver will get more wealthy clients.
- The idea of out sourcing tax work to others outside professionals is dangerous for many reasons.
- RIAs must have in-house expertise (or align with those who have the expertise) if they want to control the hearts and minds of their wealthy clients.
- Don’t let someone else be seen as the most trusted advisor to your clients – pure wealth managers could be in trouble if they don’t look over their shoulder and take action.
Understanding Estate Plan?
An estate plan is a collection of legal documents that sets forth how you want your assets distributed when you pass away, and how you want people to handle health and financial decisions if you are unable to do so for yourself during your lifetime.
A comprehensive estate plan can help you feel more confident about the future, knowing your loved ones will be taken care of and that the legacy you leave behind is the one you want. Thoughtful planning now can help minimize taxes and probate fees, and ensure your family will have less to worry about when you are gone; however, failing to make plans for your estate can lead to unintended complications for your descendants
Relevance of Estate Planning
1. Choose Who Inherits Your Assets
Estate planning isn’t just for the wealthy. If something happens to your family breadwinner or breadwinners, these items should be inherited by the heirs you designate. In the absence of an estate plan, it is most often left up to the court to decide who gets your assets. And while it may seem like an obvious and easy process, it often isn’t.
2. Override Your Pre-Written Will
Your state already has a default will written for you, sometimes referred to as the intestacy statute. Unfortunately, it most likely will not distribute your assets how you would want it to. By planning your estate, you can override this statute by either:
Executing a valid will yourself
Creating a revocable trust that you will transfer your assets into while you are still alive Jointly owning your assets, or
Providing for the disposition of your assets pursuant to a transfer on death (TOD) or beneficiary designation.
There are advantages and disadvantages to each option, so in order to create the best estate plan, you should have an experienced estate planning attorney review your assets and estate planning documents.
3. Protect Your Family If You Have Young Children
Naturally, no one wants to even think about the possibility of dying young, especially anyone who has children. If you have children, you absolutely need to be prepared for such a tragedy. This will specifically involve setting up a will, which is just a portion of estate planning. In your will, you will designate how any children under the age of 18 are taken care of, and what items in your estate are to be inherited by them when they come of age.
4. Protect Your Adult Beneficiaries, Too
It’s not just your children that will need protecting, adult beneficiaries could often use the help of a solid estate plan as well. There are several factors that can lead to an adult beneficiary making bad decisions with their inheritance, such as outside influences, creditor issues, or a divorce. Your adult beneficiary might even just be bad at managing money. You can actually add clauses into your estate plan to help protect these beneficiaries from themselves and anyone who may try to take advantage of them.
Get help
If you would like to learn more about estate planning, any one of our estate planning attorneys would be happy to assist you.
