Estate Planning Strategies for HNW Clients:

 

Estate Planning Strategies for Your Clients

Mahendra S. Rathore. MBA, BA (Honors), CFP®, ChFC®, CRPC® PMP®

“Knowing is not enough; we must apply. Willing is not enough; we must do.” - Johann Wolfgang von Goethe

The recent tax reforms have made significant positive changes to the estate, gift and GST tax regime. Now is the time to harness what the current tax code offers to help your clients maximize their wealth transfer tax minimization and asset preservation goals. For wealthy clients, estate plans offer the blueprint from which legacy can be established, implemented and endured for decades. In addition, there is a window of opportunity to make unprecedented transfer of wealth without or with minimum federal estate, gift or GST Tax. 

 Astute advisors have the opportunity to conduct year-end reviews and powerful conversations with clients about income tax planning, updating revocable trusts, wills & POA’s, Revisiting the ILIT’s, reviewing beneficiary designations, Asset protection, Charitable planning and Wealth transfer planning alternatives. You can help clients with wealth transfer tax avoidance by removing appreciating assets from the estate during client’s life by establishing irrevocable trusts for the spouse -spousal lifetime access trusts, or SLATs, children (qualified personal residence trusts, or QPRTs), and philanthropic intensions by devices such as charitable remainder trusts, or CRTs. Similarly, with removing appreciating assets from the estate at death by electing portability by taking advantage of irrevocable trusts, namely; bypass trusts, including the generation- skipping options. Further, guide clients in Liquidity planning techniques including Life insurance strategies, such as irrevocable life insurance trusts (ILITs), and section 6166 payment deferral elections. 

The Federal Gift & Estate Tax: 

For wealthy clients, Tax Cuts and Jobs Act (TCJA) increased the basic exclusion amount for the gift, estate, and generation-skipping transfer taxes from $5.59 million to $11.18 million ($22.36 million for a married couple), indexed for inflation. the $11.18 million exclusion amount ($22.36 million per couple) is a substantial limit and enough to cover their lifetime wealth transfer goals. The other clients may choose to gift minority interest in closely help business, private equity funds, or other investment entities, such as family investment partnerships or limited liability companies or small interest in real estate properties.  Now is time for your clients to take maximum advantage of the $11.18 million lifetime gift tax exemption and $22.36 million GST tax exemption. In addition, appreciation of assets will be free from estate tax.

What You should know about 20% small business deduction?

What planners need to know about 20% small business deduction is that by modifying businesses and trusts your client can qualify for the new IRC: 199-A deductions by using Multiple Non‐Grantor Trusts. A single person can make Non‐grantor completed gift trusts of $ 157,500 and a married couple of $ 315,000. The Specified service businesses (SSB) will have nearly $1.5 million of QBI this year. Thus, clients can set up separate Non‐Grantor Gift Trusts for Children and Separate Non‐Grantor Gift Trusts for GC’s for up to 10 Trusts. All ten Trusts will get full 20% deductions that means $150,000 QBI per trust with< $157,500 income. However, these deductions are phased out for income great then Taxable income greater than $315,000 but less than $415,000(MFJ)

The Trust planning is the most useful and effective techniques. The advisors can guide clients by carefully constructed effective tax and wealth plans to shield assets legal fees, law suits, family conflicts and to save taxes and protect assets. With experience and expertise, you are able to help clients with sophisticated planning strategies tailored to their unique situation, goals & priorities.

What do high-Net-Worth clients really want?

Let’s think about elevating the success of your Planning Practice. This time of the year is best time to devote time to HNW clients and anticipate and provide more relevant and tailored solutions to their unique needs. You should focus on what do high-net-worth investors really want? What are the top two themes that high-net-worth (HNW) investors might want to discuss with their financial advisors? What you are going to read further may surprise you. 

According to the 2018 U.S. Trust Insights on Wealth and Worth® Survey, (Trust, 2018)the two most discussed topics are:  Estate planning  & Trust options and implications

Many of use might not have thought about the above two predominant topics and perhaps you are surprised and may be thinking, Well, that's what estate planning attorneys are there for and this is how they make their living. Further, this is really not something for me since I don't practice law. But if you focus on the above subjects, here are two stand out words above that might have you think differently namely the "planning" and "implications."

Your current “HNW” clients and prospective clients are not expecting you to an attorney or a subject matter expert who could provide legal opinions and/or to draft legal documents. What the survey results indicate, however, is what’s on top of mind for them — their deeply felt enduring legacy. Let’s think for a moment, can you really be a "holistic” solutions provider wealth management advisor without providing insights, wisdom and practical guidance in the estate & trust planning arena to your HNW clients?

Elevate the Success of your Practice:

This is an opportune time for us to strike a conversations with clients and prospects and in the process you might come across many HNW clients who have not looked at their trusts for decades. While it is quite possible some clients/ prospects might brush you off by saying that “they were all set” but you have to understand and help such clients more since some of them might be notaware of the significance of such important legacy issues. As we know Estate planning is not a “ set it and forget it” kind of activity. It is an ongoing lifelong pursuit, and what could be more helpful when you help guide your client discover, clarify and communicate and document the real purpose of their wealth and thereby you become a lifelong guide and a trusted advisor to their financial wellbeing. 

When viewed from  this ideal perspective that we come to realize that the estate planning is the most productive avenue for discussing matters of serious consequence and improve the legacy outcomes. This innovative  approach can help you differentiate with HNW clients and prospective clients and deepen relationships. It also underscores the vital role you can play beyond Life Protection, Insurance planning and Investment and portfolio Management. By acting as the catalyst for having estate planning conversations with prospective and existing clients, you can help them improve their legacy outcomes.

Align Strategies To Clients’ Goals:

Different kinds of trusts are designed to meet different needs and objectives. The examples that follow are a small subset of trusts that may be available to you. These instruments have huge potential reward of effective wealth transfer planning. Establishing a sound estate plan and periodic reassessment will help determine that it reflects recent market events, capital markets and regulatory changes, and changing legacy objectives of clients. An effective state plan may reduce the chances of family disputes, reduce estate costs, reduce taxes, and preserve wealth and tax efficiently pass on the estate to chosen beneficiaries or philanthropic/charitable goals. Here are a few estate plan instruments /devices for your planning consideration.

What type of Trust is right for your Client?

Different types of Estate Panning technique and tools can require a variety of fees for administration and wealth management. As you develop your trust strategies, remember to consider the costs that may be involved and weigh them carefully in relation to the benefits. 

AXA financial planning center is ready to support your practice with information & planning support tools on gift, bequest, or trusts and estate planning. The success mantra is simple “Get the Right Solutions to Right People, in the Right Way and at the Right Time”.

Sources: 

U.S. Trust. 2018 U.S. Trust Insights on Wealth and Worth® Survey, Detailed Findings. The 2018 U.S. Trust Insight on Wealth and Worth Survey is a nationwide online survey of 892 high-net-worth and ultra-high-net-worth households.

Bloomberg  Law 

IRS Website on Trust and Estate Taxes