Estate planners often advise clients that there are only
three places where you can leave your assets at death: family, taxes and
charity. It became popular to focus on this rule of thumb to
encourage tax and charitable planning in the past when estate tax exemptions
were lower and marginal rates higher. Today, however, client couples can
pass more than $10 million free of estate tax, and so for many clients, estate
taxes are no longer the estate planning drivers that they once were. This
change is welcome relief for many clients, and even while income tax planning
has become more important, it presents a chance to shift focus. Estate
planners must become more creative as more of their clients have assets below
the exemption amount. This shift presents a good opportunity to re-visit
potential estate recipients and specifically determine if there are other
potential “places” beyond the traditional three.
Family?
As they say, “blood is thicker than water,” and in most
cases, family will still be the primary intended recipient of most client’s
estate plans. Indeed, the presumption that family comes first is codified
in most legal systems around the world. Outside the United States and
other common law jurisdictions, individuals generally have very little choice
other than to leave their estate to their family. Within the United
States, the laws of intestacy and community property regimes provide that
family members are the legal heirs but allow individuals to opt out of this
default. In fact, laws in the United States provide the greatest leeway
to proactively choose one’s heirs. It’s possible to expand beyond family,
even though that’s not often done. In combination with higher
estate tax exemptions, the legal system supports additional options for clients
who’ve wanted to leave assets to non-family members but might have been
reluctant to do so or, in many cases, advised against it for tax reasons by
their advisors. lead to surprising, but meaningful, changes in clients’
estate plans.
Charity?
For several decades, there’s been a movement to integrate
charitable considerations into estate planning discussions. Not only does
it provide an opportunity for a client to continue supporting organizations
that have played an important part in the client’s life, but also, it’s an
opening into a discussion of meaning and purpose that defines legacy more
broadly. By expanding the conversation around charity, an advisor can
help craft a more tailored and purposeful estate plan for a client. In
addition, it might prompt clients who don’t have family or others who they wish
to include in a will to think more deeply about the charitable aspects of their
plan.
Taxes?
While most advisors assume that clients wish to avoid taxes
at all costs, this might not always be the case. Some clients are willing
to forego tax savings if they can accomplish more important goals.
Retention of assets within a family might be one reason. In many other
cases, a client might choose to stay in, or move to, a higher tax jurisdiction
to be near loved ones. Advisors who push a client to move, or support a
client’s move to another state or country solely for tax reasons, might be
doing a disservice. Probing with “What else?” might expose the
human impact of tax driven planning.
Click here to access the full
article on WealthManagement.com