Choosing Your Starting Point
Only the
client can make final decisions about their planning needs, but it’s up to the
advisors to lay out the logical choices so the process proceeds in an orderly
manner. The problem is that there may
not be enough customization when creating the estate plan; and client confusion
exists because each advisor approaches a generic plan from a different
perspective.
Where to start a custom plan?
It
depends. Many advisors first look to the
size of the estate before reviewing
the tools available for use. For a non-taxable
$300,000 widow’s estate, one set of solutions might be appropriate for her
needs but be completely inadequate for a business owner’s federally taxed $10
million estate. If the larger estate owner is comfortable with complicated
business organizations then a wide number of solutions lasting several
generations might be useful. While the
balance sheet’s size and the client’s tolerance for complexity certainly
influence solutions, other advisors look at the asset base as a starting point in the planning process. Their reasoning is that an executive’s estate
comprised only of options, cash or marketable securities inside a pension plan
offers limited tax planning scenarios compared to a diversified portfolio of
real estate, family business interests and stock held in other estates. While some assets more readily lend
themselves to freezing values through gifting and compression strategies, other
assets are just impossible to work with efficiently. However, the type of assets owned certainly
impacts on the acronym laden selection process of planning tools, so don’t be
discouraged if it seems like there are too many choices. Then there’s the needs oriented advisor who will approach the planning
process in a more holistic fashion.
These advisors seek to answer questions about “how much is enough” for
heirs and family needs, and then work to satisfy this hierarchy by first
addressing the financial security of clients, family legacy and finally
creating a community legacy by funding
charitable interests. They try to help
clients sort through all the conflicts likely to emerge in the future and
address the concerns about passing wealth to unprepared heirs in a way that
preserves and protects both the wealth and the family. Helping clients decide when to best pass
assets to heirs in the appropriate manner is often a wrenching experience, as
not all heirs have equal needs or the skills to manage a significant
inheritance. This realization often
drives the “equal is not always equitable” discussion among clients and their
advisors.
The last
starting point might as well be labeled values
based planning. By making a
predetermined choice about what percentage of the estate should be distributed
among the heirs, charity and the IRS. Given
a little time and some planning, many clients with taxable estates, even very
large estates, can shift assets away from tax liabilities back to heirs or
philanthropic interests. But that takes
decision making, and for many clients, benign neglect is a choice, even if the
IRS default plan is the result of that choice.
For clients with a real interest in exerting control of the wealth
they’ve accumulated over a lifetime of work, this simple approach gets right to
the heart of their planning needs.
Which
starting point is best? Define your
priorities, but eventually a well crafted estate plan will cycle through the
system and address all four points. Where
planners start is solely dependent on which segment motivates the client to act,
and anything that gets a reluctant client to make proactive choices is bound to
produce positive results. Why delay and
let the default IRS system take control?
© 2002 -- Vaughn W. Henry
Gift
and Estate Planning Services
217.529.1958
-- 217.529.1959 fax
on
the web at gift-estate.com
