The principles may be similar for everyone, but the practicalities can be more complex
It’s important for clients to have a good estate plan in place, regardless of their wealth – but it’s even more critical if you have high net worth clients who may have extra responsibilities.
“The more money a family has, the more complicated their estate planning is going to be,” Lorn Kutner, a tax consultant of the Toronto-based Northwood Family Office, told Wealth Professional.
Read more: Minimize inheritance taxes
While those complications can include considering family or business succession or intergenerational wealth transfer, they may also include your clients’ heightened sense of purpose, particularly if the money has been passed from a previous generation and they feel that it’s important to leave a family legacy. They may have certain values that they want to honour financially as well as definite ideas about what they want to leave in the world through how their money is used. But, it can also include navigating residency if there are multiple properties, particularly in several locations.
Because estate planning can be so complex, especially for your high net worth clients, it is important to start addressing it well before your clients are generally expected to need transfer their wealth. This will also give you a chance to bring in other team members or expertise to assess your clients’ situation and needs, as well as their desires and help them achieve what they want to accomplish.
So, while there is a lot to think about, including taxes, trusts, and philanthropy, there are also four estate planning strategies that can help with your clients’ estate planning.
○ Establish a trust: Establishing a trust can be an essential step in protecting your client’s wealth. Trusts provide many benefits, including allowing clients to pass their wealth to children and other beneficiaries. Trusts can also ensure that your clients can keep their records private and allow them to avoid probate court, and its accompanying fees, when their assets must be distributed.
There are many kinds of trusts, but the most popular are irrevocable living trusts and irrevocable trusts. Revocable living trusts allow clients to remain in control of the trust while they are still alive. They can make various changes, including naming beneficiaries and managing funds in the trust.
Irrevocable living trusts are what remains after your client dies. A revocable trust becomes irrevocable then and can no longer be changed, but your client can appoint a successor trustee to manage the trust while they are still alive.
Clients may also appreciate your help, as their advisor, when they’re selecting their trustees. The trustee is the person who or entity that manages the trust and has legal title to it. Your clients can be their own trustee or appoint a third party. Multiple people can also be trustees. It’s up to your clients whom they want to appoint as their trustees, but you, as their advisor, may find it helpful to discuss it with them in order to offer your input, if they would find it helpful.
- Tax minimization: There are many strategies that advisors can offer to help their clients minimize the taxes that they will have to pay on their estates. This could include philanthropic and gifting measures, where your clients arrange to give a gift to an individual or organization. This can reduce the amount of taxes that the client will owe, but you, as their advisor, can ensure that they do that within any exemptions that they may be eligible for. Giving to a charity can certainly reduce their capital gains tax as well as their income tax, but once you review your clients’ estate needs, you can also determine what other tax minimization strategies might be helpful to them, their families, and their businesses or intergenerational transfer of wealth.
- Life insurance: Life insurance can do more than reduce your clients’ financial burden on their loved ones after your clients die. In fact, it can help them lower their estate tax. Those with a high net worth often have much of their value tied up in real estate and businesses. Thus, a properly structured life insurance plan can help them by covering most of the tax that would normally be charged against those assets. But, clients can also use life insurance to pay other family members if only one of your client’s heirs may be inheriting a business or other key asset.
- Incapacitation planning: One of the most important parts of estate planning is also planning for clients’ incapacitation. As their advisor, you can help them choose people to make decisions on their behalf and ensure that their wishes are communicatedp to their families. The clients will probably need to work with an attorney to finalize this plan. That will include selecting a durable power of attorney, a financial power of attorney, and a medical power of attorney. You can also recommend that your clients ensure that those powers of attorney have access to the medical and financial records that they will need in order to complete their clients’ duties if that becomes necessary before they die.