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Death and Taxes in an Uncertain Policy Landscape

By Grace Williams March 22, 2017

We know that mortality is not a question of if, but when, yet many people die without up-to-date estate plans in place. This leaves heirs and next-of-kin scrambling or landing in probate court to sort things out. And while some clients might be on the fence about estate planning given potential new estate tax legislation, the time for clients to solidify a plan is now.

According to a recent memo by NFP, an insurance-brokerage network, there are plenty of reasons why investors should stay on top of their estate plans regardless of policy in Washington. Reasons include estate equalization, business succession, and planning for retirement distribution, legacy, and charitable giving. The only constant we can count on, according to the memo, is change.

Aside from clients wavering due to politics or the markets, Scott Hanson, senior partner and founding principal of Sacramento, Calif.-based Hanson McClain Investment Advisors, notes other reasons why clients stall, such as spouses that can’t agree on specifics or a parent who is upset with a child. Even so, “Things can happen that can prevent a person from completing an estate plan,” says Hanson, whose firm manages $2 billion, "such as a debilitating heart attack or stroke.”

Avoiding ‘Wait and See’ At All Costs

One common client approach, according to Kristin Bulat, senior vice president at NFP, is to adopt a ‘wait and see’ attitude in the name of financial preservation. However, Bulat cautions that this strategy is counterproductive. “It’s very seductive to wait and see what is going to happen tomorrow,” or what the next six months or year will bring, she says in an interview with FA-IQ. “We can’t allow that inertia to set in, because estate planning is about thinking about the future.”

So while it might be tempting for some clients to give pause about adopting or updating their plans, there are particular client objectives FAs need to ascertain, says Lise Robinson, a senior wealth advisor with Shelton, Conn.-based Beirne Wealth Consulting Services. Advisors need to make sure assets get to the right people in the fastest way, and with minimal taxes. Robinson says these two objectives are constants, regardless of the machinations of Washington – even as estate or inheritance taxes fluctuate.

“You can’t wait to see what changes might take effect. Anything is better than nothing,” says Robinson, whose firm manages $1.87 billion in assets. “If you don’t have the right names in place, you’re going to have a lot of bills while it’s in probate court.”

Tony Perrone

Preparing A Better Plan

One rule of thumb most advisors agree on is setting up estate plans according to current laws. If you’ve done your homework, sitting with clients to strategize for both short- and long-term planning will be much easier. Tony Perrone, president and managing partner of the Estate and Business Planning Group, says under the current laws there are estate plan benefits – such as stepped-up cost basis law, gifting, and conversions of certain savings or retirement plans.

Perrone – whose Altamonte Springs, Fla., firm manages $400 million – advises clients to “never let the government dictate your estate plan. Set your plan on the current laws and adjust it accordingly. No plan is going to stay forever -- every two to four years, you’ll have to adjust, based on changes in the House and Senate.”

Because legislative speculation is a risky move for clients, Hanson agrees that while changes may occur, clients with an estate plan in place and an eye on what happens will have a greater advantage than those who prefer to stall. “If Congress does push through some changes, an update to an existing plan is typically a much easier process than putting a proper plan in place to begin with,” he says.

Since there is no crystal ball, Bulat says the way to be proactive with clients is to have a conversation about what they hope to leave behind as their legacy. This includes building a vision of their lives for the next few decades and beyond.

“Ask: what do you want? What would you have liked to get at 30 that [can be provided] in the future?” Bulat says. “And how do you want to make the world better? What do you want to be remembered for?”

Similarly, “When we think of estate planning, we have a tendency to think of people with millions of dollars who are trying to avoid taxes,” says Robinson. “But part of estate planning is planning for the unexpected.”