Estate tax planning used to be the preferred path to prospecting wealthy clients. This is because estate tax exemptions were as low as $2 million just eight years ago for wealthy families, and they were hungry for advice on how to reduce their tax exposure. For advisors who felt comfortable discussing the impact of estate taxes, the pre–$11 million exemption years were filled with opportunity.
But since 2018, the $11 million estate tax exemption put estate tax planning on the backburner. This wasn’t a surprise considering the fact that only 1%—or 3.3 million American families—had a net worth over $11 million.
With the possibility of a Biden administration on the horizon, the opportunity to engage in meaningful estate tax planning is once again upon us. With estate tax exemptions rumored to be lowered to $5 million, the number of American families whose wealth will be exposed to federal estate taxes will now be closer to 3%.
That means 7 million more families will be looking for estate planning, which means 7 million more opportunities for savvy financial advisors.
Many advisors would agree that competing for the affections of wealthy families and their investment portfolios was more challenging over the past 10 years than ever before. The stock market was propelled to new heights, and as more advisors moved to “model” portfolios, the opportunity to truly stand out from the investment management crowd was difficult.
During the 1990s, the team I worked with routinely used estate tax planning as our preferred method for meeting wealthy families. There is no such thing as a “perfect” estate plan, and therefore everyone we spoke with was open to learning what made us different and what made our approach compelling. When we completed the estate-planning process, we built such trust and respect that it was easy to transition and offer to provide a second opinion on clients’ investment portfolios.
As a wealth advisor, if you would like to position yourself for the changes ahead during a potential Biden presidency, you have options. For larger registered investment advisors, adding an estate tax specialist to your team would be a significant differentiator. An effective tax planner would allow you not only to assist your current clients but also to offer estate-tax-planning services to attract new wealthier families to your practice.
For RIAs with limited budgets, this could be a great opportunity to partner with a firm with estate-planning expertise. The last thing you want to do is to send your clients to the local estate-planning law firm and make them your clients’ problem solver.
Where should you begin? The answer is simple: You need to control the process. You need to be the trusted advisor for your clients. Your firm and the team you “import” needs to handle 70% to 80% of the estate-planning process and bring in a local estate-planning law firm only to help finalize the final 20% to 30% of the plan.
Now more than ever, it is essential for you to offer estate-planning services. Many law firms and estate-planning professionals either have or are aligned with other wealth managers. Another tax professional that gains the trust of your clients could easily make introductions to your competitors and place you in a position to defend and compete.
Remember, every time you send your clients to another legal or accounting professional, you risk losing control.
It’s time to go on the offensive and get ahead of the curve. In an evolving tax environment, wealthy families will be looking for help and you always want to be the most trusted advisor.
Paul Saganey is the founder and president of Integrated Partners.