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Working With Clients on Estate-Planning Strategies

Three experts share their thoughts at the CFA Philadelphia Private Wealth Conference.

The CFA Society Philadelphia Annual Private Wealth Conference, held on Dec. 2, 2021, started off with a panel on “Wealth & Estate Planning Strategies: Planning for Year-end and Beyond.” The panelists focused on helping clients who had just undergone some major transition that resulted in a liquidity event putting them into a position of wealth (for example, after the sale of a business or after getting a large inheritance). The panelists were David K. Plotts, director of wealth planning at Glenmede; Carl Fiore, managing director/partner at Andersen; and Helene Jaron, chair private client, trusts and estates at Cozen O’Connor.

First Steps

What are some of the first steps to take with the new client? The panelists agreed that top priorities were building a team of professionals (for example, accountant, financial advisor, investment advisor) and getting to know and understand the client. Also, make sure that you understand the client’s goals and ask the right questions to ascertain what they want to do with their money—for example, how much money does the client was to pass to their heirs, is the client interested in philanthropy and does the client want to save on taxes? Finally, which generations do they want to include in the planning stages? Should it be limited to Generation 1, or does the client want to bring in future generations?

Ongoing Communication

Once the plan is set up, make sure to stay connected with your client. You may have to adjust the plan as certain changes occur—for example, new tax laws, a change in the economy or changes within the family (for example, marriage, divorce, new baby). You should be regularly meeting with clients (in the age of Zoom, it’s easier than ever) and reach out to the client whenever there’s a change in circumstances.

Keep Things Flexible

It’s also important to keep things flexible in case you need to adapt the plan to a change. Clients may not need a sophisticated estate plan today, while the estate tax and gift exemption is high ($12.06 million per individual for 2022 deaths, up from $11.7 million in 2021), but over time, their wealth may grow and the exemptions may go down, so they need to take that into account. Also, clients’ attitudes about wealth may change once grandchildren are involved.

Planning for the Unknown

With all the new proposed tax bills coming out of Congress right now, it can be hard to keep track of what’s in and what’s out, let alone how to plan for a change in the law. According to Jaron, it’s like “planning in a blackout room with blindfolds on.” Right now, there’s a proposed 5% surcharge on trusts with modified adjusted gross income (MAGI) of more than $200,00 and an additional 3% on MAGI of more than $500,000. Clients could make gifts to the younger generations from trusts to get to try to lower the income below the threshold, but they may be concerned with putting money into younger hands, notes Jaron. Or, they may not want to lose access to their funds, says Plotts. He also notes that the sunset of the high exemption is at the end of 2025, so it’s not so far away anymore. Clients may need to act soon if they want to take advantage of the exemption. Clients can also bifurcate trusts, so there’s less income in each trust. They may also consider accelerating capital gains in trusts, so they can pay the tax now while the tax rate in lower, says Plotts. There’s also the possibility of engaging in charitable planning with trusts. A charitable contribution will reduce MAGI for surcharge purposes, says Fiore.

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