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Wealth Transfer Considerations for FA Clients

Financial advisers should consider families, assets, titling, gifting, business ownership and more.

Estate planning is a normal part of the work that financial advisers do for many of their clients. A key part of this estate planning work is planning for the orderly transfer of a client’s wealth to their intended heirs and beneficiaries in line with their wishes.

While this is always a key financial planning consideration for many clients, it may come a bit more front and center during the turmoil caused by the coronavirus pandemic. Here are some wealth transfer considerations:

Aligning client wishes and plans: Perhaps the biggest issue in all of this is understanding a client’s wishes for the transfer of their wealth both during their lifetime and upon their death, then ensuring that their planning reflects these wishes. Client communication is a key factor in helping clients achieve their various financial goals.

Family considerations: Every family situation is different, but in many cases it can be helpful to have family meetings, especially if clients are the head of the family. Encouraging communications that can include a family meeting among the parents and adult children can help ensure there are no surprises upon the client’s death and that this process functions as smoothly as possible.

Beneficiary designations: For those clients who have retirement accounts such as an IRA or a 401(k), as well as those who have life insurance policies or annuities, it's critical that they keep their beneficiary designations up-to-date, as beneficiary designations determine the distribution of these assets. In fact the beneficiary designations override anything clients might have in any other type of estate planning document.

Estate planning documents: A client’s situation, their desires for transferring their wealth and the types of assets they own will all serve to guide their wealth transfer strategies. This includes the types of documents needed such as a will and/or a trust or more advanced strategies.

Advisers are perhaps in the best position of anyone to help guide a client in the proper direction in terms of their estate planning and wealth transfer strategies.

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Lifetime gifting: One avenue for transferring wealth is making gifts to you heirs during your lifetime. In 2020, the annual gifting limit is $15,000 per person. This is the amount clients can gift to anyone they choose without having to file a gift tax return. This amount changes periodically.

The change in the tax laws at the end of 2017 increased the lifetime gift and estate tax exemption dramatically; they are at $11.58 million per person for 2020. Depending upon a client’s situation they may want to use some of this exemption to make gifts to their heirs while they are still alive.

Asset titling: Asset titling is critical as part of the wealth transfer process. Whether it's titling a residence properly to reflect joint ownership between a married couple or titling an investment account, this is an important piece of the wealth transfer puzzle.

An area that clients often overlook is retitling assets to fund a trust that they’ve created. While the work of lawyers and other advisers in creating the trust is crucial, the trust is useless if it is not properly funded. This means that assets such as investment accounts, property or other assets that are intended to be part of the trust need to be retitled properly to the trust.

Business owners: For those advisers who work with business owners, the wealth transfer process can get very complex. Does the client own the business outright or are there partners in the business? What are their desires in terms of passing the business on to family members, to managers within the business, or selling it outright?

All of these questions and many others need to be asked of these clients to help them formulate the best wealth transfer strategy for their business, often their biggest asset, in order to achieve their goals for the continuity of the business and to provide their family or other heirs with value from the transfer of the business.

The strategic use of life and disability insurance can be a solid planning tool here. In the case of a buy-sell agreement between the owner and their partners, these types of policies can fund the arrangement and supply value to the business owner client’s heirs. These policies can also provide cash flow to the business owner’s family and heirs which can come in handy if the owner’s death or disability results in a diminished valuation for the business.