A Wealth Certain “T”

My May column discussed the business analysis tool known as SWOT (strengths, weaknesses, opportunities, threats), a useful planning method for identifying the external and internal elements that can impact the sustainability of family wealth.

There was mention of the critical nature of identifying the “Ts,” or threats, including controllable ones and those the family can’t control. As the saying goes, the only certainties of life are death and taxes. Neither of these threats are controllable, and both can greatly impact family wealth. A family office team can enable important planning efforts to help minimize the trauma of both of these threats.

It is bemoaned (particularly by those impacted) that under the current tax law, larger estates are subject to a 45 percent federal estate tax. The good news is that this hefty tax may be avoided with proper planning using experienced professional tax advisors. According to The Center on Budget & Policy Priorities, under existing tax law, the typical actual estate tax rate on large estates is 17 percent. So clearly, the estate tax threat can be mitigated with proper wealth transfer planning.

How? The family office team can collaborate with a family’s legal and tax advisors to determine wealth transfer planning strategies that make sense for the family. There are many high- quality, experienced trust and estate planning professionals available to assist with this important process. These professionals may advise using a number of basic strategies to reduce a family’s exposure to estate taxes. These include: life insurance (ILITs), charitable structures (CRUTs), structures to transfer asset appreciation (GRATs), and simply giving wealth away like Warren Buffet and Bill Gates. Sam Walton used the basic approach of giving assets away before they appreciated and was able to transfer billions of dollars of family wealth tax free. The strategies are many, from basic planning to the utilization of highly complex structures.

Often, a family’s wealth creators struggle with wealth transfer planning for a number of reasons, including not wanting to face mortality, struggling with losing control of wealth, discomfort with discussing wealth transfer plans, concerns on how wealth will impact the next generation, or simply because they’d prefer to spend their time and energy on other pursuits.

While the family office team can support the wealth creator with proper planning efforts, an important contribution can be made to the next generation in the form of learning, mentoring, guidance and facilitation. Often, the next generation is not familiar with the rationale for family planning structures, estate tax issues, the potential wealth dissipation risks, and the “lose-lose” of family conflict over estate issues. Further, wealth recipients benefit from family office guidance on how to approach their own individual planning efforts.

In our global world, it is not just U.S. estates that need to be planned for: Global wealth planning has become critical as different jurisdictions evolve their wealth transfer tax regimes and impose more rigorous enforcement. Global families can experience wealth dissipation in a variety of ways: from noncompliant planning structures, reluctant trustees and costly relocation to alternate jurisdictions to facilitate wealth planning, and/or punitive tax penalties imposed on distributions.

Overall, the threat of losing an estate due to taxes actually becomes an opportunity (that’s the “O” in SWOT) to engage the family around a well-discussed and thoughtful succession plan based on preserving family wealth. In turn, the family office team can enable periodic reviews to address the plan as the family and circumstances change. As we know, in addition to death and taxes, the other certainty in life is change.?

Julie Neitzel is a partner and advisor with WE Family Offices in Miami and a board member of the Miami Finance Forum. Contact her at Julie.Neitzel@wefamilyoffices.com or 305.825.2225.

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