Estate Planning For The Ultra Wealthy - The Role Of A Family Wealth Advisor
By: Bingham C. Jamison, CFA - December 18, 2017
In fact, multi-family offices were born in the early ‘90s to address this very issue. The pioneers of the multi-family office concept realized that all too often, each of the above-mentioned specialists had become siloed in their respective expertise, whether it be accounting, investments, or the law, meaning that while the individual components of the family’s financial situation were being attended to, nobody was bird-dogging the overall process or ensuring that certain vital information was being shared between advisors. At the end of the day, nobody owned the gray space, or tasks that happened to fall between the silos.
What good is an estate plan if a client’s charitable intentions are unknown? What good is a tax-loss carryforward on an income tax return if the investment manager is unaware of it? How much value can an insurance broker add if he or she doesn’t know the expected estate tax liability created at the death of the owner of a highly illiquid small business? How is a family supposed to steward their wealth across multiple generations without the communication assistance of a trained facilitator of family meetings, someone who understands both family dynamics and the nuance of trust legalese?
The point is, to provide comprehensive and holistic service to an affluent family, there must be a quarterback in charge of not only keeping the trains on time, but of ensuring information is shared, utilized, and leveraged across each of a client’s advisors to best serve the family client.
In this series, we will explore how a sophisticated family wealth advisor can be a champion for their family clients, effectively eliminating the silos naturally created by a client’s slew of professional advisors, and be the point of contact through which these various advisors communicate to the client. A talented wealth advisor can transform a once-disparate landscape of experts into a high-functioning and cohesive team, aligning the brain trust with the singular purpose of providing excellence in the daily service of their family client.
The Estate Planning Process
After coordinating with the client and the estate attorney on the front end of the estate planning process, once the estate documents have been drafted by the estate attorney, a savvy family wealth advisor can add significant value by doing the following at the back-end:
- Create an estate plan summary diagram. There’s no use in an estate attorney spending additional time after drafting the estate documents to then create an estate plan summary diagram (when an able wealth advisor (who doesn’t bill by the hour) can do the same work at a fraction of the cost).
- Explain the estate plan to the client in layman’s terms. A trust instrument can be extremely lengthy, full of legal jargon, and difficult to understand. A wealth advisor well-versed in estate planning can help simplify what can otherwise be overwhelmingly complicated to a client unversed in estate planning concepts.
- Calculate estimated estate taxes. A client’s financial picture could be drastically different should they die tomorrow versus 10 years from now. A wealth advisor must prepare for both situations, which is one reason why estate documents should be updated at least every five years. Calculating an estimated estate tax based upon a client’s death in 10 years requires financial modeling, numerous market-based return assumptions, as well as expectations regarding the future tax code – certainly as much creative art as it is mathematical science.
- Retitle taxable accounts into the name of the client’s revocable trust. Creating a revocable trust is only the first step in a two-step process. The all-important second step consists of retitling all taxable accounts (and in some cases, state-dependent, also retitling major assets like a primary residence, a vacation residence, and other real estate investment assets) into the name of the revocable trust. Otherwise, if accounts and assets aren’t retitled into the name of the revocable trust, the trust itself becomes worthless at the client’s death (and all assets must therefore pass through probate court).
- Review beneficiary designations. The beneficiary designations of retirement accounts need to be in accordance with the estate plan; therefore, a wealth advisor must ensure all accounts are reviewed immediately. If no beneficiary designations are currently specified, ask the estate attorney to opine on appropriate designations accordingly.
- Facilitate family communication. Wealth advisors are ideally situated to initiate family meetings, educate children about personal finances and stewarding wealth, avoid conflict by managing expectations with any jointly-owned assets, etc – all of these conversations require of the wealth advisor certain soft-skills that are developed over years of experience serving family clients.
Article source: Forbes.com
** Disclaimer Required by IRS Circular 230** Unless otherwise expressly approved in advance by the undersigned, any discussion of federal tax matters herein is not intended and cannot be used 1) to avoid penalties under the Federal tax laws, or 2) to promote, market or recommend to another party any transaction or tax-related matter addressed.