Wealth Management Roundtable | Crain’s company in Chicago

Given market volatility and the potential for recession, should clients consider wealth transfer planning strategies, to individuals or charities, during life rather than awaiting death? ? If so, what kinds of techniques could be used for clients to maintain flexibility?

Pfaff: As a starting point, low asset values ​​provide an excellent wealth transfer opportunity, as transferring assets while their value is lower (versus higher) allows for more effective use of tax exemptions and exclusions. available gift and inheritance taxes. Some wealth transfer strategies also work more effectively in low interest rate environments, while others are more effective in high interest rate environments. So if opportunities such as low values ​​or appropriate interest rates for the strategy you want to use arise during your lifetime, and you know you have more than enough assets to support your style life for the rest of your life, so it makes sense to consider transferring assets now rather than waiting until you die. The problem with transferring assets over lifetime is that sometimes there are unforeseen changes in tax laws, family circumstances, or your balance sheet. It is therefore essential to create maximum flexibility in irrevocable trusts.

Paolini: There are always good reasons to plan lifetime giving. Sometimes there are beneficial tax incentives. Some people like to see their money put into action. But it doesn’t have to be one or the other. Estate planners have financial planning tools that allow their clients to create hybrid gift trusts that today allow for charitable contributions that also leave residual trust funds for the benefit of clients’ beneficiaries.

Bigelow: Assets or percentages/dollar amounts that can be set aside “for children (or others)” today are best transferred when values ​​are relatively low to minimize the use of gift/estate tax exemptions. That is, if the values ​​should go up, it usually makes sense to move them now. If there is a desire for control or access or continued income, a direct gift may not be as beneficial as an installment sale or a gift to a trust such as a limited access spousal trust. When it comes to charitable donations, it may not be as valuable to give away impaired assets, as the capital gains tax savings and/or income tax deduction may not be as great. .

How can clients protect their assets against threats such as creditors and bankruptcy and/or future estate taxes after death?

Paolini: The most important aspect of protecting your assets after death is choosing your trustee wisely. Many clients mistakenly think they can draft against every possible scenario, but that’s just not possible. Instead, it’s much more important to have the right person, or people, in charge of handling unforeseen issues. Poor drafting can often be corrected, but a bad trustee can spell disaster for any well-thought-out estate plan.

Bigelow: Giving or leaving assets to irrevocable trusts for loved ones—instead of giving them directly—can isolate those assets from strangers. Trusts can be designed with a fair amount of flexibility. If the objective is to protect the beneficiary’s own assets, another trustee may be appointed. If handing over the keys to the beneficiary is not the issue, but there is still a need to protect assets from strangers, the beneficiary can be its own trustee and principal distributions can be limited by a co-trustee or to those needed for health, education and support.

Pfaff: Generally, it is easier to protect assets from creditor claims if the assets exist in a trust that has been created for you, as the beneficiary, by another person (the settlor). Well-designed trusts often do not “force” distributions out of the trust to the beneficiary, as assets that remain in trust can maximize creditor protection and GST tax benefits to the extent possible. Well-designed trusts can be GST-exempt, meaning they won’t be subject to GST as they pass from one generation to the next, as long as the assets remain in trust.

How does a family best plan and evaluate long-term philanthropic decisions and other charitable activities?

Bigelow: Don’t make decisions about what to give based on tax consequences. It is always better for the family to keep the money and pay taxes than to give the money away. If charity has a place in the estate plan, be thoughtful and specific. For example, don’t give money to your alma mater’s general operating fund so it can repave parking lots or pay law school professors’ salaries. Specify that you would like the funds used to be used to endow a scholarship or for the football team. Along the way, involve family members who should have a say. Talking to children and grandchildren to find out what they would do with X amount of money can be a great way to help them develop their own sense of philanthropy and encourage future giving.

Pfaff: The amount of wealth, family values ​​and the interest of future generations to be involved in the process of managing wealth intended for charity must be taken into account. Some families like to use charity vehicles as a tool to teach children how to think about investment and spending decisions, and to spark an interest in working together as a family and an interest in charitable giving. The most commonly used tool is a donor-advised fund (DAF), as it is the simplest and most cost-effective. A DAF is set up by an account holder who appoints an advisor to recommend charitable distributions from the DAF to qualifying charities. Not all DAFs are created equal, so you need to make sure you understand what you want to accomplish and if a given DAF is right for you. Large gifts that include naming rights — the right to name physical property, such as a building after the donor or another person — should be carefully reviewed by an attorney who knows the potential pitfalls.

Paolini: Consider the ultimate outcome that would make you happy 5, 10 and 20 years after your death, then make your decisions and organize your activities accordingly.

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