The families we work with have made countless sacrifices, taken tremendous risks and overcome significant obstacles to accumulate their wealth. We explain that as challenging as it was to accumulate those assets, the latter stages of wealth also demand as much attention. It’s not enough to plan for your assets during your living years. A good steward plans for the preservation and distribution of their wealth beyond his or her lifetime.
That is entirely up to the individual. Some of our high net worth clients are concerned with leaving too much to their heirs rather than not enough. Their concerns are often rooted in the idea that heirs will lack financial responsibility. We have various tools to help our clients navigate these concerns, including financial education for their heirs. In our experience, it takes a series of meetings and dialogue before we can construct a viable plan.
This depends on the client’s objectives, the type of property involved, and the beneficiary’s specific circumstances, age and character. Many of our clients use trusts to pass inheritance, and we advise them to work closely with estate planning attorneys who can provide counsel on their unique situation. A trust is ideal in passing inheritance due to creditor protection, potential estate tax savings, professional management and the ability to incentivize certain behaviors from children or grandchildren before they can access the trust assets. There are instances where an inheritance passes lump sum, but that is the exception in our experience.
Lack of communication and insufficient legacy planning are key mistakes we’ve seen. The best time to plan is yesterday. The next best time is today. I constantly meet very successful people who have not planned for the distribution of their assets. If you don’t plan, the government will take charge, and that goes about as good as it sounds. As for communication, we recommend family planning discussions to communicate what to expect upon your passing. Transparency greatly helps your heirs plan for their future.
Tax laws constantly change and can drastically impact inheritance. In general, donating retirement accounts to charities rather than individuals offers certain tax advantages. One benefit is that the charity does not pay taxes on the income received. This is particularly important after the recent passage of the Secure Act, which, in many cases, requires a beneficiary to distribute the assets within 10 years as opposed to paying taxes on distributions over the beneficiary’s lifetime.
For individuals who currently take their required minimum distributions (RMD) from retirement accounts and do not need the income, it may be more advantageous to make a charitable RMD directly to their favorite charity because this income, in most instances, wouldn’t be included in the individual’s taxable income.
My earliest memories involve my parents making sacrifices to give to others. They have been very philanthropic throughout my lifetime, giving even when they didn’t necessarily have much. This was extremely impactful to me. My wife and I give to charities annually and ensure our kids understand why. From personal experience, I can’t overstate the importance of involving children in giving conversations at an early age so they will understand the value of philanthropy and help make their communities better for future generations when they are in a position to do so.