Estate & Wealth Transfer Strategy Considerations
/The current Federal Estate Tax exemption is approximately $24 million for a married couple (half for an Individual) inclusive of portability. Readers should note: no legislative action is needed to effectively cut the exclusion amount in half at the end of 2025. Meaning, the Tax Cuts and Jobs Act (TCJA) of 2017 automatically reverts without the need for Congressional vote.
In a simplistic illustration regarding the order of magnitude regarding Federal Estate taxes with no estate and financial planning strategy:
We believe objectives of a family supersede tax consequences. Taxes are a sizeable expense but are not the sole consideration. That said, as an expense which is expected to increase in the future, we cannot advocate more strongly for intentional planning to preserve what has been created.
Three planning options:
“Do Nothing” and let the estate pay the tax (and potentially through public probate),
You’ve already addressed ALL possible options and no further action is needed (congratulations),
Explore the possibilities to ensure objectives will be met and assets deployed to your objectives.
Our experience has been that anyone who has seriously considered the potential and consequences of Estate & Wealth Transfer strategies chooses to engage in a comprehensive exploration of the planning choices. These individual’s lives and successes reflect action and that is demonstrated through their planning. However, the subject of estate and wealth transfer can lack clarity or a roadmap. Clearwater Capital Partners is active in our client engagement to explore the many considerations which leads to well informed decisions.
To begin, there are four buckets to which assets will go upon one’s passing:
Spouse: at the Federal Level there is an unlimited marital deduction upon the first passing; however, subsequent marriages (or the potential for such) introduces a separate set of questions,
Taxes: the taxable estate less the exemption amount is used for the estate tax calculation,
Charities: whichever organizations are most important to you ‘comes off the top’ to reduce the estate tax liability (in a similar fashion as charitable income tax deductions),
Beneficiaries: non-Spousal family & friends receive the net estate.
Three basic topics to be considered to get started:
First consideration: Are there family, friends and/or charities for which your financial empowerment is more important to you than paying taxes from your estate?
I have yet to meet anyone who said ‘no’ to this question, but I have met people who have not answered it for themselves – hence, the first consideration. There are many ways to structure around taxes to achieve both lifetime and legacy objectives. This is NOT tax evasion - every taxpayer should pay what is required; however, tax avoidance minimizes tax liabilities all the way to zero in certain cases. If the resulting structure achieves the objectives for the beneficiaries and charities, then estate taxes can be rendered OPTIONAL if structured appropriately.
Second consideration: Do you need to wait (for living expense purposes) until you pass away in order to begin moving assets out of your taxable estate?
We develop detailed Lifetime Income and Cash Flow Forecasting Models specifically for your case circumstances. This financial planning stress tests key assumptions which builds conviction in next step decision making. CCP’s Manager of Planning, Kevin Nolte, has extensive experience both leading a Single-Family Office (SFO) and modeling/planning for Client Families’ financial future.
If you do NOT NEED all of your assets during your lifetime, there is no reason to wait until you pass away to move the assets to charities, beneficiaries, or both. Charitable giving during your lifetime has income tax benefits (including gifts to Private Foundations, Donor Advised Funds, Charitable Trusts), while gifts to beneficiaries have multiple potential legacy benefits, including:
Lower value now than in the future; aka capital appreciation outside of the taxable estate,
Discounted valuations on illiquid assets reducing the asset value further.
Third Consideration: What is your governance plan?
There are significant benefits to properly constructed estate strategies. CCP collaborates with estate planning attorneys across the country to ensure State Law is applied as well as addressing international topics as may be needed. Tax professionals and CPA’s are critical parts of the team in the development of plans as well as their implementation. However, as the Chief Financial Officer (CFO) for the family, the CCP Team brings continuity to the family by being intricately involved in the technical aspects of the plan, as well as the details for the family.
When one considers the complexities of their estate and wealth transfer strategies, they risk limiting their thoughts to legal documents only. The legal aspect of one’s planning is critical and should be drafted by a professional in an expert manner. However, attorneys often say that an unfunded estate plan is wasted, and if not properly managed, monitored, and governed over time it may not achieve the intended design.
The CCP team strives to fulfill our pledge to operate as a families’ Chief Financial Officer (CFO). As such we integrate planning with execution on a multi-generational basis. We believe the best practice during one’s lifetime is to order affairs in such a way that empowers beneficiaries and charities in order to achieve family hopes and aspirations – which, in the end, is one’s legacy.
John W. Sleeting
Executive Partner
NOTE: this is for informational purposes only and is not intended to be legal nor tax advice.
