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Estate Planning Is Undergoing A Radical Reformation

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Estate Planning Is Undergoing A Radical Reformation

By John J. Scroggin

Estate planning is in the midst of a radical reformation and a number of factors are driving the process.

First, there has been an explosion of wealth in the United States. Up to $136 trillion may be inherited in the next 50 years.

According to a number of studies, only 10% of todays millionaires inherited their wealth. These largely self-made millionaires who live next door often believe that being self-sufficient (as opposed to relying upon a family inheritance) is critical to the development of an heirs character. And while they may not be frivolous enough to spend their childrens inheritance, they are increasingly restricting the manner in which heirs will receive an inheritance.

Second, the number of taxpayers subject to a federal transfer tax is decreasing (although the imposition of state inheritance taxes may actually increase in coming years). The result of the recent Congressional elections increases the chance that the high exemptions will remain for the foreseeable future.

With fewer taxpayers subject to a confiscation of assets at death, personal perspectives, rather than tax avoidance, are driving the decision process. Planners are well advised to acknowledge this shifting paradigm and use it in their marketing strategies.

Third, between 1995 and the year 2050, the elderly population will nearly double to 80 million people. Most of the growth will occur between the year 2010 and 2030. The increasing life expectancy of Americans means that there is an increasing need for tools that assure protection of the elderly from abuse, provide for management of assets, and designate parties to make property and medical decisions.

Well-drafted living trusts, living wills, medical powers of attorney and durable general powers of attorney are an important element of todays estate plan. As a valued-added tool, see the Medical Directive at .

The aging of the boomers and advances in medical science, may work to bring about an interesting collision: people who have not sufficiently saved for retirement and who live longer than they expected. This could result in more demand for government spending and, without increased funding, an effective per capita reduction in social programs for the elderly. Fifty percent of people over age 85 need daily assistance. Someone will have to cover this increasing cost.

The tax benefits for long-term care insurance and payment of long-term care costs are going to continue to increase. This development is being promoted by the political clout of the elderly and the continuing need to replace reduced governmental benefits.

A recent survey showed that although 58% of the respondents were concerned about funding long-term nursing care costs, only 59% had given thought about how to fund the cost. With proper education, long-term care policies should be a major growth area.

Fourth, client perspectives are changing. Benjamin Franklin said that only death and taxes are inevitable. Unfortunately we in the estate planning community may have taken him a bit too literally in how we approach planning. Planning should be for the living, not the dead. The first goal of estate planning should be “to protect and preserve family”, not “protect and preserve the assets.”

One result is an increasing use of trusts to place restraints on inheritances. Increasingly clients are demanding a flexible and discretionary approach to trust distributions. The role of the trustee is evolving from “protecting the assets from the family” to “protecting the family from the assets”. Clients are increasingly relying upon the subjective judgment and the discretion of trusted trustees to properly protect the family. Preservation of capital is becoming secondary to funding family needs. While clients do not want to provide a lavish lifestyle to heirs, they do want to provide opportunities and encourage responsible behavior. The increasing use of incentive trusts is a reflection of this approach.

Trusts have become an increasing part of estate planning (e.g. generation skipping trusts, charitable trusts, unified credit trusts). Trust investment offers unique issues (e.g. prudent investment, income generation and budgeting, taxation). Becoming knowledgeable about these issues and properly marketing to lawyers and CPAs could generate significant sales opportunities.

Estate planners are increasingly discussing ways to minimize family conflicts. For example, a new business area is developing: how to successfully manage the passage of a family business–not only in tax and legal terms, but also in its psychological impact.

Fifth, asset protection has become a major growth industry. Recent competition among states to localize this business (e.g. Alaska and Delaware) will result in continuing new opportunities. As a standard procedure of your financial representation, provide the client a checklist covering the potential areas of liability, the existing protections and various asset protection tools (e.g. umbrella policies) the client should obtain. Always encourage an evaluation of the clients property and casualty coverages.

Sixth, international estate planning is growing. Life insurance underwriting is becoming more of an international issue. Estate and income tax planning must accommodate both the law of the clients country of residence and the country of citizenship. One idea is to contact foreign consulates in your city and offer to aid transplants in getting adjusted to your town. Offer to do seminars on U.S. issues (e.g., taxes, schools, employment).

Seventh, the days when you identified yourself by one professional designation are rapidly slipping away. CPAs are serving as financial planners and selling products. Arthur Andersen may have been the largest law firm in the world. Many of the best tax attorneys in the country are being recruited by national accounting firms. The American Bar Association has considered and deferred for now a resolution approving non-lawyers as partners with lawyers. Competition will become stiffer.

One way to compete cost effectively is to be aware of new “value-added” services that enhance your client representation. For example, provide periodic e-mails to clients and referral sources to areas that may be of interest. Provide clients with materials that make it easier to make decisions. For example, see the Medical Directive discussed above.

The days when tax avoidance is the driving goal are passing away. Its up to advisors to recognize something that many of our clients already recognize: Protecting and preserving family is more important than protecting and preserving assets, particularly when the confiscation from estate taxes may be diminishing each year.

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Reproduced from National Underwriter Life & Health/Financial Services Edition, December 30, 2002. Copyright 2002 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.


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