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For Wealthy Women, Tax and Estate Planning Is Weak Link

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For most high-net-worth individuals, election cycles mean reshuffling tax planning strategies around areas such as estate, charitable donations and capital gains.

Given the expectation the Biden administration will roll back some of Trump’s favorable policies of the past four years, tax consultants and accountants are already hard at work.

But for HNW women, dealing with election fallout is minor compared to the bigger fish they have been frying in the tax pan for decades.

 ‘What If?’ Becomes ‘What Now?’

In the event of a sudden death or divorce, HNW women can find themselves in a precarious financial position if they haven’t prepared. While no one is ever “prepared” to lose a spouse, women are at a particular disadvantage because in many cases they are not responsible for managing the household finances.

But as women tend to outlive men, there always should be a plan for unexpected events.

Also, as attitudes shift and more women build wealth for themselves, they are less likely to stay trapped in unhappy marriages. While divorce rates are declining in the United States, for couples over age 50 the numbers are increasing. For more U.S. women today, “What ifs?” are becoming “What nows?”

One essential step in planning for HNW women is to consider what assets they will require to live comfortably, and what assets will be available to them should they lose a spouse to death or divorce.

The Spousal Lifetime Access Trust is an irrevocable trust available for couples but not to singles. In fact, the SLAT agreement may include a provision that terminates any spousal trust rights upon divorce. Women should plan their lives under the assumption that these assets might not be accessible upon divorce.

There also are future costs associated with losing a spouse — women should consider purchasing long-term care insurance for themselves as they get older.

It’s an Avoidance Thing

Many women find themselves unprepared to deal with the legal ramifications that often accompany the emotional trauma of life changes like the above scenarios. As a rule, divorcees and widows do not have the same tools available as married couples, so they need to be more proactive with estate planning prior to major life events.

For women, this sounds easier than it is. A 2020 U.S. Bank Survey revealed that more women than men associate negative words like fear, anxiety, inadequacy and dread with financial planning, and that they start managing money later than men.

And despite progress in granting women more rights, cultural attitudes towards women always have been even slower to shift than legal ones. While men were historically brought into the financial planning fold early in their youth, their sisters were likely relegated to eavesdropping outside closed doors.

This lack of financial education has posed a major challenge for these women, and condescending and patronizing advisors only feed into the feedback loop. This outsider status has created a feeling of avoidance for women, becoming a self-fulfilling prophecy of sorts.

Because each woman’s situation is different, however, it is essential that they have an honest, one-on-one conversation with an advisor they trust. And in choosing an advisor, they need to find one who is an ally, not an aggressor.

Advisors need to understand that scripted webinars and prepackaged advice make tax planning inaccessible to women, and they will avoid advisors who don’t give them the financial attention they need.

The Gift of Giving

Once a plan is in place, women need to consider their long-term estate planning with children. This is where timing and tax policy changes from the incoming administration are crucial to understand.

Women with over $20 million in net worth should be making gifts and transferring assets now. Not only is the gift tax lifetime exemption at an all-time high of $11.7 million, but if no additional legislation passes, that high-water mark reverts to $5 million on Jan. 1, 2026. Furthermore, it’s expected that under a Biden tax plan, the lifetime exemption will be reduced to only $3.5 million.

In addition, as real estate asset prices in some areas of the country have taken a substantial plunge, it has created a unique opportunity to transfer wealth to the next generation without triggering a steep tax.

Unexpected Events

COVID-19 has been the ultimate lesson in “expecting the unexpected.” One unexpected impact of the pandemic was the pause in surrogate courts. Even families that had a plan in place and were faced with an unexpected death had assets locked up for months while waiting for an executor to be appointed.

In some cases, surviving spouses (mostly women) had no way to pay their bills, let alone begin transferring assets. To prevent this hardship situation, all HNW families should have a revocable trust in place, which allows the trustee to step into the decedent’s shoes and start managing the assets right away, independent of waiting for the courts.

Though difficult to face, death and divorce are events that everyone must plan for, especially women. An election or even a pandemic might make one notice that they should be planning, but by then, it is usually too late.

Mela Garber, a certified divorce financial analyst, is tax leader of Anchin Private Client and its Trust & Estates and Matrimonial Advisory Groups. Anchin is an accounting and advisory firm founded in 1923. The firm focuses on privately held businesses and high-net-worth clients.


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