What You Need to Know
- As clients celebrate the holidays with family, there’s ample time to have important conversations.
- Revisit estate plans every three years to ensure family changes like births and divorces are accounted for.
- Other questions might include how to best support clients' favorite charities or whether their children's spouses should be included in estate plans.
Each holiday season, families congregate to be festive, thankful, reflective and well-fed. Relatives spanning multiple generations often spend more than a week together in close quarters, making it an opportune time for loved ones to hold space for financial planning conversations.
As 2023 draws to a close, now is an ideal moment to consider a few items that are likely on your clients’ minds as they begin to contemplate these important conversations. Initiating the advice element underpinning such conversations is a matter of routine for any experienced advisor, so consider a few ways that estate planning can be a part of the discussion.
With the Great Wealth Transfer upon us, data has shown that estate planning is among the most critical ancillary areas for any advisor to be knowledgeable about. It’s also a leading priority for Americans poised to come into money over the next 20 years.
Here are a few actionable thoughts connecting estate planning with the holidays.
1. Is Everything Current?
Planning around the holidays is all about ensuring that everyone in the family is provided for both now and over a longer time horizon. Estate planning is the focal point of how a client can control and optimize the flow of intergenerational wealth and other significant choices.
These thoughts are quite often the subtext of all broader planning discussions, including many of the hardest conversations; however, just a third of Americans actually have taken the time to create estate plans.
Among those with estate plans, a strikingly high percentage don’t have up-to-date plans. This lack of documentation leads to children who are accidentally left out of estate plans because they weren’t born at the time of writing, or in-laws who have since departed the family remaining set to benefit from windfalls.
Mishaps such as these are sadly common. To avoid this challenge, it’s absolutely a best practice to revisit any estate plan every three years to check for any decisions not aligned with current values or circumstances. Given the evolving family dynamics that define us, an estate plan can quickly become quite dated once it sits on the shelf for multiple holiday seasons.
So, one of the first things you can do is ask if you can briefly and collaboratively review clients’ latest estate plans — and the first thing you should look for is when they were last updated. If it was a few years ago, scrutinize everything closely to make sure that milestone life events such as marriage, divorce, children born or even the potential passing of friends who may serve as executors are fully accounted for.
Ask about each of the above — you may be opening a Pandora’s box in a helpful way.
2. Charity and Yearly Giving
It’s prime solicitation season, as letters from clients’ favorite causes begin to gather with critical mass in their mailboxes and email inboxes. Many organizations simply ask for cash, but nonprofits have grown savvier as far as identifying more lucrative asset pools that may actually offer clients significant tax planning benefits at the same time.
Cash is always king, especially when it comes to daily life and paying bills. But cash can’t be donated pre-tax, and it’s probably not as plentiful for the purposes of donation as a client’s IRA or stock holdings. For clients who are interested in giving, there are a few vehicles worth mentioning.
These include qualified charitable distributions, available to clients 70 1/2 or older. Retirees who turned 72 at the end of 2022 or are 73 or older with an IRA can choose to donate all or part of their required minimum distributions. QCDs go toward clients’ RMDs without raising their taxable income, and they’re excluded from gross income — which avoids the time spent itemizing deductions.
Clients can also choose to donate stock or any other form of appreciated assets that aren’t used to pay regular bills. This can result in much larger gifts for charity in a manner that can serve as a force multiplier that cash donations rarely do — all without any change to a donor’s monthly living budget. There are also tax benefits such as not having to pay capital gains. Charities can also increasingly accept and quickly liquidate noncash assets to help fund their operations immediately.