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Elevate the expertise

Make sure your financial advisor is involved early in estate planning

Let’s face it, estate planning is complicated. Most of us don’t have the time or expertise to fully understand the intricacies of ensuring that your wishes for your estate are followed and that your planning avoids a messy situation like probate. The process can be especially complicated for people who may be selling a business or are involved in an otherwise complicated financial transaction that could affect generational wealth for their children and grandchildren.

When people are in the early stages of such a situation, most of us know we are going to need professional help. People make sure they get the advice of a lawyer and a tax accountant. Both are smart, but as the situation progresses and life moves on, those folks won’t be nearly as involved as your financial planner. It is a good idea to have your financial planner as part of your team at the beginning stages of such a journey.

An experienced financial advisor can help you look out for your short- and long-term best financial interests. There are many complicated estate vehicles, such as irrevocable trusts, that are designed to protect assets and set guidelines for wealth distribution. But not everyone needs such a complicated estate plan. Having someone on your team who understands your life plan and knows your investing goals can be invaluable.

I know this from personal experience. My family sold a food business several years ago. Six different families were paid from the sale, and the owners wanted to make sure the process was as efficient as possible. The mission was to transfer the wealth to serve not only the people who sold the business but their children and grandchildren as well. Our family decided, with lots of good advice from pros, to set up trusts, both revocable and irrevocable.

Trusts help protect assets and can help make sure families understand how a grantor wishes for assets to be divided and spent. With a revocable trust, the IRS will treat it as a disregarded entity, therefore eliminating tax complications for the people who set them up. An irrevocable trust immediately or at some point, depending on trust structure, becomes a separate entity and therefore is not subject to estate taxes. However, as the name implies, once it is set up an irrevocable trust is difficult to change. It may also come with some unexpected consequences. For example, suppose some of your assets were in an irrevocable trust and you wanted to refinance a home mortgage. There is a good chance the potential lender looks at those assets as separate from your own net worth, potentially getting in the way of doing something you would absolutely qualify for, sometimes resulting in a frustrating situation for all involved. It is important for the grantor of the trust to think through the complexities that their beneficiaries will encounter in everyday life situations when structuring a trust.

The fact is that most of us don’t have estates that are so complicated that we need to encumber them with super complex vehicles. The IRS says the estate and gift tax exemption for 2019 is $11.4 million per person. So a married couple could shield $22.8 million before worrying about their heirs paying federal estate and gift tax. Therefore, it is important to consider when setting up irrevocable trusts whether the assets that will be passed along to the next generation warrant the complexities and sometimes extra cost that will come with not only setting up but also administrating that type of trust. 

People tend to get their attorneys involved early in this process. If they had their financial advisor on board early, he or she could point out potential pitfalls like those mentioned above that could occur if you placed too much of the family assets in an irrevocable trust. 

Trusts are important vehicles for wealth transfer. Complex trusts, however, can be overused and, as the name should imply, sometimes incredibly overly complicated. If your financial advisor has worked with trusts before, that live ammo experience can be really valuable in planning your financial future.

Tim Accurso is a financial advisor at Prime Capital Investment Advisors. The preceding commentary is (1) the opinion of Tim Accurso and not necessarily the opinion of PCIA, (2) is for informational purposes only, and (3) should not be construed or acted upon as individualized legal advice. Please seek the advice of a lawyer. Advisory services offered through Prime Capital Investment Advisors, LLC. (“PCIA”), a federally registered investment advisor. PCIA: 6201 College Blvd., 7th Floor, Overland Park, KS 66211. PCIA doing business as Prime Capital Wealth Management (“PCWM”) and Qualified Plan Advisors (“QPA”).

Tim Accurso
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