How Do You Adjust Clients' Financial Plans to Align With Their Estate Planning Needs?

How Do You Adjust Clients' Financial Plans to Align With Their Estate Planning Needs?

When estate planning intersects with financial management, adjustments are often necessary to ensure a client's goals are met. We gathered insights from Financial Planners and Senior Wealth Managers on this topic. From aligning philanthropic desires with estate planning to implementing lightweight strategies for estate tax reduction, discover the five experiences these professionals shared.

• Aligning Philanthropy with Estate Planning
• Coordinating Estate and Financial Plans
• Updating Beneficiaries for Estate Alignment
• Recalibrating Plan for Inheritance Changes
• Lightweight Strategies for Estate Tax Reduction

Aligning Philanthropy with Estate Planning

I recently worked with a client who had significant assets and a strong desire to give back to their community. Their existing financial plan focused on ensuring a comfortable retirement but didn’t fully address their philanthropic goals or the impact on their estate.

During our comprehensive onboarding process, it became clear that aligning their charitable intentions with their estate plan could provide substantial tax benefits and better reflect their long-term wishes.

Adjustments Made:

1. Establishing a Donor-Advised Fund (DAF):

- We set up a Donor-Advised Fund as a central component of their charitable giving strategy. By contributing a substantial amount to the DAF in a single year, the client could take advantage of itemizing deductions for that tax year, rather than taking the standard deduction.

- The DAF also offered the benefit of tax-free growth, allowing the contributions to grow over time, which could potentially increase the amount available for future charitable grants. This provided the client with greater flexibility and a lasting impact on their chosen causes.

2. Qualified Charitable Distributions (QCDs) Starting at Age 70½:

- As the client approached age 70½, we planned to transition from using the DAF to making Qualified Charitable Distributions directly from their IRA. QCDs allow individuals aged 70½ or older to donate directly from their IRA to charity, which can satisfy Required Minimum Distributions (RMDs) without increasing taxable income. This strategy provided a tax-efficient way to continue their charitable giving while reducing the impact of RMDs on their taxable income.

3. Estate Planning Integration:

- To ensure these strategies were aligned with their estate plan, we reviewed and updated beneficiary designations on retirement accounts, directing a portion of the remaining IRA assets to charity through QCDs upon their passing. This not only reduced the taxable estate but also ensured their charitable legacy would continue.

Impact:

- These adjustments allowed the client to maximize their charitable impact while enjoying significant tax savings both now and in the future. This structured approach to giving matched their philanthropic goals, and the client felt confident that their wealth would benefit both their heirs and the causes they cared about, without unnecessary tax burdens.

Coordinating Estate and Financial Plans

Financial and estate planning go hand in hand. It is imperative that I assist my clients in coordinating their estate plans with their financial plans to ensure that we create a fully personalized and comprehensive plan.

One of the key steps in aligning your financial plan with your estate plan is updating beneficiary designations on financial accounts and re-titling financial assets. This regular review and adjustment ensures your assets are distributed as you intend, whether to heirs, charities, or into a trust, and can help avoid probate, saving time and money.

Adjusting your financial plan to account for charitable wishes is another critical element when coordinating my clients' financial and estate plans. This often includes completing annual gifting to children, leveraging a Donor-Advised Fund or Charitable Trust, and designating charities as IRA beneficiaries.

Updating Beneficiaries for Estate Alignment

I met a couple who had set up a special-needs trust for their daughter more than 10 years ago but did not list the trust or their daughter as a beneficiary on any of their financial accounts. If they were to die, their special-needs daughter would be disinherited from their retirement accounts. An attorney did a great job creating the trust, but the clients failed to update their beneficiaries to reflect the change. It is important to remember to have your beneficiaries reflect your desires for your estate plan.

Recalibrating Plan for Inheritance Changes

A financial plan is like a financial blueprint. When what you are building evolves, the financial plan must be recalibrated to stay in alignment with the new goals.

I recently had a client who inherited a very significant estate from his father, shifting much of our planning from 'Do I have enough to retire and stay comfortably retired for a very long time?' to 'How do I protect my assets from being devoured by estate taxes so I can leave a legacy for my kids, not the IRS?'

It was an immediate shift in goals and objectives, creating a need to change the current plan to adjust to the new financial target.

Lightweight Strategies for Estate Tax Reduction

Estate taxes can be substantial—40% at the federal level, and some states levy their own estate taxes on top of that. However, not all clients are interested in pursuing strategies to reduce their estate tax exposure. Why? Consider an irrevocable trust: It requires legal work to establish and also requires a trustee, who might expect to be compensated. Additionally, these trusts require their own tax return. For families not interested in that cost and complexity, I look for more lightweight strategies to help reduce the size of estates. One strategy I've used is to complete substantial Roth conversions. The after-tax value to heirs is unchanged, but by paying taxes on the conversion now, it reduces the size of a wealthy individual's estate.