The income and wealth inequality political movement has been growing for quite some time, coming to a head in this year’s presidential race. Whether you agree inequality is bad or good is beside the point. The issue I would like to address here is how it affects clients.
Specifically, let’s examine together how the given political climate heightens your desire for privacy, security and even social awareness and responsibility with intergenerational transfer of wealth.
I grew up in Indianapolis, a conservative Midwestern city where it was difficult to determine whether a given individual was upper middle class or possessed vast wealth. I have since lived and practiced estate planning law here in Southwest Florida where those same Midwestern attitudes and values prevail, largely because many of our residents are originally from that area of the country. To them, privacy is everything.
My father was an accountant. A client of his, “Lou” owned bowling alleys, a largely cash business. Lou had accumulated vast wealth. His daily dress code, however, consisted of white T-shirt under bib-overalls with a huge ring of keys attached to his belt loop. At first glance, you’d think Lou was a janitor rather than the millionaire next door.
Privacy is what Lou and many like him value above all else. Because of that, revocable trust planning makes sense now more than ever. Wills, as you may or may not know, become public documents upon the death of the testator. The will is available for anyone to view in a probate court. State laws vary as to the availability of the probate inventory, but it is relatively easy to skirt those rules by filing a claim against the decedent. Until it’s objected to, the claimant may have access to all sorts of private information as an “interested party.” When I inform my high net worth clients how public a process probate is, they will generally value avoiding the public eye.
Trusts, in contrast you should know, are private. The terms of the trust are not published in a public court. Qualified beneficiaries are privy to the trust inventory while others are not. Too often legal and tax professionals tout the probate avoidance or estate tax benefits of revocable trusts while failing to promote privacy, an attribute that is likely to be as highly valued by clients.
In today’s day and age, using encrypted email as a part of a firm’s communication systems is also crucial. Those of us who represent high profile clients, such as officers of Fortune 500 companies, television and movie personalities and political figures understand that personal information is only a mouse click away from being broadcast to the world. Just this week, General Colin Powell’s emails criticizing Republican presidential candidate Donald Trump were hacked and made public. This was a nightmare for him. Most clients are extremely sensitive to their personal information becoming public, for good reason.
Not that every email should be encrypted, but it certainly makes sense to encrypt those emails that contain sensitive and private information.
Another opportunity the current political climate presents is to promote whatever charitable or social causes are near and dear to you inside of your estate plan. Those who have accumulated wealth often feel a responsibility to give back to society, but don’t realize how the different vehicles provide lifetime income and tax benefits for themselves as well as testamentary tax benefits for their estates.
Moreover, I like to mention an old adage about wealth creation and preservation, “wealth that is aggregated and managed ultimately grows as opposed to wealth that is segregated and distributed which will eventually dissipate.” This speaks to not only the creation of private foundations, charitable lead and remainder trusts, but also to family limited partnerships with corresponding generation skipping transfer tax trust planning. How do you suppose that the Bush family has kept their Kennebunkport residence or the Kennedy’s have retained Hyannis Port property in the family for so many generations? While you may not own such famous properties, you may own a vacation residence, a lake cottage or even use your island retreat as one that you would want multiple generations to retain and enjoy.
When considering how to best gift or devise your vacation residence (or make transfers of closely held interests, securities or other properties through family limited partnerships), you should know that the IRS is changing the gift tax valuation rules, eliminating many discounts that have been useful for many years. You have only until year end to take advantage of today’s advantageous laws. At the first of 2017, these techniques will no longer be available. That is the subject of my next column, but if you are interested, you may go to my website for a free webinar on the subject found at www.sbshlaw.com/webinars.
The Sheppard Law Firm has its main in Fort Myers and also in Naples by appointment.
© 2017 Craig R. Hersch. Originally published in the Sanibel Island Sun.