Financial, estate and tax planning should not be mutually exclusive activities. It is difficult to have a conversation in one of these areas without considerations of the others.
In 2019, there have been some hot topics that can touch on all three that are not part of most traditional planning. Below are four unrelated hot topics, where considerations for financial, estate and tax planning can be involved in each.
1. Gifting upstream.
Many estate planning situations increase considerations for other financial and tax planning. The estate tax exemption is now at $11.4 million per person, and the increase this year has planners considering options that were nearly unheard of in the past. The new estate tax exemption may change the mindset for tax planning. One example is gifting “upstream.” In certain situations, we now may give consideration to gifting appreciated assets “upstream” to parents. This approach may be used to take advantage of the parents’ available estate tax exemption and receive a step-up in basis at their death to help with tax planning and/or investment diversification strategies.
2. Planning considerations due to increased longevity.
When preparing a financial plan, life expectancy is always part of the discussion. It is often used as a factor to identify the time horizon for investments. As life expectancies increase, so then does the time horizon for investments. The Social Security Administration creates tables to help calculate how long one might live. For instance, a male born in 1954 that turns 65 in 2019 is expected to live to 84.3 years, another 19-plus years past retirement age. The tables are not only used for planning purposes but also to calculate required minimum distributions from IRAs.
A World Economic Forum white paper – titled, “We’ll Live to 100 – How Can We Afford It?” – predicts the life expectancy globally for someone born in 2007 is 103. Can you believe it? That is 38 years past what is now considered retirement age. While just a prediction, the current trends are for increased longevity. There are several planning considerations attached to this issue, including the fact you may need to live off your retirement savings longer and an inheritance will likely transfer later in life for a recipient. For those banking on an inheritance to support their lifestyle in retirement, they need to consider when that might be practical and prepare accordingly.
3. Opportunity Zone investments on the rise.
The Tax Cuts and Jobs Act of 2017 brought some sweeping changes. One of the provisions that has started to get some traction is the Invest in Opportunity Act. It provides real estate investors the ability to invest in “opportunity zones” in a way that provides the potential for significant tax savings if they can meet stringent requirements. This program provides economic benefits for the investment in communities, or zones, designated by each state as distressed. Both new real estate investments and exchanges can participate in this planning opportunity but with significant tax, financial and estate planning considerations.
4. Planning for assets individually.
A recent change in trust law moves Missouri from a delegated trust state to a directed trust state. Officials with Missouri Trust & Investment Co. in Springfield helped introduce the bill that ultimately changed this law. The new law basically allows for the assignment of management of an asset or block of assets to a directed trustee, bifurcating the responsibility and liability of the management of those assets from the rest of the estate. As planners get comfortable with this change, we are having more conversations about planning at the individual asset level. As an example, a client has a closely held business or unique property that would best be managed by someone with a special knowledge of that asset, but the remainder of the estate should be managed by a corporate trustee. In this situation, you could divide the management responsibilities and create a separate plan for each asset under one governing document.
Staying connected to professionals that are in tune with planning trends and law changes can help you take advantage of such unique opportunities.
Tim Parrish is president of Missouri Trust & Investment Co. He can be reached at email@example.com.