Estate planning not always a taxing matter

Steve Gammill
Steve Gammill

The passage of the American Taxpayer Relief Act of 2012 was followed by a collective sigh of relief by people who weren’t extremely wealthy. As those families with less than $10 million in taxable assets wiped the sweat from their brow and heaved that sigh, they all echoed the same mindset: “Dodged that bullet, didn’t we? Guess we don’t ever need to worry about doing estate planning.”

ATRA 2012 increased the transfer tax exemption to $5.25 million ($5.34 million in 2014) per person. A couple can own in excess of $10 million in taxable assets at the time of death and remain exempt from federal estate and gift tax. There was jubilation — except, of course, for those traditionalist estate planning attorneys who all thought they were out of business.

At the same time, those of us who’ve focused our practices on teaching estate planning should be driven largely by non-tax motivations, even when the exemptions were relatively low and the need for tax planning greater, were gleeful. At last we had the opportunity to actually help clients achieve goals far more meaningful to them and their loved ones.

The succession of a family business absolutely must be planned for. Let’s take as an example the case of my hypothetical clients, Bill and Carole. If Bill dies while still operating the business and with no succession plan in place, what happens to that business? Bill has three sons and a daughter. Only one child wants to own and run the ranch, the only significant asset Bill and Carole own. If Bill dies first, Carole isn’t interested in running the ranch but hates the thought of moving since there’s no willing buyer in this time of recession.

Where will the assets go on Carole’s death? Equally to the children, you say. Okay, but one is a spendthrift, one has married wealth, a third is a loving free spirit that gives all she has to the poor all the time. With higher exemptions, more wealth will pass to these children. How do Bill and Carole wish to see them receive their inheritance?

What about third party creditors popping as a child receives the inheritance? Asset protection planning is more critical today than ever before. Divorces among children could destroy Bill’s and Carole’s hard-earned wealth as it passes to a child in a rocky marriage.

Disability is another issue that’s become far more important than it was just a few short decades ago. When a person is still alive but completely incapable of making his or her own decisions, how does he want his life to look? Does he care about where he’s living, who’s making his decisions and what his typical day looks like? How is he protecting his remaining money from both legitimate creditors and scam artists?

Bill’s and Carole’s retirement income, their IRA’s and 401k’s, could be eaten up by income tax long before the children’s needs are met, especially in times of increasing income tax levels. Successful planning in this arena is complex. Few financial planners and attorneys can do it well.

Since my practice has focused for decades on basic and complex planning driven by individual personalities and relationships, this conversation isn’t new. But thanks to ATRA 2012, I find it increasingly difficult to have these conversations with those who need it most. It’s important today to educate all the members of families so they can become equipped to deal with wealth succession — or, as I like to call it, wealth reception. There are many tools and strategies available in the form of trusts, such entities as limited liability companies and corporations, life insurance and more.

As I’ve always advocated, the plan must fit the clients and their families. For that to happen, clients, their families and planning professionals must spend quality time learning from each other. Often that can begin and end with story telling. Almost as frequently, other tools are employed. But the objective of learning from each other remains.

Much of the credit for this article goes to Owen Fiore, a family wealth consultant, and his recent article “Succession Planning 101 – A New and Better Era.” For more information, visit the website at