BY MIKE BANKA
Financial planning is essential to helping secure the future of you and your loved ones, yet it is easy to delay tackling it. Creating a customized financial plan helps define your individual investment goals, identify potential obstacles and allows you to adjust strategies as circumstances change. For something this important, you need advisors who are experts at minding every issue and detail. Lenox Advisors’ Jeffrey Feinstein and Schiff Hardin’s Brian Janowsky offer tips on commonly asked, family financial and estate planning questions.
What are some philanthropic recommendations you’re making to clients?
BJ: Charitable giving can be accomplished in many ways. While most people think of simply writing a check, giving appreciated stock owned for more than one year is a great idea. You receive a deduction equal to the stock’s value on the date of the gift, and you avoid capital gains tax on the sale in the future. You can integrate more sophisticated giving strategies into your estate plan, including charitable lead and remainder trusts, to provide benefits to your heirs and the charities you support.
JF: Another strategy to consider is establishing a donor advised fund, which allows for an immediate charitable deduction and flexibility for grants. We are also seeing a number of clients consider life insurance for their charitable goals, either by gifting an existing policy or establishing a new one. The charity has access to the cash value and the strategy gives the donor the opportunity to make a substantial legacy gift at a relatively low cost.
What are some ways families are preparing future generations for inheritance?
JF: One solution is to form a family limited partnership to consolidate investments and work together to make management decisions. This is a great opportunity for parents to share with their kids the skills needed to handle finances and will likely bestow family investment philosophy. From a learning perspective, the earlier the better. Teaching children about the importance of saving, budgeting, investing, philanthropy, etc., will help prepare them for the financial responsibility they will eventually inherit.
BJ: In forming your estate plan, it is important to consider the role of a trust in keeping your child’s finances on the straight and narrow. Leaving your child with too much money and no structure can be a recipe for disaster for those unprepared to handle the responsibility. By leaving assets in a trust, you can place the initial responsibility of managing the assets in the hands of a trustee that you appoint. A trustee is often a trusted family member, professional, trust company or bank. As your child matures and exhibits responsible behavior, he or she can be given a chance to participate in the management decisions of the trust along with the trustee.
What are some common estate planning and gifting strategies?
BJ: It is incredibly important for everyone, especially those with children, to have their basic estate planning in place. Basic estate planning documents include a will, power of attorney (for financial matters), health care proxy and living will (for healthcare decision making), and may also include revocable trusts. Common gifting strategies to reduce potential estate taxes include implementing an annual gifting program, funding education costs through the use of 529 plans, paying medical costs for family members or transferring growth on highly appreciating assets to heirs by using a grantor retained annuity trust.
JF: Work closely with your attorney, CPA and financial advisors on opportunities to efficiently gift assets out of your estate. There are annual and lifetime exemptions that are constantly changing. Life insurance strategies also can provide income protection, as well as liquidity for estate tax liabilities for high net worth families. A common planning technique involves a properly structured trust for life insurance, which may reduce both federal and state estate taxes.
What are some tips for selecting a financial advisor and estate planning attorney?
JF: Ask lots of questions and include your spouse or family in the decision. Personality, education, capabilities, track record and structure are all important. You also want to make sure that you don’t engage an advisor you could outgrow.
BJ: When selecting an attorney, make sure he or she exhibits strong competence in the trusts, estates and related tax planning. Many legal advisors can draft an estate plan, but if it is not their daily focus, important tax and planning opportunities can be left on the table. A good legal advisor should break down complicated legal issues into understandable terms, so you walk away well informed and confident in your decisions. Also important is picking an advisor who is able to handle your matters both today and in the future, as you experience growth and changes in your family, finances and career. Think of this as an opportunity to establish a long-term, trusted relationship instead of simply a one-time project.
Working with Lenox Advisors in NYC, Jeffrey builds customized financial solutions for high net worth individuals, their families and corporate clients. He can be reached at firstname.lastname@example.org at 212.536.8700.
An estate planning attorney, Brian is a member of the Private Clients, Trusts and Estates Group at Schiff Hardin, LLP, a national law firm with offices throughout the United States. Based in the New York office, Brian can be reached at email@example.com and 212.745.9534.