Panera Bread, the national fast casual food chain, has an interesting and flexible menu option called “You Pick Two.” This option allows customers to combine any two items with a variety of soups, sandwiches and salads for their food selection.
Did you know that the Internal Revenue Service offers similar “choose two” options for your estate-planning clients? While the IRS menu sounds pretty limited (big surprise), it’s a lot more appealing than you might think.
I know what you’re thinking: “Randy, what are you talking about?” Simply put, while helping their estate in family planning, you can select their beneficiaries from any of the three columns:
- family.
- Government (ie taxes).
- Donation.
Advise clients of options
What I find fascinating and surprising is that most affluent families (and often their mentors) are not aware that they have options. If you step on the counter and don’t know what you want, the IRS tells you what you have. It collects taxes from you instead of letting that money go to charitable organizations that are most important to the family. no soup for you,
By the way, this situation has existed for many years, and there is no evidence that it is changing significantly. The most common reason for this is that uninformed high-net-worth (HNW) families are often working with uninformed counselors. The longer the position, the more effective the taxpayer is, and the less likely your clients are to take advantage of the IRS’s more attractive options.
Recently, I was working with a consultant and one of his HNW clients. Both husband and wife were active in local charitable boards. He also added a provision to his current plan directing a small amount of his assets to go to charity. But his overall plan still left several million dollars in the grip of estate taxes. The solution, according to his former advisor, was to buy insurance only “to pay taxes”. Ouch!
This short-sightedness is more common than you might imagine. After spending some time with the couple, I realized how important philanthropy was to them. As we delved deeper, I told them there was a way to use advanced trusts to eliminate their taxes altogether and direct that savings toward meeting their philanthropic goals. The results were eye-opening for the couple, for the charity they supported, and for their three children as well. Win, win, win.
Why Inheritance Fails
Speaking of the next generation, many wealth holders fear what will happen to their children (and grandchildren) if they transfer significant money to them before they are ready for the responsibility that comes with it. In the back of their minds, they are wondering: Will their motivation to work hard and lead productive lives unexpectedly derail? Will they ruin it? Will it undermine their sense of purpose and service?
Too often, I see that HNW families and their mentors lack a system for generation-to-generation communication, mentorship, transfer of leadership, and decision-making. No one becomes a champion golfer without lessons. Why do we think our kids can handle millions of dollars without instruction and guidance? These conversations are extremely important, but often never happen. Why do you think so many successions fail?
As Warren Buffett likes to say: “Leave the kids so much that they can do nothing, but not enough that they can’t do anything.”
Wealthy families often tell me how worried they are about “ruining” their heirs with too much money. But they have never taken steps to prepare their children for the windfall gains that will inevitably come their way. In most cases, “planning” includes a maximum of $25 million allowed by law before being taxed to their heirs. In fact, most plans call for children to take distributions when they hit a certain age (25, 30, 35 are most common) without any evidence that they are mature enough to handle the money responsibly.
Another frequent lament I hear is: “I made my money on my own. I don’t want to harm my children by giving them what I didn’t have.” When I hear that concern raised, I think to myself: “What will you do with all that money? spend it? this is impossible. Donate it? If so, why don’t I see it in your planning documents? Lost it all? It’s unreal.”
Does this sound like one of your clients?
Why not spend some time helping your clients communicate with their children about the importance of maintaining family values ​​and showing gratitude for the important financial assets they will inherit.
Parents are so badly equipped to play this role that they even think of not leaving a dime to their ungrateful children. Instead, they should say: “I’m out of my depth here. I have no one to turn to for help. I don’t want my family to be crushed by this future money transfer.”
Randy A Fox, CFP, AEP  Is Tea founder of Two Hawks Consulting LLC, He is a nationally known wealth strategist, philanthropic wealth planner, educator and speaker.
