A Primer on Estate Planning: Be Prepared

Estate planning is one of those tasks everyone knows is important, staring the Grim Reaper in the face to figure out how to distribute assets isn’t fun.Estate planning is one of those tasks everyone knows is important, but few do eagerly. After all, staring the Grim Reaper in the face to figure out how to distribute assets isn’t fun.

However, postponing the decisions is a mistake.

Jeffrey Burr, an attorney specializing in estate planning, explained many of the threats that lurk. “Just being unprepared” tops the list, he said. He quickly ticked off some of the adverse effects awaiting the unprepared: probate, with its expense and loss of privacy; taxes that could have been avoided; unintended distribution of assets and warring heirs with the possibility of lawsuits.

The remedy may be uncomfortable but the advantages make a compelling case for moving sooner rather than later.

In conversations with a handful of estate planning experts across the state, a set of central principles emerged:

  • It takes a team to handle all the aspects of estate planning – lawyers and CPAs, investment advisors, bankers and insurance brokers;
  • Just like an NFL team, picking the right quarterback to lead the team is vital;
  • Size does matter;
  • And you get what you pay for.

The Basics

The fundamental documents of estate planning are the will and the health care proxy, often known as the living will.

On an elementary level, many of the the goals of estate planning can be accomplished with a trip to the lawyer’s office or perhaps by filling in the blanks on a do-it-yourself form.

The idea of a will is to make known the wishes regarding the division of assets after death. The art comes by making it accurately match an individual’s desires, survive legal challenges and not expose the estate to unnecessary costs.

The living will, in contrast, is designed to enable a designee to make healthcare decisions on behalf of someone whom is unable to do so. These can involve a number of wrinkles, most notably a durable power of attorney that can empower another person to handle the affairs of the incapacitated. The advantages here are obvious. No one wants to lie in a coma while relatives and public officials debate the next steps. Similarly, with an increase in dementia and Alzheimer’s disease, the possibility of becoming unable to cope increases.

A little preparation goes a long way. The more assets accrued, the more help needed.

Serious estate planning starts with a look in the mirror. Whether the first stop is with a lawyer, a CPA, a financial advisor or a private banker, the central question is, “What are you trying to accomplish?”

That’s not as easy as it sounds.

For some, the goal is transferring wealth to the next generation. For others, it’s guaranteeing a comfortable lifestyle in retirement. Yet others want to assure their legacy through philanthropy.

The tools at the estate planning team’s disposal are impressive. So are the challenges.

Tax Implications

The much-maligned “do-nothing’” Congress did something important for the estate planning industry and its clients. As part of the fiscal cliff settlement last winter, Congress established a threshold of $5.25 million per person before the dreaded federal inheritance tax kicks in.

After years of uncertainty, having the number written into law is a refreshing change, said Russell Price, president of Nevada State Bank’s Private Bank. He recalled scrambling at the end of too many years to make sure clients weren’t headed for an unpleasant surprise if the Grim Reaper arrived before tax changes were implemented.

The new relatively high threshold – without a deal, the number would have been set at $1 million – gives estate planners a lot of wiggle room in making sure even their high-net-worth clients don’t include Uncle Sam among their beneficiaries. Nationally, the Tax Policy Center estimates just 3,800 estates will pay inheritance tax in 2013.

The new rules include an annual adjustment for inflation and boost the limit on untaxed gifts to $14,000 per person.

But neither estate planners nor their clients should think the matter is settled for the long haul, advised Brian Loy, founder and president of Sage Financial Advisors in Reno. Debt and deficit concerns will send Congress back in search of new revenue soon, he said, so smart planners are already thinking about the possible impacts of a major tax overhaul.

Shielding Assets

For many high-earning professionals — doctors, lawyers or home builders for example – one of the most visible threats to their estates is the client lawsuit. Whether the case has merit or not, a lawsuit can play havoc with the timely settlement of an estate. And, worst case, a judgment can gut the estate.

For years, the solution was establishing an offshore trust that largely put assets beyond the arm of the court system. These trusts didn’t offer a tax advantage but were used as a defensive strategy. To press a claim, creditors or litigants would have to sue in the offshore jurisdiction, a difficult and costly proposition.

That was before Nevada moved into the vanguard of estate-friendly jurisdictions with the passage in 1999 of the Nevada Spendthrift Trust. This form of trust has become a staple of the legal arsenal, attorney Burr confirmed.

In essence, a spendthrift trust puts assets beyond the reach of creditors – after a two-year waiting period – and establishes a trustee to manage and distribute the funds in the trust. That trustee can even be the person who established the trust, although a co-trustee’s approval would be required.

It’s a great tool, agreed Reed Radosevich at Northern Trust Bank in Summerlin. He termed Nevada’s asset protection trust structure as “very liberal” and said Nevada is now alongside Delaware as the most estate-friendly states in the nation.

Robert Martin, regional president of BNY Mellon Wealth Management in Henderson, said he’s seeing more and more Californians taking steps to qualify for a Nevada Spendthrift Trust. Recently, he outlined the benefits of the Nevada law as a strategy available to clients at other BNY Mellon offices around the country.

The traditional standard of residency – property ownership, voter registration, sleeping in the state six months and a day – seems under pressure from creative lawyers.

Team Approach

A good estate lawyer is a vital part of the team. However, estate planning extends well beyond structuring wills, trusts and other legal fortifications. If an individual needs extend to wealth management, cash flow help, business succession planning or an exit strategy, then it’s time to build a team.

Radosevich said his goal is to be a “quarterback for clients,” pulling from Northern Trust’s arsenal. The bank can do all aspects of estate planning, stopping only at the actual drafting of legal documents. For that, they partner with local legal experts.

It’s an approach that’s allowed Northern Trust to grow organically for more than a century, Radosevich explained. Its arrival in Summerlin 13 years ago was a reflection of the growth and maturity of Las Vegas and the market’s need for high-end services.

Price of Nevada State Bank’s Private Bank entertains a similar clientele and explained his role with the same “quarterback” metaphor. To qualify for services at Nevada State Bank’s Private Bank, a person needs to have a net worth above $2 million, liquid assets of $500,000 and income of $300,000, Price explained.

The Private Bank is a relatively new addition for Nevada State Bank, which bills itself as the state’s oldest community bank. Started four and a half years ago, the Private Bank is a reflection of Las Vegas’ growth and maturity. The small business owners who helped grow Nevada State Bank have reached a point where they need special services in managing their wealth, planning their estates and with increasing frequency creating business exit strategies, Price said.

Martin heads BNY Mellon’s wealth management operation. BNY Mellon, an international giant that includes Dreyfus, has $1.4 trillion under management. It bought into the Las Vegas market nine years ago when it acquired Paragon Asset Management.

Martin balked at the title estate planner, saying BNY Mellon’s specialty is investment management. The company works with clients with at least $2 million in liquid assets. But he acknowledges the investment advice often leads to referring clients to a small pool of trusted lawyers, CPAs and insurers who can shape the documents and coverages that form an estate plan.

When he came aboard, “We took on a mission to be something special.” Having an infrastructure that includes a triple-A rated bank and a widely known brand of mutual funds is a nice start.

His staff of 14 includes six portfolio managers who each handle about 50 clients. “We take really good care of our existing clients,” he explained. And that’s important in an industry built on trust relationships.

In Reno, Loy operates a much smaller shop at Sage Financial Advisors but similar principles apply. He provides investment management advice to about 150 clients, mostly small business owners who have at least $750,000 to invest. He relies on a team of outside experts to provide specialized services -- from lawyers to insurance brokers, bankers to investment brokers.

“It’s a world of ideas,” Loy explained and his job is “puzzle solving.” Among the challenges are protecting clients from themselves and helping them avoid the big mistake.

In a complex world where so many are facing economic challenges, the unexpected has become the expected. He said he works with many cases where an illness in the family or an unemployed child moving back home has upset the economic planning.

The key is building a plan based on what is known while building in flexibility to adjust to the unexpected.

Choosing an Advisor

Experts agree, those shopping for an estate planner should look for a good fit of values, experience, expertise and capacity.

“Know the person you’ll be dealing with and that you’ll be dealing with that person every time,” Loy advised.

That alphabet soup at the end of an advisor’s name also matters. Look for the CFP designation – Certified Financial Planner.

Loy suggested visiting the CFP website for information on what to expect when meeting an estate planner and some questions to ask.

Las Vegas is a small town, Martin explained, and reputations matter. Good reputations are built “by doing the right thing, over and over.”

Estate planning quarterbacks build their teams by selecting those with strong reputations. Consumers would do well to follow the same logic in seeking referrals to the best quarterbacks, then choosing the one that gives them the greatest sense of trust.