What Advisors Need to Know About Estate Planning

Adding “alpha” to client relationships may be easier through effective estate and tax planning than with investment manager selection or portfolio construction. Potential changes to the tax code illustrate many of those planning opportunities.

Yulissa Zulaica, an estate planning specialist, spoke on June 1 at the FPA NorCal Conference, which was held virtually. She is a partner at the law firm of Johnston, Kinney and Zulaica, LLP.

Zulaica identified many of the key areas where advisors can add value through estate planning. Use this article as such – a list of opportunities worth investigating – and consult an attorney like Zulaica for specific guidance. Advisors should work in a “trio” that includes an estate planning attorney and accountant to provide clients with the best outcomes.

Zulaica began by stressing that each relationship is unique, and advisors must understand their clients’ goals and preferences. She gave an example of using charitable trusts, which she said are effective but only for certain clients. If a client is not charitably inclined or has a legacy that is not intended for a charity, then a charitable remainder trust (CRT) is not appropriate.

She has a client with several hundred million dollars, and they want to protect it from irresponsible children. That requires carefully drafted trusts and other arrangements.

The gift and estate tax exemption is $11.7 million, adjusted for inflation, but that is scheduled to sunset in 2026 to approximately $6 million unless there is a change. The maximum tax rate is 40%, and some states impose additional taxes. Bernie Sanders’ proposed “99.5%” act would change the exemption to $3.5 million and GRATs, a popular estate planning strategy, would have a minimum of 10 years. GRATs, she said, have been attacked as a tool that benefits primarily the wealthy and she speculated that some legislation restricting them will be passed. There are also proposed changes to life insurance plans that are used for gifting purposes, and clients “probably need to do some gifting now,” she said.

President Biden has proposed getting rid of the step-up in basis at death, which she said would be a “big change” for many clients’ estate plans. Another bill would impose capital gains taxes on sale of assets that are inherited.