Death and taxes – it is so cliché.
For as long as the estate tax has existed there has been debate and panic around the issue. There have been arguments as to whether or not we should have an estate tax, and panic as to how wealthy clients can avoid paying estate tax. Super wealthy clients living in states like New York and California stand to lose roughly 50% of their net worth when they die because of state and federal estate taxes.
That’s significant, for sure, and estate planning lawyers and other professionals have done a particularly good job at placing this issue front and center. That is probably because it is a problem that is often easily resolved (Gary Cohn, the director of National Economical Council was recently quoted as saying, “ only morons pay the estate tax” or “rich people with really bad tax planning”).
There are a number of estate tax planning strategies and other measures that shift wealth out of a client’s estate to avoid or mitigate estate taxes, and lawyers and clients alike can feel a sense of accomplishment by implementing a plan to avoid estate taxes. Of course, there is still the 800-pound gorilla in the room: the reality that there is a 90% chance that the client’s wealth will still be entirely squandered by the time their grandchildren are adults, and a 70% chance that it will be lost even sooner by the second generation.
Instead of focusing purely on estate taxes, clients need to work on implementing strategies to preserve their wealth (and legacies) for future generations. This requires a lot more than merely planning around estate taxes. The reason that wealth is traditionally made and lost in three generations is not because of estate taxes, or even the lack of an “estate plan.” The reason is that wealthy families fail to effectuate their plan.
An Estate Plan is Just the Beginning
The biggest mistake estate planning lawyers make is that they draft up an estate plan, including whatever trusts and other entities are part of that plan, have the client sign all of the documents and then send the client on their merry way.
The problem is that just when the lawyer and client think the estate planning is done and they have finished, the actual real work of effectuating that plan begins.
Drafting up an estate (or legacy) plan is really just creating the starting line. It is from that point that the family now has a structure through which to implement their intentions and goals. The carrying out of those intention and goals, however, is an ongoing process that requires the family to be continually intentional and purposeful, and it is up to the family’s lawyer and other advisors to lead the charge and make sure the family stays on track.
Sure, every estate plan should be as tax efficient as possible, and mitigating estate taxes will help maximize the family’s wealth. But estate taxes are just one issue among myriad others that fall under the umbrella of an estate/legacy plan, the work of which is never complete. To truly carry out the purpose and achieve the goals of an estate/legacy plan, wealth families need a trusted legal advisor and other professionals on their team who understand the bigger picture and can proactively work with the family on a continual basis.
DISCLAIMER: The information contained in this article is for informational purposes only and is not intended, and must not be taken, as legal advice on any particular set of facts or circumstances. You need to contact a lawyer licensed in your jurisdiction for advice on specific legal issues.