Transferring wealth to the next generation

In a time when baby-boomers are looking to retire and plan for their future, there are quite a number of options to take when it comes to investing their money wisely. With the stock market a flutter, housing industry still failing, and brick-and-mortar commercial businesses either closing their doors and/or moving their storefronts to the digital age, it can be quite confusing when looking to invest your assets and money without completely losing it all to the market.

David Reinecke is a senior partner with Wisconsin-based Foley & Lardner LLP and is the chair of Foley & Lardner's nationwide Tax & Individual Planning Practice. He is also a member of the firm's Estates & Trusts and Tax & Employee Benefits Practices. With more than 30 years of industry experience, Reinecke counsels and represents individuals and businesses in matters relating to tax and estate planning, business succession planning, marital property planning, the creation and administration of trusts and probate administration.

LOOKING FORWARD WITH ESTATE PLANNING
Reinecke believes that the biggest trend related to estate planning is, as he calls it, having a wealth stewardship mindset. “Clients want to preserve their wealth for their heirs, children and grandchildren and spend most of their time with us dealing with issues to best preserve their assets,” he says. “There is a big population of people who are experiencing losses in their wealth and suddenly get into a preservation mindset. It explains why people swiftly move from risky equity portfolios to low-risk, conservative portfolios. And it’s the same with estate planning.”

“Baby boomers have witnessed at least one person in their life who has gone from riches to rags almost overnight without really doing anything wrong,” he continues. “Credit protection is on everyone’s mind while creditors are taking the wealth out of family pools.”

Because of the baby-boomer generation, there is a substantial amount of people who are moving toward or are already at their retirement age and they have accumulated wealth that they want to start planning for. “People think that our children won’t have it as good as we did, and with that notion, it makes us more materialistic when it comes to watching over their wealth for the following generation,” Reinecke says. “A common theme and mentality is that the next generation won’t be as fortunate in terms of lower taxes and economic prosperity.”

Today, Reinecke’s clients are putting more thought into their trusts and are including detailed descriptions as to how the assets can be deployed in the future. “People are spending time crafting their family wealth mission statements to articulate their values and want their wealth to perpetuate their descendant’s values,” he says. “Our clients want their heirs to experience the joys of higher education and spend a substantial amount of time in the workforce before they can receive any trust funds.”

PLANNING IN THE CURRENT MARKET
Reinecke believes that there’s no better time than now to deploy an estate planning wealth strategy when the nation is offering the lowest interest rates for trust recipients. “These sorts of trusts work better in times of low asset values and congress members are changing laws in the next couple of years that would eradicate some of the most effective techniques for moving wealth to other generations with larger taxation,” he says.

Since the real estate sector is still below average value and the stock market is low, it’s better to use estate planning strategies now than to force heirs into higher gift and state tax payments. If estate planning programs aren’t created now while tax rates are low, there may be a risk that people will pay more in taxes to move wealth down to the successive generations.

“The most expensive way to give away your wealth is to die with it,” he says. “Your heirs will pay at least 50 percent of what they’re gaining from your assets with estate taxes. The least expensive way to give away your wealth is to deploy one or more estate planning techniques, such as grantor retained annuity trusts, or GRATs, to transfer your wealth to later generations.”

“We’ll look at your assets, ask for a complete financial profile and make recommendations to discuss your financial objectives,” Reinecke says. “We’ll look for the most efficient ways to achieve your objectives, whether you’re transferring your funds to a spouse, family member, charitable donation, or if you want to protect your assets from creditors or from ending up in the wrong hands during a divorce.”