How Many Millions of Dollars Are You Going to Cost Your Best Clients and Their Families?

This post was authored by Salvatore M. Capizzi, Dunham's Chief Sales & Marketing Officer. If you have questions concerning today's topic, please call us at (858) 964 - 0500. Hold us to higher standards.

“Your best client is another financial advisor’s best prospect.”

This adage of our glorious profession can help either net you new high-net-worth clients or result in a few wealthy clients peeling off your customer list to find a home with your competitor. The foot race that determines where wealthy clients go will be decided by who is the first to start serious discussions about Washington’s new estate tax proposals.

Senator Bernie Sanders has introduced a bill he calls the “For the 99.5 Percent Act.” This bill will include a change in the estate tax exemption that would reduce it from $11.7 million to $3.5 million. To make matters worse, the tax assessed on the excess would be:

• 45% of the value of an estate between $3.5 million and $10 million
• 50% of the value of an estate between $10 million and $50 million
• 55% of the value of an estate between $50 million and $1 billion
• 65% of the value of an estate in excess of $1 billion

What Does the For the 99.5 Percent Act Mean For Your Clients?

Said differently, a client passing away with a $12 million estate can pencil in the federal government as an almost $4 million heir to their estate. A client with a $20 million estate is looking at giving nearly $8 million of what they worked their lifetime to accumulate to the federal government.

I am not a mathematician, but does $3.5 million seem to anyone reading this blog as the top 0.50% of the wealthy in this country?

This is why you must start discussing your client’s estate planning now. If you do not, your competitor will because there may be other significant changes:

• The lifetime gift exclusion would drop from the current $11.7 million to $1 million
• Eliminating valuation discounts for non-business assets, such as family-owned limited liability companies funded with investment assets
• Stating that a trust funded by a grantor is considered owned by the grantor for both income and estate tax purposes -- a change that would eliminate the Defective Grantor Trusts
• A change of concern to trust companies in dynastic states (like Dunham Trust Company) as the law would require trusts to terminate for estate tax purposes after 50 years
• Restrictions on funding of new GRATs (Grantor Retained Annuity Trusts) by imposing a minimum term of 10 years and minimum gifts upon funding
• Changing the annual gifting exemption from $15,000 a year to $10,000 a year and adding a cumulative yearly limitation per donor of two times the annual limit – additional restrictions would be in place when making gifts to trusts, family entities, or other entities where the assets can’t be immediately liquidated

It is Time to Start Worrying about the Estate Tax

These discussions apply even if your client is not extraordinarily wealthy and applies in a mammoth way if they are.

Fill out this form, and a member of the Dunham sales team will contact you to discuss possible estate tax planning strategies to better navigate the 99.5 Percent Act.

Do not wait.

Once we approach the end of the year, the backlog for most attorneys will be such that they may not be able to speak to you or your client until 2022. By then, not only will it be too late, but it may have cost your client’s family millions of dollars.

Dunham: World-Class Trust and Investment Firm

Dunham and Dunham Trust Company are here to help. Call us at (858) 964–0500 or fill out our online contact form to discuss a particular client or clients.