null

Blogs

Is uncertainty preventing you from planning?

Caroline McKay

February 03, 2021

Three ways to continue your planning this year.

This is the first blog in a four-part series that focuses on purposeful planning this year amidst some uncertainty.
Read part 2: Considering whether life insurance fits within your wealth plan
Read part 3: Flexible gifting for possible tax reform
Read part 4: Four planning ideas that can help further your wealth planning goals

2020 was a year of significant wealth transfer for many families due in large part to the uncertainty surrounding the election outcome and possibility of tax reform in 2021. With the “blue wave” in Washington materializing more as a ripple than a tidal wave, the uncertainty continues into 2021, at least for a time. Although the Democrats now control two branches of government, they do so by a razor-thin margin in the Senate, making it difficult to determine the likelihood that estate tax reform will be enacted.

Despite this uncertainty, planning can—and should—continue. Now is a good time to:

  1. Review your estate planning goals and documents to ensure alignment
  2. Review existing life insurance coverage and consider the need for additional insurance to address possible estate tax increases or liquidity needs
  3. Consider planning opportunities that incorporate additional flexibility should tax reform be enacted 

If you haven’t reviewed your estate planning goals recently, consider the following questions:

  • What does the future look like in terms of your personal cash needs?
  • How does support of family members factor into your overall wealth plan and spending goals?
  • Do you wish to leave a philanthropic legacy?
  • Is your family prepared to manage the family wealth upon your death? 
  • How much is too much to leave to your family?

 

Next, consider whether your existing planning documents address your intended goals. For example:

  • Are your lifetime needs addressed in documents, such as your living will, health care proxy or power of attorney? Have you specified how your assets should be passed upon your death, for example, through a will or a revocable trust?
  • Have you incorporated trusts or other planning strategies that can help protect the wealth your family will inherit, especially if you’re concerned about depleting assets too quickly or exposing the estate to creditors?
  • Are the individuals or professionals serving as appointed fiduciaries and successor fiduciaries (e.g., agents under powers of attorney, trustees, executors) in line with your wishes?
  • Are the beneficiary designations up to date on your retirement accounts, life insurance, annuities and other payable-on-death accounts?
  • Are your philanthropic goals supported in your documents?
  • If you own a business, do your estate planning documents address your succession intent or align with other business plans you may have made? 

 

Estate planning is a process that should evolve as your goals and priorities evolve. You should review your plan regularly to consider family changes (e.g., marriage, divorce, birth of a child or grandchild, death of a family member, etc.), starting or selling a business, retirement and any other change in circumstance. 

Life insurance review and planning opportunities

Although the likelihood of tax reform during the Biden administration is currently unknown, we do know that many provisions of the Tax Cuts and Jobs Act enacted in 2017 are set to expire at the end of 2025.  This includes a reduction of the estate, gift and generation-skipping transfer tax exemptions to $5 million, adjusted for inflation. This reduction would likely increase the number of families that will be exposed to, or see an increase in, estate tax liability. Because life insurance can play a significant role in providing immediate tax-free liquidity to pay estate taxes, now may be a good time to review existing life insurance coverage and to consider future needs in advance of these upcoming changes.  

Additionally, there are still numerous ways that clients can take advantage of current tax law while incorporating flexibility to address potential changes through tax reform. Some planning options include gifting to certain marital trusts, including disclaimer language in trusts and using formula gifts.    

 

Caroline McKay is a senior wealth strategist with CIBC Private Wealth’s Boston office, and has 13 years of industry experience. In this role, she works closely with relationship managers and clients to develop and implement estate and wealth transfer strategies as part of the firm’s integrated wealth management process.