Today’s executives often work long hours at great personal sacrifice to ensure the success of the businesses that they manage. The trade off for this dedication is often the ability to build a great deal of personal wealth, while enjoying the satisfaction of knowing that this wealth can ultimately be used to improve the lives of future generations.
In reality, a smooth transfer of wealth to one’s heirs is not a guarantee, says Lance Yanagihara, a relationship manager who leads a group of Japanese-American bankers at Union Bank’s Private Bank. Without a strategic wealth plan, many people may find that a smaller portion of their wealth will make it to their intended recipient.
Smart Business spoke with Yanagihara about taking steps to preserve wealth for the next generation and about some of the potential cultural nuances of effective wealth planning.
Is there a best time to address wealth planning?
Anytime someone has begun to amass any significant amount of wealth, it is important to begin the process of wealth planning. A lot of people have a living trust, and while that’s not a bad start, those with wealth really need to go beyond the simple mechanics of a trust and explore how else they might be able to transfer wealth while reducing estate tax at the same time.
Due to several current conditions, now is a particularly good time to embark on a wealth planning process. For one thing, if a client has assets that are currently depressed in value, such as real estate, it might be an advantageous time to pass those assets on to their heirs. Using a combination of depressed asset values, discounts for transfers of minority interests, and record low interest rates, wealth transfer and estate planning can be combined to save a great deal of money. Paying gift or estate taxes based on today’s discounted values, rather than waiting until a later date when some or all of that value may have been regained, makes for good planning. Additionally, the current gift tax rate of 35 percent is at a historic low making it a great time to employ selected strategies that can lower gift tax rates to as low as 26 percent.
Passing a residence or vacation home to children using a QPRT (qualified personal residence trust) works well with depressed real estate values. The use of GRAT (grantor retained annuity trust) or CLT (charitable lead trust) can enhance wealth transfer planning with the combination of low interest rates, low valuations and higher discounts, all of which are present today.
