Retirement Advisor | January 2017 | LifeHealthPro.com 22
boomers and Gen X — and will remain the largest cohort for
the next three decades.
The transfer of wealth to these younger generations must
be managed with care. Without an estate plan for the effective
transfer of wealth, your clients’ heirs may be subjected to a
number of challenges, such as probate, creditors, lawsuits,
judgments and legal fees — all of which can compromise the
value of the legacy that you and your client worked hard to
create. The wrong plans could trigger losses for your clients,
their heirs and your firm.
Wealth transfer is especially relevant for the growing number of high net worth households. According to the survey
“U.S. Trust Insights on Wealth and Worth,” published by
Bank of America, there are now nearly 2 million households
in the U.S. with investable assets of $3 million or more. And
while nearly six in 10 wealthy investors believe it is important
to leave a financial legacy to the next generation, this study
shows how the goal does not always translate into action, as
72 percent of high net worth investors surveyed do not have
a comprehensive estate plan.
Foundation for your firm’s future
As wealth changes hands, it can also have a tremendous impact
on the success of your firm. Recent studies across the industry
have revealed the massive challenge advisors face in retaining
clients’ heirs. According to a number of recent studies, between
65 percent to as much as 95 percent of heirs fire their spouses’
or parents’ advisor after receiving an inheritance. Heirs leave
because no one was thinking about them. It’s that simple.
In the face of these overwhelming odds, it is clear that advisors must take a more holistic — and more family-centric —
approach to financial planning in order to attract and retain
clients’ heirs. Wealth transfer and estate planning is one way
to engage the entire family, to successfully deepen the relationship with clients, as well as with their spouse and their children. every member has a vested interest. It is crucial to help
your client leave an enduring legacy for future generations. It
is crucial for heirs to retain more wealth in the future. And it is
crucial to help your firm secure a future generation of clients.
Innovative solutions for wealth transfer
An effective estate plan can create clarity and control around
the transfer of wealth and distribution of assets. It helps
clients decide how assets will be used to care for family members who are minors or disabled, determine which charitable
organizations will receive a share of assets, and who will be responsible for overseeing other decisions related to the estate.
In addition to these traditional “governance” issues, tax
A new take on funding trusts
planning and preservation of assets are becoming increasingly
important. To maximize outcomes for clients and their heirs,
As you and your clients navigate the challenging dynamics of
ongoing volatility, record low-yields and higher taxes, there is
a growing demand for innovative wealth transfer solutions —
simple, transparent and low cost. one solution adopted by more
RIAs and fee-based advisors is a new category of Investment-
only Variable Annuity (IoVA). Designed to maximize tax
deferral with lower costs, no commissions and a broad choice of
underlying funds, IoVAs can provide the competitive advantage,
whether for funding trusts, stretching assets or charitable giving.
Trusts are one of the most widely used solutions for wealth
transfer, especially for high net worth and ultra-high net
worth clients. Trusts can offer many advantages, helping to
reduce estate and gift taxes, avoid probate, and protect assets
from creditors and lawsuits. According to a 2015 survey by
Jefferson National, nearly three-fourths of advisors use trusts
as a vehicle for wealth transfer. And 47 percent of advisors say
that trusts are their primary wealth transfer vehicle, substantially outpacing all other options.
The survey also illustrates that the vast majority of advisors (97 percent) consider tax consequences when looking
at vehicles to use for wealth transfer, and 84 percent say it is
important or extremely important to use a vehicle for wealth
transfer that helps manage long-term tax consequences.
But tax rates on trust income are high — even at very low
thresholds. In 2016, the maximum tax rate of 39.6 percent
comes into effect at just $12,400 of trust income, compared
to $415,050 of income for an individual taxpayer.
one strategy that is becoming increasingly popular is
funding a trust through an IoVA. By using an IoVA, trustees
can control the timing of income distribution from the trust
— and control when taxes are paid on that income. IoVAs
can maximize tax-deferred growth during the accumulation
phase with a broad selection of funds and complete control
of assets. They are easily transferrable to a named set of
beneficiaries. And unlike traditional variable annuities, IoVAs
eliminate the layers of asset based fees, complex insurance
guarantees and commissions that make most traditional variable annuities unsuitable for use with trusts. With all of these
advantages, eight out of 10 advisors agree an IoVA would
better serve a client’s trust than a traditional variable annuity.
A simple solution for stretching assets
For clients who seek a less complex solution to stretch income
over their heir’s lifetime, many IoVAs offer a Non-qualified