In every industry, professionals look to thought leaders and seasoned veterans to help them understand how to succeed. It’s human nature to emulate and learn from others for our own growth. Finding a mentor that is fully invested in your success can help build your reputation, your business and your knowledge base.
As times change, though, it’s important to identify which ideas are still relevant, and which ones have served their purpose. Practices that were revolutionary only 10 years ago might be considered antiquated today.
As the SECURE Act was put into effect, it drastically changed
the way we help our clients plan for a secure retirement. Since that time, the
ramifications seem to keep cropping up. The message, though, remains the same.
We need to rethink how to best transfer wealth from one generation to the next.
And, for our clients, the best way is most likely an option that minimizes
Specifically, the SECURE Act is causing us to pay more attention to beneficiary designations, as some recent trends may not be as appropriate as they were before the Act. As I travel around the country and meet with different advisors, I see how easy it is to name a trust as the beneficiary and just allow the document to dictate the beneficiaries and their payouts. But post-SECURE Act, it’s the government who’s going to dictate those accelerated payouts. Now more than ever before, it’s important to keep an open mind to techniques and strategies we didn’t consider previously.
The SECURE Act forces us to look at alternatives that our mentors and parents never had to contend with when transferring assets to the next generation through our spouses.
The simplest and most common beneficiary designation is to
name the spouse. No surprise there. Almost every client wants to protect their
spouse when they pass away. And I’m not suggesting that we sway clients away
from naming their loved one as a beneficiary of our qualified accounts. But I
do believe this new legislation offers us the chance to have better, more
thoughtful conversations around income planning – and to begin those
conversations earlier in the lives of our clients.
If the ultimate goal is to protect the spouse and then pass
the remainder of the wealth to the next generation, creative planning is
necessary to minimize the tax impact. The SECURE Act changed the rules when it
comes to non-spouse beneficiaries, which requires them to take the money in 10
years or less.
Typically, children receive this inheritance at their peak
earning years. If we stick to traditional planning, the amount of tax to be
paid is accelerated and increased. But there are ways to help further stretch
the income to the next generation and not affect the spouse’s income
probabilities. How? It starts with some creative planning and an income
discussion before the death of the spouse.
Putting Creative Problem Solving into Play
First, think about naming two beneficiaries as the primary.
One is the spouse. The other is the child/children. If sufficient income
distributions are coming to the surviving spouse, the spouse can defer the tax
and distribution until their required minimum distributions. The children can
immediately defer the tax over 10 years with the new distribution rules. At the
death of the surviving spouse, the children will have another 10 years of
deferral. Therefore, you have essentially doubled the distributions for the
children on the first parent’s death. When you think of the massive tax
acceleration and increased tax rates that are in effect, this small tactic can
make a world of difference to the next generation.
In addition to providing a much-needed service to our clients and their children, we also make ourselves more valuable to the next generation. They are less likely to move to another advisor after their parents are gone if we’ve proven our ability to meet, and exceed, their expectations.
assets may be the most valuable asset-gathering strategy a financial
professional can deploy over the next 25 years. During that time, $30 trillion
of assets will likely transition from one generation to the next.
If we want to grow our business and revenue, it’s essential
to think about how to protect it during generational transitions.
Focusing on the next generation and guiding them through the impact of The SECURE Act is vital when it comes to retaining clients and keeping assets with your practice.
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