Estate planning: a key financial management strategy for blended families

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Estate planning helps blended families preserve generational wealth

A personal wealth strategy is more than simply managing financial portfolio objectives to achieve life goals. Comprehensive estate and trust planning — in conjunction with strategic financial management — help clients to better address their legacy goals. However, oftentimes, there are a lot of determining factors that come into play when planning for the future of your estate, depending on the individual and familial situation.

Achieving legacy and wealth preservation goals

In one instance, a 64-year-old physician came to SVB Private to discuss how he could leverage estate planning to achieve his legacy and wealth preservation goals. The physician, who was in his second marriage of 10 years, wanted to ensure his loved ones were cared for after his death. He also wanted to create a philanthropic component for his legacy.

He'd accumulated over $5 million in assets across pre- and post-tax retirement accounts and other investments. He jointly owned a $1.5 million home with his spouse, and maintained $1.0 million in other liquid assets as well. His spouse held $300,000 in her own IRA.

The physician had collaborated for years with a trusted advisor to manage his portfolio prudently — achieving financial goals and honoring lifestyle values and priorities. He was ready to take the next step by planning for an orderly disposition of his assets at his passing. The primary objective of planning would be to accommodate the unique aspects of transferring wealth to a blended family.

Preserving a life's work

The physician's assets were diverse, and they provided several opportunities to strengthen his plan for taking care of his family in retirement and after death.

He had been particularly savvy in terms of taking advantage of pre-tax retirement savings and employer contributions; the physician separated his funds as such:

  • $2,000,000 in a money purchase plan
  • $450,000 in a 403(b) plan
  • $100,000 in a 457(b) plan

The physician's employer was required to match his money purchase plan contributions, thus maximizing his wealth accumulation. Additionally, the retirement planning tools allow employees aged 50 and older to benefit from additional catch-up contributions. The 457(b) plan may also offer the ability to make double annual contributions; since he's within three years of normal retirement age, he could contribute up to $39,000 in 2020.

The physician understood that once he retired, he would need multiple sources of income to maintain his accustomed lifestyle, and provide in for his family after his passing. With that in mind, the physician also held:

  • $1,500,000 in a defined benefit plan
  • $600,000 in an after-tax plan
  • $500,000 in Tax Sheltered Annuity (should he become disabled before retirement)

To ensure that his objectives for after death financial support for his family, he worked closely with tax, financial and estate planning professionals. His objective: Protect the wealth he accumulates and have an estate plan that meets his objectives after his death.

Maintaining control over wealth

Because estate planning is an integral component of wealth management, clients may often believe that talking with heirs and even simply creating a will ensures that any last wishes are carried out after death. However, the physician understood that simply executing a will would not guarantee that his objectives of wealth preservation for the benefit of his family or necessarily scale to meet any changes in family circumstances or composition.

Concerns for the physician's wife's financial well-being was a priority within his estate plan as well. However, if the physician simply arranged to pass the wealth to her, what would happen if she and the children from his first marriage became estranged? Or, what if she remarried?

How having a trusted partner can help

As any number of financial and familial circumstances could change after the physician's death, a comprehensive trust and estate plan positions the physician to avoid misdirection and confusion surrounding his objectives. Trusts offer the privacy and expediency for beneficiaries that a will — which can be made public in the probate process — might not. Trusts may also include asset provisions such as spendthrift protection, prohibiting creditors for pursuing trust assets to satisfy the potential debts of a beneficiary. If the physician's wife remarried and then divorced, for example, the assets she has a beneficial interest in would still be held in trust, protected to provide for her or to pass to the physician's children.

Retirement assets also present special planning complexities. Therefore, the physician's team of advisors devised a strategy— employing trusts for asset control. Funds were set aside to supplement the physician's wife's own IRA holdings to provide for her for the rest of her life. He, then earmarked remaining funds for the three children from his prior marriage, and was still able to put $100,000 aside for charitable contributions.

A comprehensive personal wealth strategy integrates financial life goals with a desire to leave a legacy. Strategic estate planning helps to mitigate potential risks and threats to clients' last wishes, offering instructions to accommodate their dreams and obligations. When this plan is properly maintained throughout the client's lifetime, it should evolve with personal goals and life events.

The views expressed in the article are those of the author and/or person interviewed and do not necessarily reflect the views of Silicon Valley Bank, a division of First-Citizens Bank and First Citizens BancShares, Inc. The materials on this website are for informational purposes only, are subject to change and do not take into account your particular investment objective, financial situation or need. Since each client’s situation is unique, you should consult your financial advisor and/or tax planning professional before acting on any information provided herein.