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Wealth Transfers: You Shouldn't Take the Emotion Out of Your Decisions

We find ourselves in the middle of one of the greatest wealth transfer periods of all time. Billions of dollars are moving from older generations to the next or to charities at an unprecedented pace. Those with wealth must decide whether they want to make transfers, and if they do, they must decide how much, to whom, when and in what structure? Clients often say they want to take the emotion out of their decision. Not a good idea; emotion helps make important decisions.

Emotions Trigger Decisions
Science shows us that there are different parts of the brain that control emotion and logic. The rational side considers facts. It helps identify the various paths a successful transfer of wealth to your intended recipients can take. However, science also tells us that it is the emotional side of the brain that pulls the trigger on making a decision. When considering wealth transfers, particularly those that include exit planning, clients report feeling stress about pending changes, loss of control, and sometimes concerns about their own mortality. An effective wealth transfer plan should address these emotional considerations.

As you plan for the transfer of your wealth, take the time to consider your emotions. With your emotional input, an advisor can provide you with ideas that are economically effective and tax efficient. The advisor will help identify and implement your personal, charitable and business goals and objectives. Settle for nothing less when choosing your advisor team.

While you cannot forget all you know about economics and taxes, what your friends have done and what you read in the papers and periodicals, it is important to remember your plan is unique to you. Let your wisdom and emotions tell you what you would like to do with your wealth, accepting no limitations on what you could do. Share your hopes and dreams with your advisor team and let them go to work on creating a path to accomplish your vision.

The Advisor's Role
Once armed with the knowledge and vision of your wealth transfer plan, an advisor will likely do some, or all, of the following:

  • Analyze your cash flow needs to determine how much of your wealth is required for you to live the lifestyle you wish for as long as you live. Conservative assumptions will be used so you have assurance you will not outlive your wealth, even while making desired current wealth transfers.
  • Review your life insurance needs for liquidity or other needs and also determine if your existing policies are efficient and will still accomplish your objectives. Life insurance mortality underwriting changes; therefore, it is not uncommon to discover that you can exchange your current insurance for a new policy with more coverage for the same price or the same coverage for a lower premium. Also, as you age, life insurance premiums will likely increase, but life insurance needs may decrease, suggesting a rebalancing of coverage and premiums. It makes sense to explore these options every few years.
  • Revise your estate planning documents to take into account your changing life circumstances and the changing laws. The combined amount you can give during life and at death has gone up to $5,430,000 for 2015. That means that many existing estate plans that were formed to avoid estate taxes may no longer need to be structured that way. And, recent increases in income tax rates, along with the new surtaxes that are imposed on many taxpayers, make it very important that a plan to save estate taxes doesn't create an unfavorable income tax cost.

Let Your Emotions Be a Guide
The transfer of your wealth to your successors is one of the most important processes in your life, even if your estate is not large enough to pay estate tax. Start by determining what is right for you, what feels good when you think about it, and let your emotions be a guide. Do not let economics or taxes totally drive the show. Trust your advisor, let them assist you as you implement an economically effective and tax efficient plan that is built on a framework that meets your overall personal, charitable, and business goals.