Managing Directors Colin Carter and Jill Shipley on Estate Planning | Dallas Business Journal

Why the ultra-wealthy are estate planning right now, Dallas experts say

Dallas Business Journal | By Catherine Leffert | Dec 7, 2020

Developing plans to transfer assets between generations is a crucial financial step for the ultra-wealthy, Dallas-based experts said.

Wealth management firms and advisors said especially as the country enters a new administration, people need to be cognizant of how and when to begin estate planning — transferring capital to their heirs.

“At the end of the day, it is the most important thing we do,” said Elaine Agather, chairman of the Dallas Region of JPMorgan Chase. “It is the one thing clients really don't talk about. It's a little bit boring, it means they're going to die, and it's planning. They'd rather buy a new home, or say, ‘How are we going to invest this money?’ but it is truly one of the most important things we do.”

In Dallas, this is an especially prevalent issue as many companies and people move to the city from higher tax jurisdictions, and an influx of wealth is coming into the area, said Bernstein Private Wealth Management’s Wealth Strategies Director Daniel Brunello.

The way to maximize asset transfer is by finding the first generation’s core capital, which is the necessary amount that they will need for their personal lifetime, said Bernstein's Managing Director Bowman Hallagan. After that core capital is assessed, assets — oftentimes higher-growth assets, like businesses — are placed into a vehicle to grow outside the estate.

Several factors, including the political shift, current low-interest rates and the COVID-19 pandemic have caused an increase in conversations around estate planning.

Potential policy change

Planning asset transfer generation to generation became even more of a hot-button issue around the election due to potential policy change, said Colin Carter, managing director of Tiedemann Advisors, and the advisors from Bernstein.

Currently, the estate tax exemption for singles is $11.18 million, and double for married couples, through 2025. However, President-elect Joe Biden’s current proposal would bring that number down by about 50 percent, to around $5 million per person — meaning the ultra-wealthy would need to pay estate taxes if they have more than that amount.

“That caused a lot of folks to look at their estate plan and to determine whether or not they had used lifetime exemption, and whether or not to create new entities to fully utilize their lifetime exemption, should it be cut in 2021,” Carter said. “We go through these periods around elections when people anticipate tax changes, and it causes a rush to their estate planning attorneys to make changes before year-end.”

Though it’s unclear if and when the tax exemption policy would be enacted, due to the lack of certainty in the U.S. Senate elections, Dallas wealth management experts said it’s best to plan ahead, in case that change begins in 2021.

Tiedemann had about $1.14 billion in assets under management in 2019, and was the 13th largest wealth management firm in Dallas, according to Business Journal research.

Low interest rates

The low interest rate is another factor that increases the initiative plan wealth transfer now, said the Bernstein advisors.

“Today’s low interest environment is one of the key reasons to (plan asset transfer) now,” Brunello said. “That's why it's so attractive right now. We expect low rates to continue for the immediate foreseeable future.”

Low interest rates facilitate a wealth transfer strategy that involves selling a business or part of a business to a trust for children or heirs, which the trust will pay back over a structured course of time at the applicable federal rate, Brunello said. In that way, the family will not only be growing capital in the trust through a business, but will also be paid back over time, similar to loaning that asset.

Impact of COVID-19

The COVID-19 pandemic has also slightly impacted the way people think about wealth transfer to younger generations, said Jill Shipley, managing director and head of family governance and education at Tiedemann.

Shipley said, and Brunello and Hallagan agreed, that the pandemic has forced many people to confront their mortality, and think about what will happen to their assets in the future. Shipley added that many adult children are pushing the idea with their wealthy parents.

“I think (COVID-19) has raised the reality that we're mortals, and we never exactly know what is ahead,” Shipley said. “I think the fear the health scare COVID has brought to our lives has really brought up the need to have conversations about what would happen.”

Generational conflict

Sometimes there is intergenerational disagreement in how assets should be allocated or invested, which doesn’t always come down to dollars and cents, said Shipley and Hallagan.

“When we talk about keeping a family united in harmony under the guiding values that's important to the first generation, that's when they really light up,” Hallagan said. “That's when they understand, ‘Hey, this is going to make a lasting impact on my family.’”

Shipley said this process involves deciding what the values and mission of a family are, then through ongoing communication and education, finding a way to transfer assets. This could entail impact investments in causes the family is passionate about, or trust funds.

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