Are You Ready for Advanced Planning?

Emotional Priorities

For many of his clients, Beau Shuler, an RIA in Spartanburg, South Carolina, finds that a charitable inclination to support social causes is often a high priority. "They want to be sure of three things–'I'm set to maintain my lifestyle; my children are set to the level I want to transfer assets to them; and I want charity to get money instead of the IRS.'"

A few years ago he had a client with an $8 million estate who faced a $3 million estate tax bill. He was able to cut the IRS bite to zero by using a charitable lead trust (CLT), which provided the charity with income during the client's life and his family with the assets at this death. A family limited partnership funded the CLT.

In a more recent case with a client whose assets were more than four times higher, he employed a charitable remainder trust (CRT), which provides the family with income during the client's life and the charity with the assets at his death. Given all of the moving parts required to accomplish a fairly complex set of objectives, the CRT required considerable fine-tuning. To make sure this trust worked the way the family intended, Shuler hired a consulting firm with special trust software to run various scenarios.

Defining Your Role

"We've had several unusual situations recently," notes Barry Taylor, of Bingham, Osborn & Scarborough, an independent wealth management firm in the San Francisco Bay area with about $1.7 billion in assets under management. One of the firm's clients with a $4 million investment portfolio wanted to sell his business to his employees using an Employee Stock Ownership Plan (ESOP).

The challenge for the client was moving from a highly concentrated holding in company stock to a more diversified position without triggering capital gains, which he wanted to defer, if not avoid completely. The solution was to borrow money against the ESOP, a unique option of this plan. The client would then buy a diversified portfolio with those funds. Implementing the solution wasn't that easy for Taylor's firm, however.

"We understood ESOPs," says Taylor, "but we don't do them for clients. They're a very specialized field. We never had the situation before where we took a client from an ESOP holding to a diversified portfolio." Some banks were eager to provide the loan, but they wanted a fee and only offered a limited range of mutual funds with high costs.

Taylor researched ESOPs and found a firm that specialized in them, which helped him understand different strategies so he could approach banks on the clients' behalf with the right knowledge.

Another of the firm's cases involved highly appreciated real estate that provided rental income for a client who wanted to dispose of the buildings. He also had a strong charitable intent, so the situation sounded like a classic application for a CRT. "Although we are familiar with these trusts and manage several," notes Taylor, "We don't create the trusts nor do the related tax analysis. So we've had to form a team including an attorney and accountant. Ultimately, we will also be working with the client's real estate broker and property manager."

Practice Implications

How many of your clients have assets that you don't manage or have advanced planning needs that you haven't addressed? If you didn't have a network of experts, how would you proceed? In an upcoming article, we'll examine how investment professionals can leverage a private wealth platform to solve their top clients' advanced planning needs and generate significant new revenues for their firm.