How Families are Approaching Intergenerational Wealth Transfer in an Election Year

With a pivotal presidential election less than two weeks away, it’s crucial for families to consider and plan accordingly for the potential financial implications of an administration change.

Excelsior’s founder, Brian Adams, recently hosted four intergenerational wealth experts in our ongoing webinar series to discuss how families should approach their finances during an election year. The panelists were Aaron Flinn of Waller, Lansden, Dortch & Davis, Chris White of Chronicle Partners, Josh Peifer of Ernst & Young, and William Crenshaw of 2nd Generation Capital, each of whom are working diligently to guide their clients through the uncertainties that this year has brought.

● Managing a variety of family personalities
● Conversations you should be having with your financial advisors
● Strategic planning and client education
● The importance of personal financial reflection
● Charitable donation options

What Advisors are Telling Their Clients

To get things started, Adams questioned Josh Peifer of Ernst & Young about how their organization is able to consistently serve their clients year by year, especially through so many notable elections. Peifer began by mentioning that each of their families takes a different approach to planning; while some want to prepare with any possible backup plan needed, others prefer to just “wait and see.” This year E&Y has developed a “Biden tax model,” providing a framework where families can plug in their 2019 tax numbers and see the effect that Democratic presidential nominee Joe Biden’s tax plan would have on them in 2020. Because taxes are often a family’s single biggest cash flow, this model has been a crucial component of their planning this year.

Next, the conversation shifted to Aaron Flinn of Waller, Lansden, Dortch, and Davis. When asked if they had seen an uptick in recent activity, Flinn confided that they’ve actually been planning for these potential administration changes since the end of 2019. It is common for their clients to set up trusts in states with no income tax, such as Tennessee, so they’ve been busy preparing for those changes.

Chris White of Chronicle Partners brought a reflective tone to the conversation. What has he been telling his clients this year? That 2020 is “a time to reevaluate your life, where you’re at, where you want to be, and your plans to get there.” The uncertainties of this year have reminded us all what truly matters in life, and it’s important for our finances to align with those personal conclusions. White also encouraged listeners that having trusted advisors to lead you towards your goals “will allow you to pass down your legacy generation after generation.”

Preparing for a Change in Administration

“A “once in a generation” election seems to happen every four years now, so it’s imperative that families systematize their decision making for any environment moving forward.”

At 2nd Generation Capital, William Crenshaw has seen most of his clients approaching this season in a similar response to the recession of ‘08 and ‘09, now strategically avoiding any losses comparable to what they may have suffered then. His response to a “blue wave” of higher taxes or a change in capital gains? Crenshaw eased fears by reminding listeners that this would only be momentary, eventually being “washed out by valuations in the long run.” Ultimately, planning for these situations is key and allows them to set their clients up for long term success.

The Important Conversations You Should be Having

In regards to some of these planning fundamentals, Flinn has remained busy in conversations around lifestyle choices, especially with his older clients. For example, these historically low interest rates make it “a great time to take out a loan” or make an exit and sale. These are some sensitive discussions.

Within these significant conversations, clients should seek trusted guidance on how to accomplish the goals that align with their values. White is a huge proponent of reflection, clear communication, and asking the hard questions. Similarly, Flinn knows that “the education of the client is crucial.”

When asked specifically how Chronicle Partners handles difficult conversations within families, White responded firmly that “you just have to have them, period.” He compared these complex families to onions with multiple layers that must be peeled back, which of course can be a challenge. But holding open, candid conversations earlier rather than later will always be more beneficial in the long run. In other words, “proper planning prevents poor performance.”

Options for Charitable Donations

To conclude the conversation, panelists discussed a few options for charitable donations.

• Charitable bunching: Flinn spoke on the bunching concept, which allows a family to make a large upfront charitable contribution that is spread out and received incrementally by the organization over time. This is useful when charitable deductions are limited.
• Charitable lead trust: According to Fidelity Charitable, this is “an irrevocable trust designed to provide financial support to one or more charities for a period of time, with the remaining assets eventually going to family members or other beneficiaries.”

Flinn described the charitable tax reductions that these options offer and even shared that if you give enough, you may not have to pay an estate tax. However, tax benefits often won’t be as great as expected, so “there needs to be a significant and true charitable intent behind the donations.”

White said it best: “We’ve been entrusted with much and must be good stewards of what we’ve been given, which takes intentional planning, important conversations, and valuable reflection.”

We would gladly recommend any of these panelists as trustworthy financial advisors and would encourage each of you to either begin or continue having these conversations, especially as we finish out the tumultuous year of 2020.