Financial planners can turn themselves into “multi-generational advisors” by successfully transferring the wealth of their high net worth clients from one generation to another.
“There are differences between estate planning and legacy planning,” explained Michael Babikian, vp of Transamerica Insurance and Investments Group, to advisors assembled at the Million Dollar Round Table annual meeting today in Toronto.
“Estate planning is transferring wealth in the most tax efficient manner, legacy planning incorporates family values,” Los Angeles-based Babikian says.
“As planners we make sure wealth transfers efficiently and effectively from generation one to two, but we don’t prepare the family for the money,” he says.
Babikian says that at the heart of legacy planning is the Irrevocable Life Insurance Trust (ILIT), which keeps life insurance outside the taxable estate. However, he is quick to point out that legacy planning is more than just about taxes. “Tax is not the major cause of money loss. A planner for a high-net worth client is in risk mitigation.”
While the ILIT is specific to U.S. tax law, Babikian points out that legacy planning not “country-centric”.
While many advisors have clients that are reluctant to bring of up the topic of estate planning, Babikian says that legacy planning will pique their interest. “How many people out there know their great-grandparents name, not many. How many people out there would if they got a cheque every month from them.”
As well, Babikian points to the fears that many high net worth clients have regarding their inheritors. “Clients fear their children are not going to live as well as they do, but they also fear that they will spoil them.”
For situations like these Babikian suggests advisors look into an incentive trust, which can play into a clients sense of family values.
He gave an example of a client who placed great value in education. “They matched dollar for dollar, (any of their benefactors) who pursued a job in academia.”
Babikian stresss that employing such tactics would help clients steer clear of being part of an alarming statistic that sees only 6% of wealth transferred from grandparents to their grandchildren’s generation.
“We have a strategic opportunity to change the estate planning cycle of money not going from generation one to three,” he concludes.
Legacy planning prepares families for wealth transfer
Advisors urged to embrace the next step in estate planning
- By: Neil Acharya
- June 24, 2008 June 24, 2008
- 16:30