David Dahl, Mary Delman, Philip Hurst and Megan F. Nogle Share Insights on the Wealth Management and Estate Planning Landscape in 2023

The Wealth Management & Estate Planning panel is produced by the L.A. Times B2B Publishing team in conjunction with Cathay Bank; Citrin Cooperman; Greenberg Glusker LLP; and Whittier Trust.

Further developments in the fintech market have helped to open up new private wealth management products and services to a broader array of people and families. This, along with the post-pandemic realization by many that they want to better manage their finances and make plans for their estates should they be faced with a new crisis, is an indicator of just how important the wealth management process has become.

To take a closer look at the latest trends, best practices and concerns across the wealth management landscape, we have turned to four of the region’s leading experts – in wealth management, private banking, accounting, and law – who graciously weighed in for a discussion and shared insights on the state of wealth management in 2023.

Q: How would you describe the current investment environment in 2023 and what do you consider to be the best investment approach, in general terms?

Philip Hurst, SVP, Director of Wealth Management & Premier Banking, Cathay Bank: Today’s investment environment is a bit like a tug-of-war between inflation expectations and the Fed’s response. The Fed would like to see inflation settle at the 2% to 3% range but its actions to help make that happen cause the economy to slow and put it at risk. We have to hope for a soft landing but nine out of 10 times that doesn’t happen. Based on all this, caution is the keyword when it comes to the best investment approach.

Q: Are there legislative changes pertaining to taxes that our readers should be aware of that could impact their families?

Mary Delman, Partner, Citrin Cooperman: In 2017, the lifetime estate and gift tax exemption and the generation-skipping transfer tax (GST) exemption were increased from $5 million to $10 million, indexed for inflation. It is currently $12.92 million. The increased exemption amount is planned to sunset in 2026. 2026 is quickly approaching and it is important to plan for the use of the increased exemption. In addition, there are new rules for making portability elections. Portability allows the surviving spouse to use the deceased spouse’s unused lifetime exemption. Estate tax returns being filed solely to make a portability election now have an extended deadline which increased from two years to five years from the date of death. This will decrease the amount of portability elections missed and simplify the process for late elections. Finally, the IRS has confirmed that there is no step-up in basis at death for assets held in an irrevocable grantor trust.

Megan F. Nogle, Counsel, Private Client Services, Greenberg Glusker LLP: With certain exceptions, transfers made during an individual’s lifetime will be subject to gift tax, and the value of his or her estate at death will be subject to estate tax. The federal credit against gift and estate tax allows an individual to transfer to his or her beneficiaries, cumulatively during lifetime or at death, assets up to the credit amount without paying any estate or gift tax. Once the credit has been exceeded, gift tax (for transfers during lifetime that do not qualify for a gift tax exception) or estate tax (for transfers at death other than to a spouse or charity) will be imposed at a 40% tax rate. Under the “Tax Cuts and Jobs Act,” effective January 1, 2018, the credit was increased to $10 million, adjusted for changes in the cost of living. The credit amount is currently $12.92 million in 2023. Absent further legislation, the credit will be reduced by 50% on January 1, 2026.

David Dahl, President and Chief Executive Officer, Whittier Trust Company and Whittier Holdings: Rather than focus on any one specific piece of legislation, readers should embrace the reality that there will always be new taxes or statutes that impact how wealth is managed – which is why effective wealth management is proactive, not reactive. The right financial advisors understand this and are constantly working to assess your full financial portfolio, even if they don’t manage it all, to identify the strategies that preserve wealth and reduce liabilities no matter what new laws are passed.

Q: What actions do you think clients can take given these potential legislative changes?

Nogle: Individuals who wish to take advantage of the higher credit amount before it is reduced by 50% on January 1, 2026 (or earlier, if Congress enacts legislation reducing the credit amount before that date) should speak with their advisors about potential lifetime gifting strategies. Essentially, this is a “use it or lose it” opportunity to tax-efficiently transfer meaningful wealth to the next generation. Lifetime gifting may make sense for those individuals who are in a position to make significant gifts in excess of the anticipated post-2025 reduced credit amount. The IRS has clarified that individuals taking advantage of the higher credit amount through true lifetime gifts will not be adversely impacted after 2025 (commonly referred to as the “anti-clawback regulations”).

Delman: Clients should consider making gifts to take advantage of the increased lifetime exemption amount of $12.92 million before it reverts back to $5 million, indexed for inflation. This is basically a use it or lose it situation. If clients are not comfortable making large outright gifts, there are alternative gifting methods to consider. For example, clients can make gifts to irrevocable trusts such as Spousal Lifetime Access Trusts (SLATs). If drafted correctly, the assets will be removed from their estate but their spouse with still have access to the assets should they be needed down the road. Similarly, clients can also take advantage of the increased lifetime exemption by filing federal estate tax returns to make a portability election, even if the estate is not taxable. This allows the surviving spouse to take advantage of the remaining exemption held by the deceased spouse.

Q: What should parents consider when determining how to involve their children in intergenerational wealth-planning discussions? What kind of information is good to share and at what age?

Nogle: It is important for families to have open discussions about the nature and value of their estates, their hopes and desires, and the family values they wish to preserve as wealth transfers from generation to generation. Parents should consider educating their children about financial planning and wealth responsibility, providing their children with hands-on opportunities to manage a bank or investment account, and introducing their children to trusted advisors. I recognize, however, that every family is different. Parents are in the best position to determine when a child has reached an appropriate age and level of maturity to become part of these discussions.

Dahl: Parents should approach every wealth management conversation differently and at the appropriate time as each child is unique, has their own aspirations and interests in life, and some might not be ready to talk about family wealth until they reach a certain age – not all roses bloom at the same time. I recommend starting these conversations first by educating your children about your family values and legacy – as these discussions are foundational to helping children build a productive perspective on life & wealth and view it as a tool for achieving long-term goals. If you don’t feel comfortable speaking about wealth management with your children, consider having an advisor start these conversations. Let the advisor educate your child on the value of a dollar, the responsibility of being a steward of wealth, and appreciation for what they have. The right advisor can be critical in helping families bridge divides between the priorities of different generations and ensure that wealth management supports, and doesn’t harm, family unity.

Hurst: It’s important to involve kids in wealth planning discussions so they can appreciate the efforts being made to ensure family wealth is maintained when it passes to them, especially since historically a lot of wealth is lost during that transition. They should be made aware of the hard work involved to amass the wealth and understand the plans being put in place for their benefit. As for when that should happen, that really depends on the parents’ assessment of their kids’ capability, i.e., their level of maturity.

Q: Should most of your clients consider wealth transfer planning strategies, to individuals or charities, during lifetime vs. waiting until death? If so, what types of techniques could be used for the clients to maintain flexibility?

Dahl: Wealth management is not static. Change is inevitable and so should wealth transfer strategies. Goals and life circumstances change, and the legal and tax environment evolves, underscoring the critical importance of implementing a near and longterm approach to wealth transfer planning. It all starts with setting goals and objectives for the long and short term. Once goals are set, you are better positioned to adjust your wealth management and transfer strategy as situations arise. If you wait until you pass on to solidify these plans, not only will you miss out on the joy experienced through giving, but you will have undercut your ability to ensure your wealth services, the goals, and purposes for which it was built.

Q: How can clients protect their assets from threats such as creditors and bankruptcy and/or future estate taxes after their death?

Hurst: An Irrevocable Life Insurance Trust owns insurance on an individual’s life, removing the insurance proceeds from the insured’s estate for estate tax purposes. A Crummey Trust, also an irrevocable trust, allows an individual to make gifts to the trust and qualify them for the annual gift tax exclusion. These are simple ways to shelter funds from estate taxes that can accomplish those objectives.

Q: How does a family best plan and evaluate long-term philanthropic decisions and other charitable activities?

Nogle: A family should work with its advisors to determine a long-term philanthropic plan that best meets its charitable impact goals and aligns with its overall wealth management strategy. Direct giving to a charitable organization is a common way that families contribute to philanthropic causes. However, some families may want to implement a more intricate charitable plan that leverages one or more charitable giving vehicles. For example, a family who wishes to engage in significant lifetime giving may consider establishing a private foundation or a donor-advised fund, each having its own advantages and disadvantages depending on the family’s goals. Or a family may want to explore the benefits of a charitable trust, such as a charitable remainder trust or charitable lead trust, both of which can provide benefits to charity and individual beneficiaries in different ways depending on the structure of the trust. If a family is not prepared to make a large lifetime charitable contribution, it might consider leaving a charitable legacy by naming a charity as a beneficiary of retirement assets or as a beneficiary under estate planning documents.

Q: What tools, products and processes can assist advisors in helping clients be more tax efficient while growing wealth and still maintaining cash flow needs?

Hurst: Financial planning is an important tool to help clients get to their desired outcome, and tax mitigation strategies should be part of every plan. A healthy portfolio might include tax-deferred products, tax-free income, trusts, real estate and oil and gas investments – things that receive favorable tax treatment.

Dahl: Today, the wealth management industry is saturated with computerized solutions that categorize clients into “models” – meaning “because you own X number of stocks or have X wealth, then you fall into Model B.” These solutions aren’t customized, and if everyone is working from the same playbook, then individuals aren’t maximizing their benefits. Model-driven portfolios do not take into consideration the unique income, tax, liquidity, and time horizon needs of clients. After tax and after fee, wealth management performance is the driver of wealth enhancement. Wealth management should be customized and holistic. Far too often, advisors are only providing guidance based on the small portion of wealth they manage. This can leave clients susceptible to guidance made without the full picture. I am fortunate to lead a firm where each of our advisors averages 25 family relationships, which gives them the opportunity to be proactive instead of reactive. This gives us the ability to dive deep into the balance sheet and invest time in intimately knowing our clients, their families, their challenges, and their dreams to develop strategies to protect and grow their wealth.

Q: What are the pros and cons of a living trust?

Delman: Living trusts allow you to have control over the trust assets and decide how trust assets are managed and distributed during your lifetime and at death. The pros of a living trust are the avoidance of probate, an often long and expensive process, and the ability to keep trust terms and beneficiary information private, unlike a will which is a public document. Living trusts are revocable so there is a large amount of flexibility with the trust assets. The trust can be terminated at any time and trust terms can be changed and assets can be removed from the trust. The cons of a living trust are that the assets in the trust will be part of your estate when you die (this may also be a pro if a step-up in basis is desired) and this trust does not always provide asset protection. There is also an added expense to creating a trust and retitling assets.

Q: What should a consumer look for when selecting an advisor to help with wealth management and/or estate planning?

Dahl: Transparency, honesty, and the ability to view your wealth holistically are paramount. Today, we often see advisors who are focused on making their jobs easier, not their clients’ legacy stronger. Too many people are engaging with advisors who aren’t transparent about fees, models, and fiduciary services and who are giving guidance from a biased and limited perspective. Ask your advisor what products they sell and what the embedded fees are. If they tell you any, they are likely not incentivized by your and your family’s financial success above all else. Look for a company that has the values that you are looking for, that will be a long-term value-added partner, that has focused on serving families for decades with an enviable track record of service.

Q: When should individuals make updates to an estate plan?

Nogle: Estate plans should evolve over time – just like we do. When certain events occur, such as a significant change in net worth, a change in marital status, the birth or adoption of a child, a beneficiary’s death, or a move to another state, an individual should consider the impact on his or her estate plan and determine whether modifications may be appropriate. Relationships with the fiduciaries named in an estate plan might change and those individuals may no longer be the right fit for carrying out the estate plan. An estate plan is also affected by hundreds of provisions of state and federal law, some of which are changed every year. Accordingly, it is recommended that an individual review his or her estate plan every three to five years to confirm it continues to reflect his or her wishes and comports with current law.

Delman: Estate plans should be reviewed frequently and updated when necessary. Some of the most common reasons to update an estate plan are the birth of a new family member, the death of a family member, material asset value increase or decrease, educational funding, divorce, business succession planning, and even age. Since the Tax Cuts and Jobs Act of 2017, we have seen increased estate planning resulting from the increase in the lifetime exemption from $5 million to $10 million, indexed for inflation. The exemption is currently $12.92 million and is set to expire in 2026. We recommend for clients to meet with their estate planning team to consider planning options to take advantage of the increased exemption now. It is better to plan now and avoid rush decisions and planning as we get closer to 2026.

Q: As a trusted advisor, what advice can you share for longer-term portfolio asset allocation?

Hurst: It’s very important to be cognizant of the changes and evolutions clients go through during the different cycles of their lives. Starting to save at a young age is ideal for having the best chance to grow wealth, and during those years when retirement seems so far away, it’s certainly appropriate to be more aggressive with investments. When clients are older, they need to ease off the gas a bit, perhaps turning to dividend-yielding, more conservative investments. Since people are living longer than ever, it’s important to maintain some level of growth but employ a philosophy focused on de-risking to ensure their portfolio covers their needs for the rest of their life.

Q: What are the primary reasons for creating an irrevocable trust?

Dahl: Protection. If you want to ensure that your child or grandchildren have the proper funds set up to get an education or to have in case of a medical issue, then an irrevocable trust is crucial. As a parent who has created wealth, you want your child to have a share in the family legacy but do not want it to change who they are destined to be by gifting them wealth that will not positively impact their life. An irrevocable trust gives you the ability to support your family in a meaningful and secure way without creating circumstances that dampen personal ambition and focus.

Nogle: Irrevocable trusts can be used to accomplish a variety of estate planning goals, and often the goal of gift and estate tax savings is at the forefront. Executed properly, a gift or sale of assets to an irrevocable trust can remove an appreciating asset and excess cash flow from an individual’s estate. An irrevocable trust may also protect trust assets from a beneficiary’s creditors to the greatest extent possible. Before establishing an irrevocable trust, however, the individual should consider the gift tax cost of the transfers to an irrevocable trust and the fact that he or she will be giving up control over the transferred assets and the ability to receive income from those assets.

Delman: An irrevocable trust allows an individual to remove assets from a taxable estate, provide financial security for lineal descendants, and protect assets from creditors. With the increased lifetime estate and gift tax exemption, taxpayers are moving assets with growth potential into irrevocable trusts with the hope that the value continues to grow, allowing them to provide for loved ones down the road while keeping these assets out of their taxable estate. For example, Irrevocable Life Insurance Trusts are popular with estate plans. The grantor can fund the trust with cash upfront or pay the policy premiums every year on behalf of the trust. With proper planning and drafting, this can result in little or no gift tax. At the time of the insured’s death, the life insurance proceeds are out of their estate and are distributed under the trust instrument. The life insurance proceeds can also be used to assist illiquid estates with tax payments and other expenses.

Q: Is there an advantage in using a trust instead of a will?

Delman: A revocable trust can be more beneficial than a will because the assets transferred to the trust will avoid probate and provide privacy for all parties involved. The avoidance of probate allows assets to move to beneficiaries quicker, versus going through the courts. Additionally, a revocable trust allows the grantor and beneficiaries to maintain their privacy because nothing is admitted to the courts as public record. During their lifetime, the grantor of the trust maintains full access to the trust assets and can use the corpus of the trust to support their lifestyle, as needed. It is important to note that even though a taxpayer may opt for the revocable trust, it is recommended they also have a will in place to direct the distribution of assets not held in the revocable trust. A pour-over will allow you to have these assets moved directly into the revocable trust at death.

Nogle: In California, if the total combined value of the assets in an individual’s name at his or her death exceeds $184,500 (for deaths occurring after April 1, 2022), a public, court-supervised probate proceeding may be necessary to transfer those assets to an individual’s heirs or beneficiaries at death. With certain exceptions (e.g., property held with a right of survivorship, a pay-on-death account, or a life insurance policy or retirement plan with a beneficiary designation), only property held in a trust will avoid a probate administration on an individual’s death. Thus, a properly funded trust may maintain a degree of privacy, as well as provide for centralized, continuous management of property both in the event of incapacity and following an individual’s death. Conversely, a will does not avoid a probate and only becomes effective upon an individual’s death.

Q: What keeps your clients up at night in 2023?

Dahl: Our clients usually sleep well at night because they have left the worry to us. We are usually our clients’ second call in an emergency (after their spouse) because we build relationships backed by customized strategies that deliver peace of mind. So, while others are focused and worried about asset allocation, our clients sleep well because we have a holistic view and focus on asset location, ensuring that the assets are held in a manner that maximizes benefit and balances tax and gifting implications.

Hurst: I think people are waking up to the damage inflation can do to our collective lives. They are wondering what the long-term effects of high inflation would do to their ability to maintain their current lifestyle. For instance, if inflation remains at 5% for the next 10 years, they would have lost half their buying power by 2033. This is why the Fed’s inflation strategies are so important. Everyone is affected.

“Citrin Cooperman” is the brand under which Citrin Cooperman & Company, LLP, a licensed independent CPA firm, and Citrin Cooperman Advisors LLC serve clients’ business needs. The two firms operate as separate legal entities in an alternative practice structure. Citrin Cooperman is an independent member of Moore North America, which is itself a regional member of Moore Global Network Limited (MGNL).