When a client is an older woman, who has never married and has no children, or close relationships with other natural heirs to leave her considerable wealth to, extraordinary planning steps and creative thinking are needed.
Multiple professionals must work together to save her estate from taxes, to help her spend down some of the money she's amassed, to help choose who will act as trustee or executor for the estate, and most importantly, to give her peace of mind that she won't run out of money.
Andrew Altfest, President of Altfest Personal Wealth Management, said they had such a 75-year-old client who, despite having north of $10 million and spending only about $200,000 a year, regularly stressed that she would not have enough money to pay for her health care and other needs through the end of her life.
"She had a lot of fears even though she stands no chance of running out of money. After a health scare was very concerned with long-term-care costs," he said.
Mr. Altfest and Keith Feinberg, an estate attorney with the firm, said every case will be different, however, these are some of the most important things to contemplate with such a case, keeping in mind the ultimate goal — which for this client was peace of mind.
Figuring out which philanthropic activities someone wants to support is more challenging than it sounds. For this client, they held a series of discussions with her about what she wanted to accomplish and then they discussed the benefits of charitable lead trusts and charitable remainder trusts.
In the end they decided to create a Charitable Remainder Annuity Trust (CRAT), intended to provide the client with steady, reliable income, while also fulfilling her philanthropic intent. The client funded the CRAT with highly appreciated assets, helping to avoid realizing embedded capital gains, as well.
It's important to leverage the options that the IRS and states have given in order to shield money and put it to charitable use. The use of the CRAT mentioned above allowed the client to divest a substantial amount of assets from her taxable estate, provide herself with a constant income stream, and even receive an income tax deduction in the year of funding.
There are special high-net-worth carriers that should be involved in such cases because they can provide more protection than the average policy.
In this instance, she still had the same insurance policy from the 1980s, which did not provide sufficient coverage for additions and alterations. So they worked with one of the specialized carriers to increase her umbrella coverage, secure more coverage for her apartment, and provide additional coverage for her jewelry & collectibles. They also suggested raising her deductible in order to significantly decrease her annual premium payments
Consider lifestyle changes that could improve the quality of her life by learning about what she does with her days and her priorities. In this case, by using cash flow projections and sources of income, Mr. Altfest convinced her to increase the frequency of her housekeeper to once a week.
Choosing a trustee, a power of attorney and a health-care proxy is tricky. The goal is to find someone or a combination of people who will make decisions consistent with her values and wishes.
In this case, they helped her decide that a trusted niece should be the person who would take on all of these roles. They also helped the client have a frank and open discussion with her niece in order to express her desires and intents in regard to end-of-life decisions.
Income tax planning
Her portfolio consisted of mainly marketable securities with some real estate, plus other investments. The case was further complicated by the fact that some of the assets were with outside investment managers.
They pulled together information regarding all of the assets and coordinated investment income in all the portfolios to determine the impact of different income tax thresholds. Observing that the client's medical expenses for the previous year were just short of the medical expense deduction threshold, they increased her allocation to municipal bonds and took available capital losses, which helped to lower taxable income and allow the client to take the deduction in the following year.
Health care and housing
Helping anyone decide how and where they'd like to live out their final years can be daunting, but with someone with no family or friends who might help care for her requires the team be very thorough and quite sensitive. They enlisted a geriatric care manager to help the client determine the relative costs of necessary care in her neighborhood.
They presented her with different scenarios, showing her the resources that would be available to help care for her at home if she chose to and was able to stay there, and they helped her review her long-term-care policy.
Specifically, they reviewed the current LTC policy riders to determine if any could be eliminated or changed, and whether any changes could produce significant annual premium savings. Additionally, they reviewed whether an inflation rider is necessary and whether to increase the policy's elimination period. Overall, planning in such a case, as with most planning for clients who have significant wealth, requires advisers and attorneys to coordinate with all her outside accountants, attorneys, investment professionals or sometimes even doctors.