Megan Nogle Shares Insights on the Wealth Management and Estate Planning Landscape in 2023

June 12, 2023Media Mention
Los Angeles Times' B2B Publishing

Private Client Services Counsel, Megan Nogle, was featured in Los Angeles Times' B2B Publishing discussing the latest trends, best practices, and concerns across the wealth management and estate planning landscape.

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?

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.

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

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”).

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?

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.

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

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: When should make updates to an estate plan?

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.

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

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.

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

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.

*This panel was originally published in the Los Angeles Times' B2B Publishing and can be accessed here.