Today’s executives often work long hours at great personal sacrifice to ensure the success of the businesses that they manage. The trade off for this dedication is often the ability to build a great deal of personal wealth, while enjoying the satisfaction of knowing that this wealth can ultimately be used to improve the lives of future generations.
In reality, a smooth transfer of wealth to one’s heirs is not a guarantee, says Lance Yanagihara, a relationship manager who leads a group of Japanese-American bankers at Union Bank’s Private Bank. Without a strategic wealth plan, many people may find that a smaller portion of their wealth will make it to their intended recipient.
Smart Business spoke with Yanagihara about taking steps to preserve wealth for the next generation and about some of the potential cultural nuances of effective wealth planning.
Is there a best time to address wealth planning?
Anytime someone has begun to amass any significant amount of wealth, it is important to begin the process of wealth planning. A lot of people have a living trust, and while that’s not a bad start, those with wealth really need to go beyond the simple mechanics of a trust and explore how else they might be able to transfer wealth while reducing estate tax at the same time.
Due to several current conditions, now is a particularly good time to embark on a wealth planning process. For one thing, if a client has assets that are currently depressed in value, such as real estate, it might be an advantageous time to pass those assets on to their heirs. Using a combination of depressed asset values, discounts for transfers of minority interests, and record low interest rates, wealth transfer and estate planning can be combined to save a great deal of money. Paying gift or estate taxes based on today’s discounted values, rather than waiting until a later date when some or all of that value may have been regained, makes for good planning. Additionally, the current gift tax rate of 35 percent is at a historic low making it a great time to employ selected strategies that can lower gift tax rates to as low as 26 percent.
Passing a residence or vacation home to children using a QPRT (qualified personal residence trust) works well with depressed real estate values. The use of GRAT (grantor retained annuity trust) or CLT (charitable lead trust) can enhance wealth transfer planning with the combination of low interest rates, low valuations and higher discounts, all of which are present today.
How can working with a wealth planning specialist be beneficial?
Often, people are so busy they don’t have a chance to think about planning so it really helps to work with a professional with the experience, knowledge and objectivity to assess the situation and make specific recommendations. Also, a wealth planning strategist is in tune with the constantly changing opportunities that are available. This highly specialized knowledge and experience can translate into a much larger percentage of a client’s wealth being transferred according to their wishes.
Another potential benefit relates to working with a wealth planning specialist who offers very specific expertise aligned with the client’s unique needs. For example, our Private Bank offers experts in succession planning for business owners who need help determining the succession path of the business that they have nurtured over the years. Also, as the Japanese Segment lead, I provide specialized solutions for Japanese and Japanese-American clients including members of the Nisei generation, which is first-generation U.S.-born Japanese-Americans, many of whom are now in their 70s and 80s. Many of these people built their wealth in the aftermath of World War II, so extra care should be taken to transfer their legacy in a tax-efficient manner. This is where I feel I can add great value to these clients.
How important is being fluent in Japanese when working with the Nisei generation on wealth planning?
By definition, the Nisei were born in the U.S., so there are no language issues. But I think many of them would appreciate working with a banker who understands and shares their culture and heritage.
For those who immigrated to the U.S. after the war, or whose spouse is from Japan, however, there may be a strong preference to work with a Japanese-speaking banker. You want to make sure that they understand the options that are being presented, and sometimes the best way to do that is in their native tongue.
When someone is ready to begin planning, what are the first steps?
The process starts with an interview with a wealth planning specialist. Many people have a vague understanding of what they want, and the right wealth strategist will be able to ask pertinent questions to bring those needs to light. Once the wealth strategist has all the relevant information, he or she can develop a goal-based client analysis and then present specific implementation suggestions. After that, he or she will work with the client’s CPA and attorney to help the client implement the plan.
Wealth planning strategies have legal, tax, accounting and other implications. Consult a competent legal or tax adviser.
Lance Yanagihara is a relationship manager at the Private Bank and Japanese Segment lead at Union Bank. Reach him at Lance.Yanagihara@unionbank.com.