Three Critical Client Strategies to
Execute Over the Next 60 Days (Before Year End)

Completing Roth conversions, gifting assets and reviewing estate plans are three key strategies advisors should consider for clients before the tax advantages diminish at year-end.

The countdown has begun for clients and their tax and estate-planning professionals to take advantage of converting traditional IRAs and retirement plans to Roth IRAs in 2010; transferring wealth at historically low gift-tax rates; and reviewing overall estate-planning opportunities.

All three of these elements make the next 60 days (before year end) critical to examine the estate plans for your clients. What’s the urgency?

• This year is the only year clients completing a Roth conversion can have the income spread over two future years, not paying any tax on the conversion made in tax year 2010. Income will automatically be reported in year 2011 and 2012. Clients anticipating an increase in taxes, though, may pay the entire tax in 2010 but need to elect out of the two-year rule on their tax forms.
• This is possibly a once-in-a-lifetime opportunity to take advantage of no estate taxes with a real possibility of them returning to 55% next year if Congress doesn’t act. Additionally, the gift-tax rate of 35% is set to increase next year to match the estate tax.
• A Roth conversion and transferring wealth can only be truly successful if your client has a comprehensive estate plan. Think of it as the blueprint to building a new home or putting on an addition – you wouldn’t start building or renovating without having an end goal; understanding all the impacts; and assembling the professionals.
  

More investors and clients are realizing the substantial benefits of the Roth IRA not only as a retirement-planning tool but an estate-planning tool as well. Advisors have commented that some of their clients stop looking at a Roth conversion the minute they hear they’ll have to write the check up front. According to Michael J. Jones, a partner with Monterey, California’s Thompson Jones, LLP and a member of the Equity Trust Professional Network, clients considering a Roth conversion must first answer two questions while examining their own unique situation. “If I pay out the hard dollars today for future tax-free returns, will it make me more financially secure or less financially secure? And secondly, will it enrich my legacy for my children and their children?”

“Everyone’s financial situation varies, including their risk tolerance and own visions of what they want to do with wealth,” explains Jones. “You need to look at all the assets: cash inflows, including anticipated investment returns and anticipated income; and cash outflows, such as personal expenses, income and Medicare taxes, capital investments and more. Will your heirs be better or worse off if you make the Roth conversion?”

Having this dialogue with clients is critical, though, as another significant estate-planning benefit of Roth IRAs is the fact that, unlike traditional IRAs, they’re not subject to Required Minimum Distributions (or RMDs). Individuals who don’t need the money can leave it in a Roth IRA where it can keep growing for the benefit of their heirs – without being reduced by income taxes and RMDs. Once an individual dies, however, his or her heirs must start making RMDs from the Roth IRA. But if they don’t need the money right away, they can preserve the account for many years by keeping these distributions as low as possible.

The Roth conversion is just one tactic when building an effective estate plan. Knowing your client’s long-term goals, including the priorities within those goals will impact the estate plan. Whether it’s to give to children or grandchildren or assist with retirement income, long-term care, a spouse’s financial security or a favorite charity, a comprehensive analysis will enable you and your client to determine if taking advantage of transferring wealth should occur this year. Gifting is complex, especially if your client has concerns about outliving his or her assets and if now is a good time to transfer wealth to children or grandchildren. However, for your high-net-worth clients who do need a wealth-transfer plan, this is the year to seriously consider executing it.

EXCLUSIVE WEBINAR: More Information on Critical Strategies Estate Planning Before 2011

Join estate planning expert Mike Jones for an exclusive webinar – free for members of the Equity Trust Professional Network – on “Estate Planning: Opportunities Expiring in 2010 and What's On the Horizon." Click here for more information.