Why you should care about wealth transfer

Written by: Fargo Inc Staff

Over the next 60 years, $59 trillion will be passed on as the world’s wealthiest people approach retirement or pass away. When you pass away, depending on your worth, you are subjected to an estate tax. With proper planning, you can ensure that your estate and legacy lives on through smart planning, and you can have a particularly huge impact by donating to nonprofits. This wealth transfer, which is the largest in history, will have huge impacts on families, communities and charities alike. We spoke with Kelly Steffes and Rick Thoreson of Thoreson Steffes Trust Company about what this means and how you can make sure your legacy lives on.

The Basics
Over the next 60 years, the largest wealth transfer in history is going to happen as the world’s richest people approach retirement and begin to pass away. According to a study conducted by John J. Havens and Paul G. Schervish of the Center on Wealth and Philanthropy at Boston College, an estimated $59 trillion will be divided among heirs, charities and estate taxes. Wealth transfer refers to somebody’s estate being passed on to the next generation. Right now, the federal estate tax exemption equivalent is $5.45 million but, as Thoreson Steffes CFO Kelly Steffes explains, this wealth transfer is about much more than just the money.

“When we work with clients, we find that wealth transfer isn’t always about taxes,” she says. “It’s also about: what’s the best way to transfer it to the next generation?”

North Dakota does not have an estate tax, but Minnesota does have an estate tax exemption of $1.6 million for 2016 deaths. The individual exemption will rise by $200,000 a year until it reaches $2 million in 2018. Married couples, with proper planning, can double this amount. This means that if your taxable estate is more than the exemption amount, your estate will be taxed on the excess at a rate between 10 and 16 percent. This high tax rate makes it imperative to make sure you have a plan so that your estate goes where you want.

“That’s where it really becomes important to work closely with the families and understand the family dynamics,” Steffes says. “Investments come into it, too, as far as what’s the best asset to transfer. If the client wants to make a gift, we’re going to visit about what are the best assets to transfer and what’s the best way to do it. If they want to give to a charity, appreciated stock and/or a charitable rollover may be the best decision.”

Why You Should Care

Steffes says wealth transfer is a very complicated matter and that each circumstance is different, but it is an important topic because there are ways to make sure your legacy is passed on through smart planning. With the right planning, you can make sure your estate is passed down to the next generation. One of the best ways to avoid these high estate taxes is through charitable giving.

“The one thing that surprised me is that people tend to be more charitable than we give them credit for,” she says. “Even when they aren’t in that situation where they have a taxable estate, they still have an interest in making charitable gifts. I think it’s about fulfilling their own personal wishes, and it’s not just about tax avoidance. It’s about carrying on that legacy.”

Steffes gives an example of an estate plan that she is currently working with. This person is giving 30 percent of her estate to a charity, though she doesn’t have any estate tax concerns. According to Dakota Medical Foundation, the total potential for wealth transfer to charities is $26.9 trillion over the next 50 years.

It’s also important for everybody to be aware of the estate-tax laws because, although the federal exemption is so high right now at $5.5 million, it can easily change. Back in 2004, the estate tax exemption was only $1.5 million. Depending on the results of the election, Hilary Clinton would propose lowering the federal exemption to $3.5 million and the tax rate would increase to 45 percent, and Donald Trump would propose eliminating the estate tax.

The one thing that kind of was surprising to me was that people tend to be more charitable than we give them credit for. – Kelly Steffes

Elvis Shows You Why It’s Important To Plan Ahead

Elvis Presley shows why wealth transfer is an important topic

• Elvis passed away with an estate of more than $10 million

• He had to pay more than $7 million in taxes and fees upon his death

• Because he didn’t plan ahead, about $2.7 million of his estate went to his heirs, with 73 percent going toward taxes and fees

Example courtesy of Dakota Medical Foundation

Thoughts From The Expert

Pat Traynor is an expert on wealth transfer and what it can mean for our community. As the President of the Dakota Medical Foundation, an organization dedicated to creating a region of the healthiest people by building the fundraising success of health-related nonprofits, Traynor knows that $95 billion will be donated directly to North Dakota charities. This creates a huge possibility for our community. We’ll let him explain that in his own words, though.

Pat Traynor, President of Dakota Medical Foundation

“In my opinion, this is the greatest opportunity to transform health and quality of life in the region. The transfer of wealth presents that. This is a huge opportunity for nonprofits to dream much bigger on how they can impact the region through having a mentality of abundance, as opposed to scarcity of resources.

“In other words, we should ask every charity, ‘If money were no concern, what would you do as a nonprofit to impact your community?’ We commissioned the North Dakota Wealth Transfer study, which estimates, from 2007-2061, that there will be $95 billion given to charities from 220,000 households. That’s significant. Some of that will be given while they’re alive and some of that will be given through folks’ estate. It’s a tremendous opportunity for families to change the trajectory and quality of life permanently in a positive direction 

“The other great opportunity is the savings of estate taxes. Many North Dakota businesses and family farms will have to be broken up and sold to pay taxes if people don’t plan their estates with professionals, accountants, attorneys and investment representatives. That number is $38.9 billion in estate taxes. That’s federal estate taxes to Uncle Sam. It’s one hundred percent avoidable if people and families plan their estates with charity in mind.

“That’s a huge opportunity for doing good across the land. I’m very bullish on our ability to move the needle on some very difficult problems in health and health care. 

“We like to ask every nonprofit that we teach, ‘What would you do with a $10 million gift?’ We want every charity to know how to answer that. Do you have a plan? These charities need to have a plan for that. That’s really important because this is not a hypothetical. You’ve seen it happen. You’ve seen it happen in the colleges. You’ve seen some anonymous gifts in excess of $1 million. We’ve seen some of the higher profile ones but I would venture to tell you that much of this is going on under the radar.”

By The Numbers
$59 trillion: Over the next six decades, it is estimated that $59 trillion will be passed on to heirs, charitable giving and estate taxes in 93.6 million American estates.
$26.91 trillion: Dakota Medical Foundation estimates that $26.91 trillion of the $59 trillion wealth transfer will go to charity.
$30 billion: The amount committed through 100,000 donor advised charitable accounts. According to Thoreson, this is like a private foundation where you have a separate fund where you or your family can make the decision about where the money will go.

About Thoreson Steffes

Thoreson Steffes is a trust company in Fargo that works on asset allocation, portfolio construction, equity management and much more. They pride themselves on having fewer clients but with larger amounts of wealth and greater planning needs.

210 Broadway N, Fargo

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