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ESTATE PLANNING, INSURANCE SOLUTIONS, NEWS

Generational Wealth: Transform Your Strategy to Make It Last

Did you know about 70% of wealthy families lose their wealth by the second generation, and 90% lose it by the third generation?

This is a troubling statistic—which is why, at Centura Wealth Advisory, our goal is to help families explore and implement purposeful strategies and solutions for successful wealth outcomes.

With vast experience working with high-net-worth individuals and families, our team is fully prepared to embrace your family’s complex financial life, circumstances, and strategies. We will help develop the best strategies for you.

Read on to understand why families are losing their wealth so quickly and to learn how to transform your strategy to make your generational wealth last.

Why is Generational Wealth Difficult to Preserve?

As the Chinese proverb says, “The first generation makes the money, the second spends it, and the third sees none of the wealth.”

Typically, in the process of earning wealth, the first generation learns how to:

Acquire assets
Optimize investments
And spend wisely

The second generation, being born into wealth, may forgo the opportunities to learn these skills. Therefore, a common mistake of the second generation is not acquiring assets and investments that:

Support lifestyle they’re accustomed to
Can be passed onto the next generation

Consequently, the third generation is left with little remains of the original wealth along with limited financial education and experience.

How Can You Make Your Generational Wealth Last Beyond the Next Generation?

Creating long-term goals, prioritizing financial education, having clear expectations, and communicating clearly are all essential practices in making your generational wealth last.

Identify Your Family’s Purpose

To implement successful strategies, we focus on generational wealth through purpose. This method includes:

Unpacking your family’s values and dreams
Helping you define, implement and track your family’s purpose
Making your family’s purpose the impetus of your wealth
Significantly lessening the burdens of wealth

Identifying and evaluating your family’s purpose can help lead you to the best strategies for your future. Read on to learn more about finding your North Star and how your purpose can lead to a fulfilling life and valuable goal-setting.

Create Long-Term Goals; Avoid Short-Term Strategies

Avoid responding to daily market conditions, buying the next hot investment product, chasing the latest wealth strategy, or only attempting to preserve your wealth.

At Centura, we instead suggest developing long-term goals that align with your family’s purpose and focus on the growth of existing assets. These goals might include:

Investing in the stock market
Investing in real estate
Building a business to pass down
Creating a strong retirement plan

We recommend working with one of our trusted advisors to ensure your unique financial situation is progressing towards these goals.

Invest in Financial Education

Financial education is crucial for family members to understand wealth sustainability. Without the proper knowledge and skills, the next generation is likely to deplete the wealth through poor spending habits and a lack of guided investments.

By providing the next generation with financial education, you provide the skills, knowledge, and habits they need to preserve and build their wealth.

This education can range from enrolling family members in relevant courses, teaching them about assets and investments at the office, or even just including them in day-to-day conversations about smart spending.

Provide Clear Expectations and Goals for Your Family

Consider possible goals you may have for your family to ensure their financial stability. Some examples may include:

Should you require members of your family to commit to their own success?
Should you ask the next generation to acquire assets and investments to contribute to the wealth of your family?
Would you like members of your family to build a business to pass down to the next generation?
Should you insist every member of your family earns a college degree?

These goals can encourage your kin to build their own financial success. Whatever these goals may be, we suggest introducing your expectations early on and in a clear manner.

Prioritize Transparency and Communication

Tell stories of how your family’s wealth was built; include the next generation in current financial conversations. This communication will allow your family to see the difficulties you have overcome to build your wealth as well as the current challenges you still face.

Additionally, your family can learn from your past and current decisions when it becomes their turn to make similar choices.

Healthy family communication is integral to wealth longevity. Consider hiring a family mediator, coach, or therapist to help your family navigate more difficult discussions about money.

Take Advantage of Life Insurance

Life insurance allows you to protect your family in the event of an untimely death. Without your income and resources, the next generation may not be able to maintain generational wealth. By taking advantage of life insurance, you can secure your family’s financial future.

Invest In and Save for Your Children’s Education

Education can give your children the tools and opportunities they need to have successful, independent careers to navigate their own finances.

According to U.S. News and World Report, the average student loan debt has hit a new record high for recent college graduates—exceeding $30,000. If your child graduates college without this debt, they are more likely to begin accumulating their own wealth, become a homeowner, and pass wealth on to the next generation.

Ready to Take These Steps to Ensure Generational Wealth?

With diligent stewardship, care, and attention, a family’s wealth can last for generations. This is what we provide at Centura Wealth Advisory.

At Centura, our main focus is to liberate your wealth, going above and beyond traditional money management. We aspire to bring only the best value-added solutions to our clients.

Read on to learn more about us and why we are not your traditional wealth advisors.

Centura Wealth does not make any representations as to the accuracy, timeliness, suitability or completeness of any information prepared by any unaffiliated third party, whether linked to or incorporated herein. All such information is provided solely for convenience purposes and all users thereof should be guided accordingly.

We are neither your attorneys nor your accountants and no portion of this material should be interpreted by you as legal, accounting, or tax advice. We recommend that you seek the advice of a qualified attorney and accountant.

For additional information about Centura, please request our disclosure brochure as set forth on Form ADV using the contact information set forth herein, or refer to the Investment Adviser Public Disclosure website (www.adviserinfo.sec.gov). Please read the disclosure statement carefully before you engage our firm for advisory services.

September 16, 2021

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ESTATE PLANNING, NEWS

The Complexity of Inherited Wealth

Wealth can come to someone in many ways. Some people are born with money and some earn it over a lifetime.

Then there are those who inherit their wealth by the passing of a family member or selling of a business. If you haven’t managed large amounts of wealth before, however, understanding the complexity of inherited wealth is an enormous task.

There are psychological and logistic reasons for the overwhelming feeling of inheriting wealth. Even though it is an increasingly common event, this is a topic that is rarely talked about.

So, let’s get the conversation started about the complexity of inherited wealth.

Logistics

There are new responsibilities that come with inheriting wealth. The list is never-ending. This is why financial planning is a pillar of Centura Wealth and is highly recommended to those who suddenly inherit large sums of money.

Some key elements of financial planning include:

Excessive Fees from other professionals
Tactical Gaps (like planning for the future)
Hidden Risks and Costs
Erosion (gradual redirection of funds)
Taxation

Psychology

When individuals inherit large sums of money, often, their morals are put to the test. This is completely normal. Perhaps before inheriting money, you had a vision of what you might do with this extra wealth. For example, donating a large percentage. But now, you might feel differently.

Wealthy families carry wealth burdens. Some aspects that come with this burden include:

Worry
Generational Degradation
Relationship Dynamics
Responsibility
Guilt

Centura Wealth Advisory believes there is a balance in liberating your wealth, and our clients can testament to that. We’ve worked with many families whose net worth exceeds $10M, who have complex financial lives, circumstances, and strategies.

These are some of the expressions Centura Wealth has heard our clients say:

“We don’t want our wealth to ruin our kids’ lives,”
“We want our wealth to foster happiness and purpose,”
“We realize we have a great responsibility to serve our family, and our community,”
“We want our wealth to improve the lives of people who are less fortunate.”

What’s Next?

Talk to a wealth advisor for further steps after inheriting wealth. The list of key elements that contribute to financial planning is long. Just a few to consider depending on your financial situation are retirement plans, long-term financial goals, and investment.

“We believe everyone has a purpose in life, and ours is to help wealthy individuals and families achieve their purpose through a proactive and comprehensive wealth management process called Liberated Wealth®.”

Centura Wealth does not make any representations as to the accuracy, timeliness, suitability or completeness of any information prepared by any unaffiliated third party, whether linked to or incorporated herein. All such information is provided solely for convenience purposes and all users thereof should be guided accordingly.

We are neither your attorneys nor your accountants and no portion of this material should be interpreted by you as legal, accounting, or tax advice. We recommend that you seek the advice of a qualified attorney and accountant.

For additional information about Centura, please request our disclosure brochure as set forth on Form ADV using the contact information set forth herein, or refer to the Investment Adviser Public Disclosure website (www.adviserinfo.sec.gov). Please read the disclosure statement carefully before you engage our firm for advisory services.

August 9, 2021

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ESTATE PLANNING, NEWS, TAX PLANNING

A Brief History of the Estate Tax and Potential Implications for the Upcoming Election

Executive Summary

With a swoop of a pen, could thousands of households suddenly face an Estate Tax? If so, is there anything that can be done about it? Why would someone now face this wealth tax when they haven’t before? How does this relate to the current political election?

In this blog post we explore these ideas, and more. Consider the following:

The upcoming presidential election has the potential to radically change tax laws that govern Estate Planning
Democrats are targeting a repeal of the Tax Cuts and Jobs Act and have proposed lowering the estate tax exemption from its all time current high of $11.58MM today if they win the White House and senate¹
The possibility of repealing and changing current tax law has created a frenzy of estate planning activity as many more families might face the Estate Tax in coming years

This post discusses a brief history of the estate tax and how it works, explores the current exemption level and highlights potential implications associated with the upcoming election. For a more in depth conversation on your plan, contact Centura Wealth Advisory.

What is the Estate Tax

The Estate Tax is a tax on your right to transfer property at your death. Currently, there are very few taxpayers that encounter the Estate Tax and that is because the current exemption level is at an all-time high (see Estate Tax Exemption chart below). A high exemption level ensures that only the wealthiest pay this tax, however a lower exemption level would expose many more American families; and that is the concern as it relates to the upcoming election. To understand the estate tax and how it is used by the federal government, it is important to begin with a historical perspective.

History of the Estate Tax: Prior to 1916

In the United States, the death tax has been used several times to generate revenue in times of war or crisis. In each instance, congress used the death tax as a short term tool to raise funds during times of need and repealed the tax when the need was no longer there. The first example of this was during The Stamp Tax of 1797 when the tax was used to create revenue for an undeclared war with France. The second iteration came with the Revenue Act of 1862, which was used to raise money for troops, ammunitions, and other expenditures during the American Civil War. And finally, when the Federal Legacy tax was created during the Spanish-American War. All these enactments of the death tax were repealed shortly after the wars ended. However, the death tax was once again reintroduced in 1916 during World War I, setting the stage for the Modern Estate Tax.²

History of the Estate Tax: 1916 to present

The Revenue Act of 1916 created the Modern Estate Tax which was a tax on the transfer of wealth from an estate to its beneficiaries. The key caveat here is that this tax was levied on the estate as opposed to an inheritance tax that is levied directly on beneficiaries.

Since inception, the Modern Estate Tax has been amended at least twenty times for various reasons such as, the increase to a $120,000 exemption level at an 18% rate in 1926, and more recently in 2018 when it was amended to an $11.18mm exemption level at a 40% rate due to the Tax Cuts and Jobs Act. Chart 1 shows the Estate Tax Exemption since 1916, adjusted for inflation. As is clear from the chart, the current level of the estate tax exemption (adjusted for inflation) is at an all time high.²

^{Chart 1– Estate Tax Exemption Over Time (inflation adjusted)}

How does the Estate Tax work

There are 2 primary aspects to the Estate Tax: the Exemption Level and the Tax Rate.

Exemption Level – The estate tax exemption level is the threshold at which an estate is subject to estate tax
Tax Rate – The estate tax rate is applied to the amount of the estate above the estate tax exemption level

Through manipulation of the exemption level and/or rate, congress can creatively target revenue (in the form of tax dollars) that would otherwise not exist if the current law of the land were to prevail (i.e., Tax Cuts & Jobs Act).¹

What could it mean for me and my family?

We know that decreases in the exemption level and/or increases in the rate are tools that can be used to target more money from more estates, but at Centura we are increasingly concerned about this wealth transfer risk due to 2 primary factors:

Government Debt: An urgency to raise funds to pay off debt associated with the COVID-19 pandemic as current government debt is at $27 Trillion.³
Revenue Collection Deficit: The current estate tax only affects a small fraction of estates (due to the high exemption level) and raises less than 1% of federal revenue.⁴

With the U.S presidential election less than 30 days away, the Estate tax has been the subject of significant interest among policy makers, researchers, and the general public. Reasons for this interest range from views on the fairness of the tax to interest in the effects of taxing transfers at death on the overall U.S. economy. No matter what the reason is for reformation, we know that this tax rate is volatile and significant to those affected by it.

Scenario Analysis

A great way to illustrate the potential impact of a revised estate tax is to consider one specific estate, and analyze the tax implications under two different death scenarios. These scenarios differ by the year of death (2021 vs 2026), which has an impact on the estate value, exemption level and potential tax liability. Thus, these are for illustrative purposes and are meant to help the reader contextualize the implications of these political decisions. The four scenarios analyzed are:

Scenario 1: (Baseline) Estate value of $5.0M in 2021 (at death)
Scenario 2: Democratic Proposal Retroactive to 01/01/2021
Scenario 3: $5.0M (2021) Estate in 2026 (Sunset Provision, TCJA)
Scenario 4: $5.0M (2021) Estate in 2026 with Democratic Proposal 01/01/2021

Table 1– Scenario Analysis

Illustration of Tax Risk

Scenario 1 in Table 1 represents the estate tax due under the current law (Tax Cuts & Jobs Act) and Scenario 2 shows the estate tax due under the proposed democratic policy. Both Scenarios 1 & 2 depict a 2021 date of death scenario since the democratic policy would likely be retroactive to 01/01/2021.

Alternately, for Scenarios 3 & 4 we selected the year of death as 2026 which is when the exemption level is scheduled to sunset, based on current law (Tax Cuts & Jobs Act).⁵

As is clear from this example, a change in estate tax policy to the democratic proposal could have huge tax ramifications. In addition, these taxes may extend to many more families than they otherwise would at higher exemption levels. Thus, the upcoming election should be of keen interest to families with estates of $3 Million or more.

What can you do?

At Centura, we assist individuals and families with navigating the complicated world of estate planning, specializing in strategies designed to help you efficiently transfer wealth to your loved ones and causes you care about. To help you get started we put together a calculator to help you estimate what your estate tax liability could be.

Depending upon the outcome of the 2020 election, we believe many more estates may be exposed to this long standing tax and we can help in planning to address it. Please contact us to learn more or take advantage of our free calculator.

References:

October 19, 2020

ESTATE PLANNING, NEWS

Your Teen is off to College!

20.4 million kids attended a college, university or trade school in 2017. Using simple math, that means approximately 40.8 million parents sent their babies off to school last year. There is so much to do and to remember! Try googling “college student checklist” and you’ll find countless links to exhaustive lists of things to remember to buy and pack. These lists include the obvious items like school supplies, but also list medicines, kitchen and bath necessities, cleaning supplies, computer/electronic needs, and items to decorate your room. All the things needed to prepare your child for college, right? It might seem so, but there is a glaring omission in this list.

When your child turns 18 years old, that “child” is considered an adult in the eyes of the law. This change comes with all the same rights and protections held by any other adult. What does this mean for you as the parent? As a parent, you no longer automatically have the right to speak freely with your child’s doctors and medical care providers. You no longer have the right to make your child’s medical decisions. You no longer have the right to manage your child’s finances, or to have access to your child’s financial records. You do not even have the right to access your child’s grades, class schedule, attendance records, etc. This is true even if you are paying for your child’s tuition, room and board, and even if your child is still on your medical insurance. Your rights as a parent are severely diminished on the day your child reaches age 18.

Accidents are the leading cause of death in young adults. Suicide by young adults is the second leading cause of death. Beyond that, approximately 250,000 Americans between the ages of 18 and 25 are hospitalized each year.

Consider what would happen if you were to receive a call that your child, who is attending college miles (maybe even states) away, has been in an accident. Yet, you as a parent do not have the right to gain information regarding the child’s condition or medical treatment options. This is a sad reality for many parents. Without being named in certain legal documents, you may have to petition a court to be appointed legal guardian of your adult child. This can be a lengthy and costly process.

Here are the critical documents for anyone age 18 and older:

Financial Durable Power of Attorney – With this document, your child can name Mom and Dad to have the ability to manage their financial affairs (pay bills, buy/sell assets, file tax returns, etc.).
Medical Power of Attorney (also known as a Health Care Surrogate) – This is the document in which your child can name Mom and Dad to have the ability to make medical decisions on his or her behalf (such as consenting to treatment or moving the child to a more specialized facility).
Living Will Directive (also known as an Advance Directive) – This document controls end-of-life decisions with regard to the administration of or the removal of artificial nutrition, hydration and respiration (i.e., life support).
HIPAA Authorization – Being named in a HIPAA Authorization will give you the ability to speak freely with your child’s physicians and medical care providers. This will also allow you the authority to have access to all of your child’s medical and psychiatric records.
Family Educational Rights and Privacy Act (“FERPA”) Consent – A FERPA Consent is required before Mom and Dad can have access to all of their child’s school records and information, including class schedules and attendance records.

Be sure to put an estate plan for your 18 year old at the top of your Labor Day break punch list! Don’t wait until an emergency happens. Plan for tomorrow today!

– Written by Charlsey Baumeier, First Financial Resources

Sources:

¹ National Center for Educational Statistics

² National Center for Educational Statistics

August 16, 2018

ESTATE PLANNING, NEWS

Financial and Estate Planning for Women

Ladies, in today’s world we are exposed to all kinds of sound bites, headlines and political propaganda….. “the war on women,” “wage inequality,” and other such catch phrases designed to incite feelings of helplessness, fear, betrayal and injustice.

What can you, as an individual woman, do about it? Instead of trying to figure out this Rubik’s Cube of global and national women’s issues, how about taking a look at your own personal situation first?

How educated are you on finances and estate planning? As women, we are most profoundly affected by financial and estate planning, or in most cases, the lack thereof. This article will identify the leading causes for financial strain and lack of planning among women, and how you can take control of your financial and estate well-being.

Let’s begin by looking at the facts.

Women control 75% of the financial wealth in the United States.
Only 35% of women who are offered retirement guidance through their employer take advantage of it.
77% of women are comfortable discussing medical issues with a doctor, but only 47% of women are comfortable discussing money and investing with a financial professional.
84% of custodial parents are women.
The average age of widowhood in the US is 55 years old.
Women are three times as likely as men to be widowed.
40% of surviving widows fall below the poverty line within a year of their husbands’ deaths.
Less than 1% of a widow’s income come from employment.

So those are the facts, but what do they mean? Regardless of age, women need to play an active role in their own financial and estate planning, as well as that of their families.

Understanding your assets, debts and expenditures is step one. On average, women tend to live 5 to 7 years longer than men. Couple that with the fact that women tend to marry older men, and it’s no wonder that women are the ones left alone and in control of how the family’s assets will ultimately be distributed. With this control comes great responsibility.

It is important for women to assume an active role in managing their finances. There is a common misconception that you must have a certain net-worth before you should start making plans. This could not be further from the truth. It’s difficult to implement a plan if you do not understand where you are starting and where you want to finish.

Make a list of your assets (real estate, vehicles, bank accounts, investment accounts, life insurance, 401K accounts, retirement accounts, and any other valuable assets and/or collectibles).
Make a list of your debts (mortgages, car loans, student loans, credit card debt, personal loans, tax loans, etc.).
Make a list of where your money goes each month – be sure to include all expenditures, including going out to eat, movies, gas, Starbucks, etc.

Going through this exercise is an eye-opener for many people. When you detail on paper how much money you are spending and where its being spent, it becomes much easier to identify areas in which you can cut spending and add to your overall savings and investible assets. Finding these “pockets” of money is critical for women, as we tend to have fewer assets in general than men. There are many reasons for this disparity between men and women, but typically it is due to the fact that women generally earn less money (per hour) than men, spend less time in the work-force (due to caring for children and/or ailing spouses and parents), and are generally more uncomfortable or uncertain about how money works and how to save and invest.

Make sure you understand how your assets are managed today so that you can plan for how they will be managed in the future for your own benefit and for the benefit of your loved ones.

Protecting your assets is step two. It is vitally important for women to seek the advice of professionals when it comes financial and estate planning. Learn to overcome your fear of speaking about personal matters with such professional advisors. The sooner you plan, the better off you will be in your later years.

Make sure your plan includes adequate life insurance coverage for both you and your spouse, to help support your needs after the first death and to support your surviving beneficiaries at the second of your deaths. Life insurance can be used to pay final debts and expenses, taxes (income taxes as well as estate and inheritance tax), as well as to continue the life styles of your surviving beneficiaries.

If you have recently married, divorced or have been widowed, have you updated your beneficiary designations on your life insurance and retirement accounts? Remember that the current designations on those accounts control the distribution of those assets – even if you have updated your Will.

If you are a recent widow, have you met with an attorney to discuss electing portability of your deceased husband’s unused federal estate tax exemption? Currently, (in 2018) every individual can exempt almost $11.2 million in assets from federal estate/gift taxes (during life or at death). The unused exemption of a deceased spouse can be passed to a surviving spouse, but only by making an election and filing an estate tax return in a timely manner (within 9 months from date of death), regardless of whether any taxes are due.

Finally, protecting your wealth and your health is step three. Once you build the wealth, make sure you are taking steps to protect it!

A Last Will and Testament is a document that directs the distribution of your financial and physical assets to whom you wish and in what manner. Dying without a Will is known as dying “intestate”. Without a Will, your assets will be distributed according to your state’s intestate succession laws. This is true even if you are married. These laws vary from state to state, so be sure you understand the intestate laws of your state. Another very important reason to have a Will is if you have young children. Your Will is the document that is legally recognized by courts, in which you name guardianship for your minor children. If you do not create a Will and name a guardian for your young children, a judge will name one for you. This can lead to turmoil between families and can potentially land your child in foster care until guardianship can be worked out.

A Revocable Living Trust is a document that can be used to avoid probate upon your death. This type of Trust is often designed to work with your Will, but unlike Wills, a Revocable Living Trust is a private document, not subject to probate and court jurisdiction. The terms of the trust, the assets owned by the trust, and to whom and how those assets are distributed all remain private. By having this Trust in place and retitling your assets into the name of the trust during your lifetime, your estate can avoid the probate process, thereby saving your surviving beneficiaries time and money. Properly drafted Trusts are also a great way to protect your assets for future generations, keeping those assets in your bloodline to benefit your family.

Many individuals may believe they do not need a Will or a Trust. Perhaps they are young and are just starting to accumulate assets, or maybe older with modest wealth. If either is true, there are still reasons to plan today. What are you doing to protect your rights with regard to controlling your healthcare? What would happen if you were to have a health-related event that left you incapable of managing your finances or unable to make your own healthcare decisions? Who would care for you and would that person truly know your wishes?

A Financial Durable Power of Attorney gives you the ability to name someone as your “attorney-in-fact” or “agent.” Your agent will have the ability to manage your finances, pay bills, buy and/or sell assets, vote stock, file your tax returns, pay your taxes, etc.

A Medical Power of Attorney (also referred to as a Healthcare Surrogate Designation), is a document in which you name someone to make your medical decisions for you when you are unable to do so for yourself. This document would be used in a situation when you cannot speak or otherwise communicate for yourself. With this power, your agent can make decisions such as consenting to treatment or moving you to a different facility for more specialized care.

A Living Will Declaration (also referred to as an Advance Directive) is the document that controls end-of-life decisions, such as the administration of or the withdrawal of artificial nutrition, hydration and respiration. In this document you declare your wishes regarding being allowed to die naturally without artificial intervention, or otherwise.

The HIPAA Authorization is the federal document in which you authorize individuals (including the agent under your Medical Power of Attorney) to have access to your private medical information. Such information may include current and past medical and psychiatric conditions, treatment options, and empowers the individuals named the ability to speak freely with your physicians and medical care providers.

If you have a health event without these documents in place, someone will have to petition the court to be appointed as your legal guardian, giving them the power to handle your finances and healthcare. I don’t know about you, but personally, I know who I would and who I would not want taking care of me. Unfortunately, a judge does not know your wishes and it will be a judge that will appoint a guardian for you if you do not have these documents in place.

Once you have completed your plan, you may want to consider sharing your wishes with your family and loved ones. Its also a good idea to review your plan with your financial and legal professionals at least every couple of years.

As women, it’s critical that we take an active role in managing our finances, planning for our financial future, protecting our assets during our lifetimes, maintaining control of our healthcare decisions, and having a clear plan for the management and distribution of those assets in the future.

Plan for tomorrow today!

Sources:

2015 Fidelity Investments Money FIT Women Study

US Census Bureau

http://medicine.jrank.org/pages/1843/Widowhood-Economic-Issues-Economic-effects-widowhood.html”>Widowhood: Economic Issues – Economic Effects Of Widowhood

August 16, 2018