Estate planning for the whole family
Why full family engagement is essential to achieving your wealth transfer goals.
Successful financial and estate planning requires a broad view of all moving parts. That means understanding your own financial picture at a detailed level, as well as taking a full view of all generations, family members and others who may be part of your plans, says Rocky Fittizzi, Head of Full Family Engagement, Planning Center of Excellence, Bank of America Private Bank.
Fittizzi works closely with families, helping them manage what he refers to as the four pillars of financial planning — cash flow and liquidity planning, income tax planning, investment planning, and estate planning— to protect their legacies. A part of that planning involves finding the best ways to speak with and listen to family members. Here, he shares insights on how to communicate with loved ones about wealth, how to stay ahead of evolving estate tax laws and how to benefit from “full family engagement.”
What is full family engagement, and why is it important in estate planning?
Full family engagement means looking at a family tree vertically and horizontally and recognizing that financial planning or education can help individual members make decisions on behalf of the entire family. Even well-intended giﬅ and estate decisions may create challenges and inefficiencies if they’re made in isolation. One couple pours money into 529 education plans for their grandchildren, only to learn that their own children are already saving enough for them. Another leaves large sums to grown children who are well situated financially, potentially exposing them to higher estate taxes. Full family engagement means directly involving multiple generations — grandparents, parents and children — in conversations on giﬅ and estate planning.
Other relatives, stepchildren or even close friends may factor into your plans as well. The important thing is to consider all potential recipients of your giﬅs and estate, large and small, as part of a comprehensive plan that takes into account your personal financial situation and a continually evolving tax environment. Finally, full family engagement involves creating a plan for open and frank communication with beneficiaries about your intentions. Taken together, these steps can go a long way toward ensuring your wealth benefits those you love, while minimizing estate taxes and avoiding family disharmony and surprises.
How can people get family conversations going?
Discussing money is rarely easy, but these are essential conversations. Every family is unique, and even those with similar levels of wealth have markedly different values and priorities. Family meetings can be a great way to break the ice, share your intentions and get valuable feedback from your beneficiaries. Your advisor can help arrange and facilitate meetings involving multiple generations of family. As a sympathetic but neutral party, your advisor can raise sensitive issues around money and inheritance, identify where giﬅs might overlap and create tax inefficiencies, and suggest potential alternatives.
When and how should you start talking to your children about money?
People worry that letting their kids know the extent of family wealth could stunt their ambition. Yet thanks to the internet, kids may already know quite a bit about their family and its wealth and may already be forming opinions, so sharing directly can clear up misunderstandings. You don’t have to start the process by providing younger children with the family balance sheet, but you can start early by teaching family values, what you see as the purpose of money and the importance of treating it responsibly.
As they get older, you can start to get them more involved in the process. You can teach them how credit cards work and what compound interest means. You might invite them to sit in on a meeting with your advisors or ask them to research a charity and explain whether the family foundation should support it. When you get into the habit of speaking openly about money, giﬅ and estate plans may feel like a natural extension of that conversation. You can explain your choices, and you may get important information from your kids in return. The jewelry you thought one child would cherish might mean more to another. Who is most likely to use the family vacation home or appreciate a valuable family asset, and how can you balance the estate for others who aren’t interested?
Besides lack of communication, what are some other estate planning pitfalls?
Sometimes the most basic steps are the ones we overlook. Life is unpredictable; if you put off planning for another day and pass away without creating a will and other estate documents, the state will make decisions for you on everything from your assets to guardianship of minor children. Another pitfall is failing to regularly update plans. You don’t have to redo them, but periodically revisiting your estate plan can help you identify gaps as your life and priorities evolve. What’s going on in the lives of your beneficiaries that could cause you to alter your plans? Has there been a divorce in the family? What changes in tax laws should you take into account? All of these could affect your giﬅ and estate plans.
What are some current tax considerations?
Perhaps most notably, the federal giﬅ and estate tax exemption of nearly $13 million per individual, or $26 million for a couple1, is currently scheduled to drop by about half in 2026 unless there is legislation before that date to extend the 2017 tax cuts. People have gotten used to planning with very large giﬅ and estate exemptions in mind. While Congress could reinstate the higher exemptions, families should review plans to see what the lower figures might mean. And while 2026 may feel far off, from a planning perspective it’s almost upon us.
There are some strategies you can employ now to take advantage of the current higher exemption. Making lifetime giﬅs now instead of leaving money in your estate, for example, offers the added personal benefit of seeing your loved ones enjoy the giﬅs. You can also move assets out of your estate by taking full advantage of the annual giﬅ tax exclusion of $17,000 per recipient.1
What are some of the strategies that could help families achieve their goals?
That really comes down to your specific priorities and what you learn from full family engagement. For instance, what if education is a priority but you want to avoid overfunded 529 plans? Setting up custodial accounts under the Uniform Transfers to Minors Act (UTMA) could provide greater flexibility for how that money is spent. If you want to leave a substantial legacy for your grandchildren without exposing your children to higher estate taxes, you might consider a generation-skipping trust, bypassing the kids. If you hope to create a multigenerational legacy, dynasty trusts may be an answer. If your family has philanthropic goals, you might consider charitable lead or charitable remainder trusts, combining giﬅs to worthy organizations with financial benefits for your heirs.
A lot depends on the nature of your assets as well. If they’re likely to appreciate, moving them out of your estate sooner means that appreciation will occur aﬅer you’ve made the giﬅ — effectively increasing the value of your exemption. If your estate includes sizable real estate holdings, you could potentially lessen your tax exposure by giﬅing loved ones shares of a limited liability company that holds the properties. Because the recipients can’t immediately sell those shares, you may be able to claim a discounted value for the giﬅs, enabling you to give more and move more assets out of your estate. Thinking through these and other questions can help you achieve your goals efficiently.
How can you get started?
Before you make any giﬅ and estate decisions, your advisor can conduct a complete financial analysis, including cash flow analysis, a net worth statement and an assessment of your specific assets. This analysis can help you and your advisor identify which items might be appropriate to give and when. Then, based on your personal goals and aﬅer learning more about your whole family’s goals across generations, you can determine which trusts or other strategies can help you establish the legacy you envision.
How can Bank of America help?
Today’s families are complex, with closely intertwined lifestyle and financial needs. For over 200 years we have helped families navigate their diverse values, generational differences and varied planning objectives that may require a customized approach. Your client team will work with you, your attorney and your tax advisor to identify ways to ensure that your giﬅ and estate plans are up to date, tax-efficient and designed to meet your goals for your full family.
1 2023 amount; updated annually for inflation.
Choice of advisor does not guarantee future success.
This content is designed to provide general information about ideas and strategies. It does not constitute legal advice and is not intended to be all-inclusive. It is for discussion purposes only since the availability and effectiveness of any strategy are dependent upon your individual facts and circumstances. Always consult with your independent attorney, tax advisor, investment manager and insurance agent for final recommendations and before changing or implementing any financial, tax or estate planning strategy.