Joshua Driskell Shares Insights on Wealth Management and Estate Planning

This Wealth Management & Estate Planning ‘Conversation with the Expert’ content is produced by the L.A. Times B2B Publishing team in conjunction with Lagerlof, LLP.

Ongoing market developments across multiple sectors have helped open up new private wealth management products and services to a broader array of people and families. This, along with a surge among high-net-worth families to better manage their finances and make plans for their estates, are indicators of just how important the wealth management process has become.

To take a closer look at the latest trends, best practices and concerns across the wealth management landscape, we have turned to one of the region’s leading experts on the topic – Joshua Driskell, managing partner, Lagerlof LLP – who graciously weighed in for a discussion and shared insights on the state of wealth management in 2024.

Q: How would you describe the current investment environment in 2024 and what do you consider to be the best investment approach, in general terms?

Inflation and Interest Rates: Inflation remains a significant concern globally, leading to elevated interest rates. Central banks are balancing the need to control inflation without stifling economic growth. Higher interest rates generally make borrowing more expensive, which can slow down economic activity but also provide better returns on savings and fixed-income investments.

Market Volatility: Equity markets are experiencing higher volatility due to geopolitical tensions, technological disruptions and shifts in consumer behavior post-pandemic. Investors are more cautious, and there is an increased emphasis on risk management.

Technological Advancements: Innovations in technology, particularly in AI, renewable energy and biotech continue to drive growth in specific sectors. Companies at the forefront of these advancements are attracting substantial investment.

Global Economic Shifts: Emerging markets are showing robust growth, while developed economies face slower growth rates. This shift is prompting investors to look for opportunities in developing regions.

As for the best investment approach, I recommend:

Diversification: Spread investments across various asset classes (stocks, bonds, real estate, commodities) and geographic regions to mitigate risk. Diversification helps in balancing the portfolio’s performance across different market conditions.

Risk Assessment and Management: Evaluate your risk tolerance and ensure your investment choices align with it. Use tools like stop-loss orders and hedging strategies to manage potential losses.

Long-Term Perspective: Focus on long-term growth rather than short-term gains. Investments in solid, well-established companies with strong fundamentals tend to perform well over time.

Regular Review and Rebalancing: Periodically review your portfolio to ensure it aligns with your investment goals and market conditions. Rebalance as necessary to maintain your desired asset allocation.

Staying Informed: Keep abreast of economic trends, market news and emerging investment opportunities. Continuous learning and staying informed can help you make better investment decisions.

Professional Advice: If needed, consult with financial advisors to tailor an investment strategy to your specific needs and goals. Professional guidance can provide insights and strategies you might not consider on your own.

Q: What are some trends you’re seeing in intergenerational wealth management?

We are at the beginning of one of the most significant intergenerational wealth transfers in history. With younger generations stepping into businesses or receiving significant wealth, we have seen a focus on teaching financial literacy, emphasizing tax burdens, building relationships and personalizing services to meet the needs and expectations of a younger generation. That includes an increase in the desire for self-directed portals, the application of AI and a trend to have digital interactions be the norm. We are also seeing and incorporating into our planning:

Increased Focus on Financial Education: Wealthy families are placing a greater emphasis on educating younger generations about financial literacy and wealth management. This includes formal financial training, mentorship programs and workshops to ensure that heirs are well-prepared to manage their inheritance responsibly.

Personalized Wealth Management Services: There is a growing demand for customized wealth management solutions that cater to the unique needs and goals of different family members. Wealth managers are offering tailored investment strategies, estate planning services and financial advice to align with individual preferences and life stages.

Digital Transformation: Technology is playing a crucial role in wealth management. Digital platforms and tools are being utilized for portfolio management, financial planning and communication between advisors and clients. This trend is enhancing transparency, accessibility and efficiency in managing family wealth.

Sustainable and Impact Investing: Younger generations are increasingly interested in aligning their investments with their values. There is a significant shift towards sustainable and impact investing, where the focus is on generating positive social and environmental outcomes alongside financial returns.

Holistic Family Governance: Families are adopting more formal governance structures to manage their wealth. This includes the establishment of family councils, family offices and detailed succession planning. These structures help ensure that wealth is managed cohesively and that family values and objectives are upheld.

Philanthropy and Social Responsibility: Philanthropy is becoming a central component of wealth management strategies. Many families are creating foundations, donor-advised funds and other philanthropic vehicles to support causes they care about. This trend reflects a desire to leave a positive legacy and make a meaningful impact on society.

Tax Optimization and Estate Planning: With evolving tax laws and regulations, there is a heightened focus on tax-efficient wealth transfer strategies. Families are employing sophisticated estate planning techniques to minimize tax liabilities and ensure smooth transitions of wealth to future generations.

Alternative Investments: There is an increasing interest in alternative investments such as private equity, venture capital, real estate and hedge funds. These asset classes offer potential for higher returns and diversification beyond traditional stocks and bonds.

Globalization of Wealth Management: As families become more globally dispersed, there is a need for wealth management strategies that address cross-border considerations. This includes navigating different tax regimes, legal systems and investment opportunities in multiple countries.

Emphasis on Health and Well-Being: Wealth management is expanding beyond financial aspects to encompass health and well-being. Families are investing in wellness programs, mental health support and lifestyle planning to ensure the overall well-being of family members.

Q: What are some key strategies to transition from working income to post-retirement income?

Transitioning from working income to post-retirement income requires careful planning and strategic management of assets to ensure financial security and a comfortable lifestyle during retirement. Here are some key strategies to consider:

1. Assess Your Retirement Needs: Estimate expenses and determine income sources.
2. Maximize Retirement Savings
3. Optimize Social Security Benefits
4. Create a Withdrawal Strategy: Consider the sequence of withdrawals and Required Minimum Distributions (RMDs).
5. Consider Annuities for Guaranteed Income: immediate annuities and deferred annuities
6. Diversify Investments: asset allocation and alternative investments
7. Manage Healthcare Costs: Consider Medicare and long-term care insurance.
8. Reduce Debt: Pay off high-interest debt and think about mortgage considerations.
9. Budget and Spending Plan: Create a budget and adjust lifestyle.

Q: What actions can be taken to mitigate tax exposure in a trust/estate plan?

For 2024, the federal estate exemption amount is $13.61 million per individual or $27.22 million for a married couple. This means individuals can transfer this amount of assets to their beneficiaries, either during their life or at death, without paying any federal gift or estate tax. There is no CA gift or estate tax. Any assets passed above this exemption amount would be subject to a 40% transfer (gift or estate) tax. This high exemption amount is not permanent and is scheduled to sunset on December 31, 2025, unless Congress acts to extend it. If no action is taken, the exemption amount will return to its prior level of $5.6 million, adjusted for inflation from 2017.

No one knows exactly what the new federal exemption will be in 2026 after the sunset, but most predict it will be somewhere in the $6-7 million range per person or $12-14 million per married couple. This will result in a significant increase in the number of estates subject to federal estate tax. A revocable trust has many benefits but mitigating estate tax isn’t really one of them. Sure, a revocable trust can defer any estate tax until the second death in the case of a married couple, but they’re generally used to manage and control the distribution of assets after the trust creator’s death. Instead, they’re used to maximize the existing federal estate tax exemption, not to reduce estate tax. Mitigating estate tax is the realm of irrevocable trusts. There are various gift or sale strategies involving irrevocable trusts that are used to reduce estate tax. In addition, there are various charitable gifting vehicles and options for those individuals who are charitably inclined.

Q: What should parents consider when determining how to involve their children in intergenerational wealth-planning discussions?

Involve their children in intergenerational wealth planning discussions today. Having the discussions now and involving children or grandchildren helps prepare the next generation, helps manage expectations and can help prevent surprises in the future with division and management of wealth. Get the right advisor that helps you do more than just your estate planning. The most overlooked aspect of estate planning is adequately planning for your legacy. Legacy planning helps establish what’s important to you and creates a long-term plan for your family by involving them in the conversation about the utilization and management of wealth.

Q: What are some wealth management strategies that many investors don’t know about, but should?

Wealth management includes numerous advanced strategies that can significantly enhance financial planning and investment outcomes. Here are some lesser-known strategies that investors should consider:

1. Tax-Loss Harvesting: Reduces taxable income and capital gains taxes while allowing reinvestment in similar assets to maintain portfolio balance
2. Donor-Advised Funds (DAFs): Provides flexibility in charitable giving, immediate tax benefits and the ability to grow donated assets tax-free
3. Backdoor Roth IRA: Allows high-income earners to benefit from Roth IRA features, including tax-free growth and tax-free withdrawals in retirement
4. Health Savings Accounts (HSAs): Contributions are tax-deductible, growth is tax-free and withdrawals for qualified medical expenses are tax-free. After age 65, withdrawals can be used for any purpose without penalty.
5. Qualified Charitable Distributions (QCDs): Counts towards required minimum distributions (RMDs) and reduces taxable income
6. 529 Plan Superfunding: Allows significant growth potential in a tax-advantaged account, maximizing the impact of compounding for education expenses
7. Asset Location Optimization: Enhances after-tax returns by minimizing the tax impact on investment growth and income
8. Estate Freeze Techniques: Reduces the size of the taxable estate and transfers future growth to heirs at a lower tax cost
9. Dividend Reinvestment Plans (DRIPs): Takes advantage of compounding without incurring transaction fees and builds a larger position over time
10. Private Placement Life Insurance (PPLI): Allows tax-deferred growth and tax-free access to the policy’s cash value under certain conditions
11. Intra-Family Loans: Provides family members with financing at favorable terms while potentially reducing the lender’s taxable estate
12. Spousal Lifetime Access Trusts (SLATs): Removes assets from the estate for estate tax purposes while allowing indirect access to the trust’s income and principal

By exploring and implementing these advanced wealth management strategies, investors can optimize their portfolios, reduce taxes and better achieve their long-term financial goals. Consulting with a financial advisor or wealth management professional is advisable to tailor these strategies to individual circumstances and ensure compliance with regulatory requirements.