Client Service September 16, 2019

Planning for Wealth Transfer a Value Add From Financial Advisers

Studies show all generations find legacy planning important and those who receive an inheritance feel more financially secure. And, Lincoln Financial has introduced a product to help advisers stretch clients’ inheritances over their lifetimes.

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According to the LIMRA Secure Retirement Institute, more than $7 trillion will be inherited by Baby Boomers and younger generations in the next several years. In addition, nearly three-quarters of these investible assets are held in taxable accounts.

According to a recent survey by financial services firm Edward Jones, 77% of Americans believe that estate and legacy strategies are important for everyone, not just wealthy individuals, yet only 24% of Americans are taking the most basic step of designating beneficiaries for all of their accounts.

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Of Americans who work with financial advisers, 64% reported never having discussed estate goals and legacy plans with their financial adviser. Furthermore, only 34% of Millennials and Gen Xers have discussed their estate/legacy goals with their financial advisers, which increased only minimally for Baby Boomers (38%), the generation most likely to need estate plans in the near future.

However, almost all Americans who have discussed their estate/legacy goals with their financial advisers have updated their plan since creating it (98%). Additionally, 61% involved their family the last time they reviewed their estate/legacy plan with their financial adviser, increasing to 74% for Americans with children in the household.

“Designating beneficiaries on each of your appropriate accounts is the simplest and quickest way to get started. To ensure loved ones are taken care of, it’s crucial to review and update estate plans regularly, and most importantly, communicate these wishes to the beneficiaries throughout the process,” says Scott Thoma, principal with the Investment Strategy group at Edward Jones.

People who have received an inheritance from their parents or relatives are more than twice as likely than those who haven’t to feel prepared for retirement (38% versus 17%), according to a survey by the Associated Press-NORC Center for Public Affairs Research. Older Americans with an inheritance are also more likely to believe that their savings will last throughout their retirement (37% versus 21%).

Lincoln Financial Group has introduced Lincoln Wealth Pass, a new withdrawal rider that is specifically designed to help beneficiaries stretch and protect the money they’ve inherited. Lincoln Wealth Pass is available with American Legacy , Lincoln ChoicePlus Assurance and Lincoln InvestmentSolutions variable annuities for an additional cost, and offers an opportunity for beneficiaries to guarantee they receive their full inheritance by stretching distributions over their life expectancy. Lincoln Wealth Pass is designed to help financial advisers and their clients efficiently transition wealth from generation to generation.

With Lincoln Wealth Pass, protected annual income begins immediately, and continues until the full investment is returned over the annuity owner’s life expectancy, provided they are still living. If there is account value remaining upon the death of the owner, any remaining protected annual income payments can continue to their beneficiary, until the initial protected inheritance amount is zero.

“This estate planning strategy is a compelling option to help clients guarantee their inheritance through the protection and market growth potential an annuity can help provide,” says John Kennedy, head of Retirement Solutions Distribution at Lincoln Financial Distributors. “We continue to build out our broad portfolio of annuity solutions to help meet the needs any saver might face during and approaching retirement. Lincoln Wealth Pass adds to the depth and breadth of our offering, providing a unique option for wealth transfer.”
Compliance September 16, 2019

Proposed Tax Could Hurt Retirement and College Savers

Even outside of saving for retirement or a college education, an investor’s ability to save for any future goal is drastically diminished by the proposed financial transaction tax in Senate bill S. 1587, Vanguard says. 

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Modern Markets Initiative (MMI), an education advocacy organization devoted to the role of technological innovation in creating the world’s best markets, released a report about the economic impact of Senate bill S. 1587, the Inclusive Prosperity Act of 2019’s proposed financial transaction tax (FTT).

While politicians are looking at this as mainly a tax on big Wall Street Investors, MMI CEO Kirsten Wegner says it “is in reality, a severe retirement tax on American savers from all income levels.”

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MMI’s analysis shows any transaction tax would drastically harm institutions trading large volumes of securities such as pension funds, mutual funds and other institutional investors that directly represent the financial interests of American workers, as well as average Main Street investors with defined contribution (DC) retirement or 529 College Savings accounts.

MMI found the financial implications for average American savers include:

  • $19 million in annual FTT on 529 College Savings plans, or the equivalent of a year of full in-state tuition for 1,900 students at a public university;
  • $24 million in annual FTT for a single public university endowment with $20 billion AUM, or the equivalent of 3,227 college scholarship in a given year;
  • $64,232 in annual FTT over the lifetime of a 401(k) account, or the equivalent of delaying the average individual’s retirement by two years; and,
  • $132 million in annual FTT for the typical state public pension plan with more than $68 billion in assets under management.

Similarly, Vanguard found the proposed tax would require the everyday investor to work roughly two-and-a-half years longer before retiring in order to reach the same retirement savings goals achievable without the tax. The tax would make saving for college more difficult as well. Families could take on debt to make up the difference, with a $7,800 student loan. Or, parents would need to save roughly an additional $250 per year, per child, to achieve the same balance in a college savings account.

“Even outside of saving for retirement or a college education, an investor’s ability to save for any future goal is drastically diminished by the proposed tax,” Vanguard says. It shows that the ending value of an investment of $10,000 in a small-capitalization active equity fund would be reduced by roughly 19% with the proposed tax, after 20 years.

According to Vanguard, the experience of other countries—particularly in Europe—have shown that FTTs distort capital markets. FTTs generally increase risk in the financial system by hurting market liquidity, producing volatility, increasing bid-ask spreads, encouraging financial engineering, and raising costs of capital.

At the same time, FTTs have consistently failed to deliver the promised tax revenues because FTTs shift financial activity to less-regulated markets. For example, Vanguard says, France and Italy did not raise even half the first-year revenue they had projected from the FTTs they enacted in 2012 and 2013, respectively.

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