Avoiding taxes bigger goal than building assets

They say you can’t take it with you, but wealthy Americans are determined to leave as much behind as they can. According to a new survey by Lincoln Financial Group, they are more concerned with protecting themselves – and their heirs – from what they consider to be excessive taxes than they are with accumulating more assets.

Last month at the Harvard Club in New York, the Philadelphia insurer held a round-table discussion based on information from the survey, “Financial Planning Among America’s Wealthy.” The survey was conducted through telephone interviews with 400 wealthy Americans in February. Those surveyed were at least 35 years old, with investible assets of $250,000 or more. Of those who participated, 81% were married, 88% had children, and 46% also had grandchildren.

The round table focused on the key findings of the survey, and the “Dream Team” of panelists also dissected a case study of George and Mary Duncan, a hypothetical Fairfield, Conn., couple with a net worth of $22 million [see accompanying story].

One key finding of the survey was that three out of four respondents think they are vulnerable to excessive taxes. The second-most-common financial planning goal among those surveyed is to protect assets from what they consider to be excessive taxes. Surprisingly, that is a more common goal than accumulating additional assets.

Of those respondents with $250,000 to $500,000 in investible assets, 53% said it is very important to protect assets from excessive taxes, compared with 58% of those with $500,000 to $1 million and 67% of those with more than $1 million. The concern about excessive taxes extends to all age groups – 61% of respondents 35 to 44 said the tax concern is very important, compared with 57% of those 45 to 59 and 59% over 60.

Trusts no longer are the exclusive domain of ultrawealthy families. A majority of respondents have established trusts and are showing more interest in them as assets rise. Of survey respondents, 56% reported using a trust as an estate-planning tool. Of those with investible assets of $250,000 to $500,000, 39% have established trusts, compared with 60% of those with $500,000 to $1 million and 72% with more than $1 million.

Health concerns are a major factor. Respondents fear a major medical problem as much as, or more than, a decline in the stock market, a national recession or rising inflation. A medical emergency is considered a “very high” concern by 52% of those surveyed – almost the same level of concern elicited by a decline in the stock market (53%). Almost half (48%) said there is very high concern over a national recession, and 46% are highly concerned about rising inflation.

The Dream Team concept came from the Lincoln survey, which asked respondents to choose the combination of financial professionals – including attorneys, financial planners, accountants, stockbrokers, insurance agents and bankers – that they believe could best provide financial planning and legal advice.

Almost one-third of respondents (30%) said that their Dream Team would consist of a financial planner, an attorney and an accountant. Twenty-three percent of respondents said that it would be a financial planner and an attorney, and 21% chose a financial planner, an accountant and an insurance agent. Sixteen percent selected only an attorney and an accountant.

Arthur H. McGonigal Jr., a tax and financial consultant at Sagemark Consulting in Vienna, Va., said that for those with less than $1 million in assets, a health crisis would be a legitimate cause for worry. “An extended health problem could erode their assets in several years,” he said. “Clients who I think can easily afford an extended medical expense have the same concerns.”

Taxes have always been a matter of concern to the affluent. “They are taxed excessively because during their lives they don’t do the right planning,” said Mr. McGonigal. “From an estate planning standpoint, the people I work with have done very little to minimize federal estate tax and state inheritance tax.”

“A lot of people think they are paying too much in taxes,” said Margaret Welch, managing director at Sullivan Bruyette Speros & Blarney, a fee-only financial planning firm in McLean, Va. “When people say that, they are focusing on the income tax rather than the estate tax. We try very hard to get people to make decisions based on what they need, what their goals are and what their investment goals are. I don’t think that we really know much of anything. We know, probably, that next year the unified gift and estate tax credit will increase to a million dollars. It’s a good idea, it’s probably going to happen, and it will probably stick,” added Ms. Welch.