A recent article in Financial Advisor, an on-line magazine targeting financial planners, attracted my attention with its title “Here’s How Much Money You Need for Bankers To Think You’re Rich,” https://www.fa-mag.com. The article authored by Suzanne Wooley and cited back to Bloomberg News, was intriguing especially since I had heard informally that bankers value a portfolio differently now considering the immense amount of wealth developed in the last several years that passed either through inheritance or business.
One point of interest to me regarding estate planning is deconstructing many of the old Wills that were drafted at a time when we thought a few million dollars in inheritable assets justified or maybe even necessitated planning using by-pass trusts and similar structuring techniques.
Another factor is just how much service does an individual or family or small business receive where some banks or financial institutions might not consider the investor to be wealthy.
The article begins by asking “Just how rich is ‘rich’?”… It then goes on to explain “In rich-tropolises such as New York and London, 1 percenters moan that living on $500,000 a year feels Dickensian. With a pot of $40 million—and private schools, a Hamptons retreat, a horse and a charity to feed—a hedge funder on the Showtime drama “Billions: exclaims: “<expletive deleted> I’m broke!”
I have to admit I do not watch the show “Billions” or Showtime, for that matter but the author of the article did not leave us in suspense. “Here, then, is a real answer, courtesy of the hush-hush world of private banking: $25 million…”
So, twenty-five million dollars in investable assets is what it would take for “elite private bankers” to consider a client wealthy. Note this observation is made by the author of the article only. Also, it does not include many bankers who work in the day to day world handling regular clients.
However, the number does make sense in today’s tax climate. This could be why. The figure for the unified credit, the amount that is exempt from federal estate taxes, now has been raised to $11.2 million for individuals and $22.4 million for married couples. So $25 million would be in the range, in theory at least if no planning were done, where there could begin to be some exposure to the federal estate tax.
What does this mean? It means that, if you only have a few million dollars in assets you can probably rest easy that the federal estate tax is not going to apply to you. Also, if you are single and die with assets a bit higher than the $11.2 million indicated – that by the way is this year since the number is indexed to raise higher with inflation – your $11.4 million would only be taxed for federal estate tax purposes on the additional $200,000. $11.2 million would be exempted.
If you are married, it is even better. Spouses, due to the unlimited marital exemption, pay nothing in federal estate taxes no matter how much is inherited from their deceased spouse. It is only when the estate is inherited – usually by the children – that estate tax could become a problem and then typically to the extent that the inheritance is more than $22.4 million, again indexed for inflation. Because of a concept known as portability the unused portion of the unified credit on the death of the first spouse can carry over on the death of the second spouse. To preserve this figure a federal estate tax return should be filed on the death of the first high net worth spouse even if no tax is due.
Returning to the article, the author notes what makes someone rich has changed dramatically in the past two decades. “In 1994, when Peter Charrington, global head of Citi Private Bank, first joined the firm, ‘Three million was largely considered ultra-high net worth across the industry…Fast-forward almost 25 years, and $25 million is how we define ultra-high net worth.
…a married couple with an estate valued well below $22 million, held largely in a diversified portfolio of publicly traded stocks, may not need a lot of fancy trusts-and-estates-work…A much wealthier family with homes and assets in multiple countries and currencies might require more cash flow management, customized financing for mortgages, yachts or planes, and the ability to borrow against art or investment portfolios…”
So there you have it. If you have $25 million in investable assets you are wealthy. If not, you may be wealthy in other ways.
Esquire, Colliton Law Associates, P.C. Janet Colliton has practiced law for over 38 years, 37 of them in Chester County, Pennsylvania, a suburb of Philadelphia. Her practice, Colliton Law Associates, PC, is limited to elder law, Medicaid, including advice, applications and appeals, and other benefits planning including Veterans benefits, life care and special needs planning, guardianships, retirement, and estate planning and administration.