1. Estate Taxes1
As everyone knows, the Tax Cuts and Jobs Act tax overhaul, which was passed in December of 2017, doubled the estate tax exclusion to $11,180,000 per person. (The IRS hasn’t yet released the official inflation adjustments for 2019, but the basic exclusion amount is expected be around $11.4 million per person next year.)
Although the exclusion limits are extremely high, they won’t last forever—the legislation sunsets after the 2025 tax year. Estate planning is arguably more important than ever in order to take advantage of the new laws before they expire. There have been many clarifications about the rules this year, especially when it comes to the structure of trusts, charitable contributions and business insurance. A recent article from Wealth Management has some details here.
2. Family Conflicts2
Family conflicts often arise when money mixes with grief, yet few people feel comfortable talking with their children and/or grandchildren about what to expect. Ameriprise Financial found that 83% of those it surveyed in 2016 plan to leave money to loved ones. But just 21% of those who plan to bequeath money to their children tell them how much money they’ll get.
Most financial advisors have seen family conflicts arise and recommend that clients talk more about their estates with their heirs while everyone is still alive. And at least one advisor has his clients create a letter, document or video that explains to kids why their parents divided assets the way they did according to Investment News.
3. Transferring Heirlooms3
According to ThinkAdvisor.com, “Gen Xers and millennials want memories, not outdated stuff,” says certified appraiser Elizabeth Stewart, Ph.D. Unfortunately, baby boomers’ cherished porcelain dinnerware, crystal, sterling, books, and antique furniture often don’t really fit with their kids’ mobile lifestyle.
Instead, they crave the family stories behind such articles.
Clients should capture that history by recording videos inventorying the objects accompanied by audio relating the family history attached to them, Stewart advises. Even if offspring won’t appreciate owning the objects themselves, they’ll likely want videos representing them, she says.
4. Irrevocable Trusts4
Blended families of biological offspring and stepchildren frequently become enmeshed in estate fights, and litigation also frequently occurs when one spouse — typically the stepmother — has no genetic children.
But even when an estate plan has set up a revocable trust which become irrevocable upon one spouse’s death to protect biological children, if the trust is not funded properly it becomes worthless, which happens too often according to an article on ThinkAdvisor.com.
Rather than allow the surviving spouse to have full control over assets, consider setting up a mutually irrevocable trust that designates the beneficiaries, such as the children, in order to lock it in. If it’s done right, there’ll be two accounts: one that has a separate tax identification number that’s the irrevocable part of the estate and a tax ID number for a survivor’s trust, which would be the Social Security number of the survivor.
5. Cognitive Decline – New Rules for Advisors4
ThinkAdvisor.com spoke with veteran estate and trust attorney Michael Hackard about his protocol for protecting clients with cognitive decline. “Cognitive decline or other vulnerability of the asset-controlling parent — because of severe physical illness, isolation, abandonment fears, or other conditions — sets the stage for undue financial influence exerted by [one] family member or [unrelated] caregiver. For example, deathbed asset transfers are common.
“FINRA has a new rule, which went into effect on Feb. 5, 2018 allowing the advisor to put a [temporary] freeze on the account if it looks like someone else is trying to take money out. The rule also requires the advisor to ask the client for the name of a family member or other trusted person, so that if they see cognitive decline or signs of financial [exploitation], they can reach out to them,” he says.
A financial advisor will often have the estate plan for the client on file, and they can be aware of red flags. “[The new rule] is good because it gives some legal backing to the financial advisor when there’s suspicion raised,” says Hackard.
6. Digital Assets5
Most advisors work closely with clients and estate attorneys to craft thoughtfully-designed estate plans that provide for the transfer of a client’s tangible and financial assets. But often overlooked are a client’s digital assets.
Estate planning for digital assets covers email accounts, social media, PayPal, domain names, intellectual property, etc. stored on a computer. While some of these accounts are likely to have only sentimental value, domain names, blogs with advertising, PayPal, virtual currency and business contact lists contained in email accounts can have monetary value as well.
Without clear digital asset language contained in the estate’s legal documents, data privacy laws at state and federal levels can prevent the online service provider from allowing the client’s executor or family members to access his or her online accounts. Estate plans may reference The Uniform Fiduciary Access to Digital Assets Act, passed in most states, which provides that an owner of digital assets can specify who will be able to access and dispose of any digital assets after death.
7. The Uber-Wealthy
From Prince to Aretha Franklin, many famously rich people die without proper estate plans in place. But keep in mind, even ultra-high net worth people with good estate plans in place can get embroiled in difficulty.
Investment News recently pointed to Microsoft Corporation co-founder Paul Allen, who died on October 15 with no spouse or children, as an example. The billionaire’s vast personal holdings at Vulcan Inc. — with real estate, art, sports teams and venture capital stakes — are akin to a major corporation, at an estimated value of $26 billion. Extended family, staff and charities, as well as potential investors are eager to snap up pieces of it.6
“Even though this is a person’s life and their personal holdings, it’s almost like the dissolution of a major corporation,” said Darren Wallace, an attorney for Day Pitney, who handles estate affairs for high-net-worth clients. “Even if things go along as you might expect, it could easily [take] three to five years.”6
“Federal estate tax returns for deceased taxpayers must be filed within nine months, though many filers ask for a six-month extension. A large and complex estate like Mr. Allen’s — even when well-prepared for a succession — is likely to face an IRS audit, if only because of its size and complexity,” said Wallace.6
1 “Tax Law Update: November 2018,” Wealthmanagement.com https://www.wealthmanagement.com/estate-planning/tax-law-update-november-2018 (accessed October 23, 2018).
2 “Talk More to Heirs,” Investmentnews.com http://www.investmentnews.com/article/20170315/FREE/170319966/clients-need-to-talk-more-to-their-heirs-about-their-estates-study (accessed October 23, 2018).
3 “Boomers’ Kids Don’t Want Heirlooms. Advisors Can Help,” Thinkadvisor.com https://www.thinkadvisor.com/2018/03/21/boomers-kids-dont-want-their-heirlooms-how-advisor/ (accessed October 23, 2018).
4 “How to Protect Clients’ Assets From Blended-Family Feuds,” Thinkadvisor.com https://www.thinkadvisor.com/2018/02/28/how-to-protect-clients-assets-from-blended-family/ (accessed October 23, 2018).
5 “The Big Hole in Estate Plans: Digital Assets,” Thinkadvisor.com https://www.thinkadvisor.com/2018/10/04/the-big-hole-in-estate-plans-digital-assets/ (accessed October 23, 2018).
6 “Paul Allen’s $26 billion estate could take years to unravel,” Investmentnews.com https://www.investmentnews.com/article/20181018/FREE/181019922/paul-allens-26-billion-estate-could-take-years-to-unravel (accessed October 23, 2018).
This document is for informational purposes only and is not written or intended as specific tax or legal advice. The Quantum Group, its employees and representatives are not authorized to give tax or legal advice. You and your clients are encouraged to seek advice from a qualified tax professional or legal counsel.
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