The Coronavirus Hits Home-Now is the Perfect Time to Review Your Estate Planning

The Coronavirus health emergency is a huge reminder that life is fragile, precious and unpredictable. The daily increasing numbers of COVID-19 cases and deaths remind us that we are all mortal and we all need to be prepared. We continue to hope that you, your family and your loved ones are doing well through this pandemic that has turned the world upside down and changed our daily routines.  What better time than now to create or review your estate plan?

Here are some questions for you (and your spouse if you are married) to review:

  • Does your will or trust reflect your current wishes?
  • Are your digital assets covered in your estate plan?
  • Are your powers of attorney for property and health care up to date?
  • Who gets your money, when and how?
  • Who are the fiduciaries (executrix, trustee, other) who would handle your estate?
  • If you have minor children, who are your guardians?
  • Who are the beneficiaries of your retirement assets and life insurance contracts?
  • Is the titling of your assets up to date?
  • Will your estate avoid or minimize probate?
  • Are taxes minimized or eliminated?

Let’s spend some time on taxes.  Two keys points.  First, the current lifetime gift and estate tax exemption for federal purposes is $11,580,000 per person.  However, with the National debt already high and ballooning due to the economic stimulus, the government might look to estate taxes for much-needed revenue. Changes in your plan might be made now before the exemption changes.

The second point is state estate taxes, particularly for our clients and friends who reside or own property in Illinois.  In 2011, when the federal lifetime estate exemption rose to $5 million per person, Illinois “de-coupled” its state estate tax exemption from the federal exemption.  Since, 2013, a lower exemption of $4 million per person applies to Illinois residents.  Those with Illinois assets who haven’t updated their estate planning documents since 2011 could be subject to a potentially avoidable and unnecessary payment of Illinois estate tax.

Here’s an example from our estate planning attorney friends at Bischoff Partners, LLC in Chicago.  “If an Illinois couple passes with combined estates of $5 million with no trusts planning, the surviving spouse’s estate could owe an Illinois estate tax payment of $285,714.  If the couple had used trusts to plan for each of their $4 million exemptions, which essentially doubles their applicable Illinois tax exemption to $8 million, the couple’s tax of $285,714 could have been avoided entirely.”  Planning and continual review is so important.  The “bad result” above of owing Illinois $285,714 would be the result from no planning or planning that was done pre-2011 and not updated.

The Illinois estate tax rate is advertised as a graduated rate between 8% to 16% of assets over $4 million.  So, you would guess that the tax on a $ 5 million IL estate might be $120,000.  However, the fine print doesn’t work that way.  It’s 28% on the first $1 million taxable in Illinois.

Depending on the size of the estate, Illinois clients may want their attorney to review the advisability of an “Illinois QTIP Election” which can defer payment of the possible Illinois estate tax to the death of the surviving spouse.  In addition, it is our understanding the Illinois QTIP election allows couples to double the $4 million Illinois exemption to $8 million and still plan for using each individual’s Federal Estate Tax Applicable Exclusion as much as possible.

Lots to review and lots to think about.  Again, we say: “What better time than now?”

At DWM, clients know that we are not attorneys and don’t give legal advice. However, we have collaborated with estate attorneys on hundreds of estates in Illinois, South Carolina and elsewhere.  Part of our “Boot Camp” process for new clients is working with them and their attorneys to create or update their estate plan. This includes our review of the documents, preparation of an “Estate Flow”, a review of their titling and beneficiary designations and providing recommendations.  As a follow-up to this blog, we’ll be sending out existing “Estate Flows” to all clients to help kickstart their review process.  If you are not a client, please contact us and we’ll be happy to discuss how we can help you get started.

Conclusion:  Life is fragile, precious and unpredictable.  Yet, working with your attorneys and your wealth managers you can plan, implement, monitor, and revise your estate plan to prepare you and your family for the future. No time like the present to get it done!

Don’t Be Like Prince!

FILE - In this Feb. 4, 2007 file photo, Prince performs during the halftime show at the Super Bowl XLI football game at Dolphin Stadium in Miami. Prince, widely acclaimed as one of the most inventive and influential musicians of his era with hits including "Little Red Corvette," ''Let's Go Crazy" and "When Doves Cry," was found dead at his home on Thursday, April 21, 2016, in suburban Minneapolis, according to his publicist. He was 57. (AP Photo/Chris O'Meara, File)

Just a short three weeks ago, the world unexpectedly lost one of its greatest musicians and most unique entertainers in Prince. Whether you follow music closely or not, most everyone has a favorite Prince song. Prince grew up in a musically talented family. His parents were John Nelson, a musician with the stage name Prince Rogers, and Mattie Shaw, a jazz singer. Prince began teaching himself how to play the guitar, drums and piano at age 7. Needless to say, Prince was naturally gifted. Every instrument he touched, he mastered. In Prince’s first album, “For You”, which was released in 1978, he played 27 different instruments. From there, he never slowed down. Throughout his life, Prince produced 39 studio albums, 4 in his last 19 months alone. Prince was so consumed with music that he would spend days in his studio without sleeping. While Prince hardly failed in life, he did fail to plan for his unexpected passing.

We can all agree that planning for life after death is very uncomfortable. We all hope to live forever but, in reality, we never know when our clock will stop. Prince’s family has yet to find a will, or any other estate documents, to outline his end of life wishes. Currently, 51% of Americans age 55 to 64 are following down the same path as Prince. Don’t be like Prince!

If you die without a will, there’s no guarantee who will inherit your assets. Generally, if you are married with kids, your surviving spouse and children will inherit your assets, but why take the chance? If you have a minor child and no surviving spouse, the court would choose their guardians. As a parent, wouldn’t you feel more comfortable appointing your children’s guardian beforehand? In addition, without proper planning, your estate will go into probate court which is costly (as much as 5% or more of the estate value) and time consuming for all parties. Mourning the passing of a loved one is hard enough. Your family shouldn’t have to experience the probate court process as well.

Establishing an estate plan with the proper documents is extremely important. Essentially, your estate plan is an instruction manual on how to handle your assets and end-of-life needs. A minimum estate plan should have at least four documents, which should be prepared by an estate attorney:

  1. Last Will & Testament – This document addresses how your assets will be distributed upon your passing. This document will allow you to assign a guardian for your minor children.
  2. Health Care Power of Attorney – This document allows you to appoint an agent to make medical care decisions should you become incapacitated.
  3. Living Will – This document directs your physician to either continue life or discontinue life-sustaining procedures if terminally ill or permanently unconscious.
  4. Durable Power of Attorney for Property – This document allows you to appoint an agent to manage your assets should you become incapacitated.

For many people, a living trust may be more appropriate than just having a will. A living trust helps administer your estate and can also help you avoid probate. A living trust also allows you and your family to remain in control of your assets while living, even if you become incapacitated. If you become incapacitated with only a will, the court may easily take control of your assets before you die. This a big concern for many families. Executing the appropriate documents is only half the process. You will also need to make sure all assets are titled properly and beneficiary designations, both primary and contingent, are what you want!

A common misconception that many people have is that their estate isn’t large enough to trigger an estate plan. Whether your estate is worth $300 million, like Prince, or a couple hundred thousand, estate planning is essential for everyone. The absence of estate planning can set the stage for conflict among heirs.  Other famous people who left without a will in place include: Jimi Hendrix, Bob Marley, Sonny Bono and Abraham Lincoln.

Here at DWM, we are not legal experts, but we do get involved with our clients’ estate planning and collaborate with their estate attorneys in this very important matter. The information we provide is based on our experience and knowledge in these areas. As part of adding value to our clients, we prepare an estate flow analysis to help clients understand the course of their estate and to make sure the titling and beneficiary designations of each asset are updated to match the clients’ wishes and avoid or minimize probate. If you are looking to begin the estate planning process or review and update your current situation, give us a call, we’ll be happy to help.

Estate Planning – Put Yourself in Charge!

estate plan ducks in a rowTalking about death is uncomfortable and estate planning is one of those topics that no one really likes to discuss. This fall, we were saddened at the passing of three clients and helped their families work through the process of tying up their estates. It reiterated how important these discussions and plans really are. More than half of Americans don’t have wills or any sort of estate plan in place. Estate planning attorneys call this the “do-nothing” approach and the technical term for having no plan when you die is called “intestate”. Basically it means that everything you own, all of your assets that you have accumulated and imagined leaving to your heirs someday, will now be appraised, managed and distributed through the probate court system, not by your family or beneficiaries. As you can imagine, there are tremendous fees and legal costs to this process, requiring probate attorneys for public and lengthy reviews by the court system. In South Carolina, for example, a probate account must remain open for at least 8 months and assets can be frozen while it is sorted out. The process can take well over a year or more to settle the estate.

Aha! So we will just have a Last Will and Testament that spells out all of our wishes, you say. It’s true, a will helps set out the guidelines for how you want your estate to be distributed. However, the will is still administered by the probate court, not your family, and it becomes public upon your death. All of the costs associated with probate will still be there. Probate fees can run as much as 5% of your gross estate value, assessed on the total even before all of your liabilities are paid off! Probate court is not just for estates of the deceased, either. There is a Living Probate, which means your estate can go to probate if you are alive, but become mentally incapacitated. Then the probate court steps in to appoint an agent to control all your personal affairs in a “conservatorship.” This may become more of an issue as people are living longer and we face increased age-related cases of Alzheimer’s or dementia.

You may also have some of your assets titled in Joint Tenancy, short for Joint Tenancy With Rights of Survivorship (JTWROS). The right of survivorship gives ownership to the last remaining owner. Married spouses will often hold property this way so that their asset will automatically transfer to their spouse or joint owner. However, once both of the spouses or both owners have died, the asset, unless it was retitled earlier, will still have to go through probate. And neither a will nor the Joint Tenancy will prevent a Living Probate if one of the owners becomes incapacitated.

One good way to protect your assets and make sure they are managed and distributed the way you wish is to establish a Revocable Living Trust. Used in conjunction with your will, it controls all your assets while you are alive and after your death. Basically, you title all of your assets to your trust, and, with the trust as owner, you (or you and your spouse or others) are your own trustee(s), which means you control your assets just the same as you do now. IRA’s and 401K’s are treated separately and won’t be titled in the trust. You will then designate a successor trustee to take over and manage everything when you die. But when that happens, the assets are not in your name, they are owned by the trust and so there is no need for probate. The successor trustee immediately steps in as your estate manager and can distribute or manage your assets as you have designated. You can also write instructions of how to manage things should you become incapacitated, avoiding the need for a Living Probate. It is a win-win.

Take some time to look at your current estate plan, titling of all assets and all beneficiary designations. Discuss with your financial advisor, perhaps at Detterbeck Wealth Management, and your estate planning attorney the best way to protect and title them. It can take some work to track down lost stock certificates, deeds or account numbers, but it will be worth it in the time, angst and costs saved by avoiding probate. Your loved ones and beneficiaries will be grateful.