With post-election policy issues a focus of investors, William Blair hosted a wealth management seminar on estate planning for more than 100 clients at Chicago's Lyric Opera before a dress rehearsal of Bizet's Carmen.
Estate planning experts Archie Kantzavelos, a senior wealth planner with William Blair, and attorney Robert Napier with Harrison & Held of Chicago discussed how to avoid the most common financial and estate planning mistakes, covering topics from insurance to titling of assets and liability protection.
Their update was welcomed given that both the Trump administration and Congress have unveiled plans to simplify the tax code and lower taxes for high-net-income earners in the coming year. One of the most discussed political changes was eliminating the federal estate tax. But Kantzavelos warned the group that even if legislation is passed that permanently eliminates the federal estate tax, individuals and families still need to focus on proper estate tax planning.
"While you may hear the word 'permanent' and think it means forever, in the tax world it doesn't mean that," said Kantzavelos, noting that tax laws are always subject to revision "and the only laws that are going to be relevant to you from an estate perspective are the ones in effect when you pass."
Under the Obama administration's estate tax law of 2015 the federal estate tax exemption was increased to $5 million per taxpayer, indexed to inflation permanently. So for 2016, an individual can leave $5.45 million to heirs without paying federal taxes, or nearly $11 million for married couples. Estates valued above those levels are taxed at a top rate of 40%. Additionally, some states charge estate and/or inheritance taxes.
Kantzavelos also spotlighted one of the most common mistakes in estate planning: charitable donations of cash rather than appreciated (or "low basis") stocks, especially those that have greatly increased in value over time. Typically, he said, there is a cost to convert that security to cash with the donor paying capital gains and state tax on the gains of the stock. But if the donor gives the unsold stock outright to the charity – neither the charity nor the donor are taxed on the gain.
"It's really one of those rare cases where both parties win," he said.
Napier stressed the value of using limited liability corporations to protect heirs from possible personal liability suits against large estate fortunes. He also discussed the importance of "asset titling" – making sure beneficiaries on life insurance policies, retirement accounts, 401Ks, IRAs are up to date.
"Asset titling is critical. It is astounding how often we will see a former spouse named as a beneficiary of a retirement plan or life insurance plan," Napier told the gathering. "It's also astounding how often we will find no beneficiary named on an IRA."
About William Blair Private Wealth Management
William Blair's private wealth events provide a forum for families to explore the dynamics of multigenerational wealth and learn the best practices for educating future generations.