April 22, 2020

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:

  1. Does your will or trust reflect your current wishes?
  2. Are your digital assets covered in your estate plan?
  3. Are your powers of attorney for property and health care up to date?
  4. Who gets your money, when and how?
  5. Who are the fiduciaries (executrix, trustee, other) who would handle your estate?
  6. If you have minor children, who are your guardians?
  7. Who are the beneficiaries of your retirement assets and life insurance contracts?
  8. Is the titling of your assets up to date?
  9. Will your estate avoide or minimize probate?
  10. 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 kick start 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!!