Archive for wealth management

How to approach legacy assets in your estate planning

Legacy assets may not always be worth much, but it’s still important to handle them in the right way: by communicating with your family members about your wishes.

By Mark Hartnett, president, Argent Family Wealth Services

After a loved one passes away, surviving family members frequently find themselves squabbling not over money, but over personal items left behind.

In many cases, the value of these so-called “legacy” assets is more sentimental than monetary — a great-grandfather’s shotgun, for instance, or a mother’s engagement ring.

These assets may not be worth much, but it’s still important to handle them in the right way — by clearly specifying in your will who gets what. The key is to remain intentional with your planning.

The first and most important step is to communicate with your family members about your wishes. Ask for their feedback and collaborate as a group to ensure everyone is on the same page regarding the fate of your ‘67 Chevy. No matter how small the legacy asset, list it in your estate. Doing this now will go a long way to keep the peace and avoid potential sibling quarrels.

You may determine it best for some assets to be sold, such as those with high monetary value. But many legacy items are likely to be sentimental, which could make them worthwhile to pass along as keepsakes to a special niece or grandson. Have a plan for either avenue by mentioning everything (and everyone) by name. Consider the following checklist:

What percentage of value does it represent of your estate? The item may have great value to you both monetarily and personally, but it could be sold to benefit all surviving family members equally upon your death.

Are there future storage or maintenance costs to consider? It’s not uncommon to forget these details. If you own a classic car, for example, you should consider the cost of storing the vehicle, needed maintenance or regular specialty washes to protect its appearance. These add up over time.

Is there a rate of depreciation to consider, or is it increasing in value? Weigh the item’s past, present and future value. Everything is evaluated differently. Some items might be best to sell immediately or within a few years. Others may be worth significantly more if they’re kept in good shape for a couple of decades. Research these values and seek proper appraisal.

These are just a few things to consider. There are many other angles to keep in mind when it comes to different legacy assets, which is why you should consult with a wealth management advisor. Most importantly, be sure to keep everyone apprised of your plans and wishes for these treasured possessions so that your gifts remain gifts — not a potential burden or kindling for a dispute.


Tax reform is here. What does it mean for high-net-worth individuals?

As we enter tax season, the real-world effects of the recently enacted Tax Cuts and Jobs Act of 2017 are becoming clearer for many taxpayers. Although there remains a great deal of detail to be understood, from what we know today, there are plenty of changes for high-net-worth individuals to be excited about.

Estate taxes

A significant change in the new legislation is an increase in the estate and gift tax exemption to roughly $11.2 million ($22.4 million for married couples). This doubles the former exemption of $5.6 million for individuals and $11.2 million for couples. Only a small percentage of households paid the tax at the old levels, and even fewer will pay it now.

Tax reform

The real effects of the recently enacted Tax Cuts and Jobs Act of 2017 are becoming clearer for many taxpayers.

For high-net-worth households who might have been affected before but are now safely under the line, this change could make a difference in the way they approach their financial future.

“The new tax laws may change their planning,” said Timothy Barrett, senior vice president and wealth advisor based in Argent’s Louisville office. “They may have created trusts to capture and preserve a $5- to $6-million estate tax exemption, or double that for a couple. With the exemption amounts now doubled, couples with estates currently smaller than $10 million may be able to simplify their planning tremendously or switch their focus to income tax planning. But be aware that most of the personal tax changes revert back to 2017 law after 2025, which complicates permanent solutions.”

“Depending on how much you have and what age you are, 2018 ought to be a year to review and decide what is right for you and your individual financial situation,” said Howard Safer, CEO of Argent’s Nashville office.

Tax bracket changes

Marginal tax rates under the new tax bill will be lower for many taxpayers starting in 2018 and running through 2025. The top rate has been reduced from 39.5 percent to 37 percent, and will now apply to individuals with over $500,000 in income and couples with over $600,000.

Previously, the top tax rate had applied to individuals making $426,700 or more and couples making $480,050 or more.

A couple filing as “married/joint” with combined income between $237,000 and $351,000, for instance, will see their marginal tax rate fall from 33 percent to 24 percent. Assuming there are no changes in other deductions, this could result in a tax savings of around $10,000.

“Lowered brackets are one piece of much more complex tax change. It all depends on your mix of state and local taxes, mortgage interest and other itemized deductions and whether it makes sense to use the new higher standard deduction. Some people will end up keeping more of their income, and the rate changes are meaningful for all tax brackets. But there are too many moving parts at this point to make a definite call on how much someone will save,” said John McCollum, senior vice president – investments in Argent’s Atlanta office.

“Even though many details are yet to be worked out, the change does benefit high earners who aren’t independently wealthy, because you don’t jump to that top rate so fast now, ” Barrett says.

Pass-through income

A new deduction for pass-through businesses could benefit many high income earners who have an ownership stake in a business. Sole proprietors, LLCs, partnerships and S corporations may be able to deduct 20 percent of qualified business income, albeit with some limitations. This may create an opportunity for certain taxpayers to form limited liability companies that would be eligible for the deduction.

“People will be trying to take advantage of pass-through entities,” Barrett says. “Any high-earner who can work on a non-employee basis will want to explore using a limited liability company.”

Fewer itemized deductions

Some taxpayers may see a benefit from the near-doubling of the standard deduction, which has been raised to $12,000 for individuals and $24,000 for couples in 2018, up from $6,350 and $12,700, respectively, in 2017.

However, new rules regarding itemized deductions — affecting state and local taxes, medical expenses and mortgage and home equity loan interest, among other areas — will play out differently for every taxpayer depending on their individual financial situation. Some may opt for the standard deduction when they may not have before.

“One approach that may be useful for many taxpayers is bunching, in which deductions such as charitable donations are pooled every other year to maximize tax savings through itemization, with taxpayers taking the standard deduction on alternating years,” Safer says.

Boost to the economy

The tax bill’s benefits to corporations are also likely to benefit individual high-net-worth investors. In addition to receiving a permanent cut in the corporate tax rate, from 35 percent to 21 percent, companies will benefit from a sharp drop in the tax rate for repatriation of foreign earnings. This change will allow companies with large amounts of overseas income to bring it back to the U.S., paying 15.5 percent instead of the old rate of 35 percent.

“Many companies had accumulated large amounts of cash earned overseas, and the vast majority was just sitting there. By reducing their tax burden, it eliminates barriers, real and perceived. Companies are going to increase dividends and pay more to employees — you can find hundreds of those stories. More importantly, that cash is going to get invested,” McCollum says.

There is a great deal of detail about these changes that won’t be fully understood until the IRS releases its regulations on how to put these new tax changes into effect.

“The last major tax reform was in 1986, and it took years to fully understand and make that come together,” Safer says. “These laws will evolve in their interpretation.”

“The effects on individuals and pass-through businesses will be more complicated, but the benefit will be real for sure. It just remains to be seen how these various pieces will end up working together to change behavior,” McCollum says. “The bottom line of the tax change is that it’s putting more money in the hands of businesses and consumers to spend and invest instead of sending to the government, and I think that’s why the market has reacted so strongly.”

The 70/80/90 Metaphor

by Mark Hartnett, President, Argent Family Wealth ServicesHT Mark Hartnett

What is the significance of these three numbers?

The 70/80/90 Story is a statistical one that many financially successful fami- lies either don’t want to hear or have chosen to ignore. They tell a story of harm and suffering when the intention is usually the opposite. Let’s take a closer look:

70: The percentage of all generational transfers that fail (defined as, follow- ing the transition, the beneficiaries lose control of their wealth through foolish expenditures, bad investments, mismanagement, inattention, in- competence, family feuding or other causes within their control).

80: The percentage of trust beneficiaries that believe their trust is more of a burden than a blessing. 90: Of the generational financial transfers that are successful, 90% of assets are transferred into trusts by the third generation.

These numbers explain in great simplicity why the “shirtsleeves to shirtsleeves in three genera- tions” proverb is a reality for so many families. In other words: 1) most transfers fail; 2) of those financial transfers that are successful, almost all assets are transferred into trusts whereby; 3) the vast majority of beneficiaries are unsatisfied with their role as a beneficiary. So the answer to the question,“What comes next?” is usually… shirtsleeves for the third generation.

My first introduction to the 70/80/90 phenomena was early in my journey as a professional trustee. I was introduced to a third generation beneficiary who had recently dropped out of high school when she found out she was a beneficiary of her grandfather’s trust. She was “set for life” and didn’t need to waste her time getting an education. While $500,000 may have seemed like a lot of money to a bright-eyed teenager, neither my counsel nor her quickly decreasing trust ac- count balance convinced her to change her course and results of her foolish decisions.

So what do families who beat those odds do differently?

  • Recognize their assets are not only financial, but also human, intellectual, spiritual and social – the families also work very hard at being intentional in growing all forms;
  • Create a shared vision (their “why”) and mission (their “how”) for the family’s wealth;
  • Communicate on a consistent basis in both structured and non-structured settings;
  • Learn how to become mindful givers as well as receivers;
  • Create trust cultures that seek to grow excellent beneficiaries;
  • Tell and retell the family’s stories.

    As you can guess, this requires great effort for the families that seek to defeat the 70/80/90 Story. However, the families that are intentional and committed to the process are much more likely to be successful and leave a lasting legacy for generations to come. Let that be our guiding thoughts as we enter a new year in our lives.

    Roy Williams and Vic Preisser, Preparing Heirs (San Francisco: Robert D. Reed Publishers, 2003).
    Hartley Goldstone, James E. Hughes, Jr. and Keith Whitaker, Family Trusts (Hoboken: John Wiley & Sons, Inc, 2015)

Fiduciary Duty: Know your Trustee

by Kevin Karpe, Senior Vice President, Trust Officer

fi·du·ci·ar·y: “ A fiduciary is someone who has undertaken to act for and on behalf of another in a particular matter in circumstances which give rise to a relationship of trust and confidence.

 “Fiduciary”, “fiduciary duty” or “fiduciary standard” are terms we hear from time to time. We all recognize that a Board of Directors has a duty to its shareholders.  We know an executive has an obligation to act solely in the interests of his employer.  And we know elected officials have the sworn duty to prudently administer public resources.   In each example, the board member, the executive, and the elected official are all considered fiduciaries.   Common Law says fiduciaries are bound by equity to suppress their own interest in favor of a client, shareholder, employer or even taxpayers. At Heritage Trust Company, our fiduciary obligation results from an appointment as a trustee, an agent, a guardian or a personal representative.Kevin Karpe

All too often we hear in the news about how a member of a corporate board somehow places himself in a position of conflict by trading company stock based on information exclusive to the board. We read about investigations into why a politician has appointed a colleague to a post for which they are not the most qualified, or a stock broker receiving compensation for a transaction which is obviously contrary to the needs of his client. It is apparent many of those occupying fiduciary positions do not fully understand their obligation, an obligation to act with total loyalty at all times for the sole benefit and interest of another.

It’s difficult to know if our culture has experienced a measurable change in the application of fiduciary standards over time, but I’ve heard many in the investment industry attempt to explain the various degrees of duty and suggest if a conflict exists, it is simply remedied by a disclosure buried in the fine print of an account agreement.   It’s truly a shame an organization may be inclined to take the path of least resistance in the case of disclosure rather than recognize an opportunity to build loyalty with a client. Avoiding breaches of fiduciary duty or conflicts of interest might sound simple.   Breaches or conflicts are most typical in situations where a broker or agent is compensated in manner that is an incentive for him to recommend an investment or transaction that obviously ignores the best interest of the client. A variable annuity sold to a ninety year old woman is a good example of a fiduciary breach in the investment industry.

It’s refreshing to know that consumers are hearing more about fiduciary duty and as a result, the investment industry is now focused on formalizing internal standards. I find it interesting that their best examples are the policies of the old fashioned trust companies.

At Heritage Trust, we believe our experience counts. Our approach to our duty reveals solid relationships with our clients, their kids and grand kids will always contribute to successfully transitioning a legacy.

 Originally published by Heritage Trust in 2011.