On December 2, 2017, the full Senate passed its amended version of the Tax Cuts and Jobs Act. This Bill now goes to a joint committee (conference committee) of House and Senate members who will try to reconcile the differences in the House and Senate bills and arrive at a compromised version. Republican legislators from high-tax states, however, have some concerns and may be looking for more concessions (e.g., concerns about the repeal of the state and local income tax deduction). The compromised version of the Bill, if any, will then be sent to both chambers of Congress for approval. It is difficult to predict when (or if) the Bill will be finalized, but the goal is to pass the final version of the Bill before the holiday recess. If Congress passes the Bill, it then goes to President Trump for signature.
Category: Insights
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Tax Bulletin: Senate Tax Bill
Dear Clients and Friends of the Firm: As communicated in our last Tax Bulletin, the House Republicans recently released a proposal for tax reform titled the ‘Tax Cuts and Jobs Act.’ On November 16, 2017, the House of Representatives officially passed its version of the bill, overcoming a significant hurdle in the tax legislative process, which now advances onto the Senate. On that same day, the Senate Republicans approved their own version of the ‘Tax Cuts and Jobs Act,’ from the Senate Finance Committee. This proposed legislation has many key differences from its House counterpart that, if passed, would need to be reconciled with the House bill in a conference committee. Consequently, the final tax bill, if any, that is presented to the President, may be different from the existing House and Senate proposals. Therefore, we continue to recommend that you maintain your current tax planning strategies at least until the full Senate votes on its bill in the beginning of December. We have highlighted below some key differences between the House and Senate proposals.
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Tax Bulletin: House Tax Bill (H.R.1)
Dear Clients and Friends of the Firm: As you may be aware, the House Republicans, via the Ways and Means Committee, recently released its proposal for tax reform titled the ‘Tax Cuts and Jobs Act.’ Yesterday afternoon, the Senate released the initial details of its version of this tax bill as well. If either passes in its current form, this would likely have the effect of increasing taxes on many high net worth individuals, beginning as early as 2018. It is important to note, however, that any tax legislation has several hurdles to pass before becoming law, including approval by all relevant committees, full votes in both the House and Senate, a conference committee to reconcile the House and Senate bills, and then the President’s signature. Thus, the final tax bill that is presented to the President is likely to look different from the current House and Senate proposals. Therefore, we recommend that you continue with your current tax planning strategies until we receive more clarity out of Washington. We have highlighted below some key information from the final House bill that has exited the committee stage, and we will communicate an update once the final Senate legislation exits committee in the next week.
Estate planning is an area of wealth management that focuses on the accumulation, management, preservation, and eventual transfer of an individual’s assets in a manner that minimizes transfer taxes and transaction costs while simultaneously adhering to the individual’s personal wishes. It can be a complex minefield replete with confusing subjects and difficult conversations. Many individuals avoid planning for their inevitable death because they find the subject matter of their own mortality too morbid. However, if they can overcome the emotional and practical challenges of estate planning, there are various tools that can be employed to facilitate an effective and efficient transfer of wealth to future generations. One such tool, the Qualified Personal Residence Trust (“QPRT”), allows an individual to remove a large portion of his assets, a personal home, from his gross estate prior to his death. This article discusses the fundamentals of a QPRT: what it is, how it works, its benefits and limitations, and how it can be used to lower your estate and gift tax liability.
Is Long-Term Care Insurance Worth a Second Look?
Americans are living longer compared to historical statistics (although maybe not healthier). The U.S. Department of Health and Human Services states that 70% of people turning 65 today will need some type of long-term care during their remaining years.1 With longevity on our side and uncertainty about the future cost of healthcare, it may be prudent for high net worth individuals to review the option of long-term care insurance, and if appropriate, add a policy to their toolkit for retirement and/or long-term planning. Longterm care insurance (“LTCI”) is insurance which pays for a range of healthcare services and support functions when an individual is no longer able to independently meet his or her personal care needs. These functions are considered “Activities of Daily Living” and consist of eating, bathing, dressing, toileting, transferring and continence. As it is a difficult scenario to address, most people tend to ignore the planning for what will happen to them in their later years of life — be it living in an assisted living facility, paying for home health care personnel in the privacy of one’s house, or having family members come to their aid. All of these are viable options, since most high net worth individuals (a) are typically not eligible for Medicaid; (b) have limits placed by Medicare on its payment of or reimbursement for long-term care facilities and (c) likely have ample liquidity now that one assumes can cover for care later. For those who would prefer to leave those liquid (and other) assets to family members and/or have peace of mind concerning personal healthcare payments for the future, LTCI may be worth a second look as you review your estate plan with your insurance broker, tax expert, or Family Office advisor. LTCI should certainly be addressed if there is a history of long-term illness in the immediate family, a current disability exists, or possibly if one is single and does not have relatives close by.
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Sustainable and Impact Investing
The notion of sustainable or impact investing has existed for decades, but only in recent years has it become more mainstream. Sustainable investing was once considered “concessionary capital,” often associated with sacrificing investment returns in order to fulfill philanthropic goals and ideals. The sustainable investing space has developed significantly over the years, and today it offers investors a broad array of options regarding investment objectives and impact goals. When investing in the sustainable space, Chilton Trust seeks positive environmental or societal impact while generating competitive financial rates of return.
Insights Into Donor-Advised Funds
Donor-advised funds are third-party charitable funds set up by a sponsoring organization that accept contributions from donors and then facilitate those contributions to various charities at the direction of the donor. Contributions can be made in the form of cash, securities, or even complex assets such as real property or a piece of artwork. These contributions are treated as gifts by the donor to 501(c)(3) public charities. The largest, nationally recognized sponsoring organizations for these funds include Fidelity Charitable Gift Fund, Schwab Charitable Services, Vanguard Charitable, and National Philanthropic Trust. Many high net worth individuals and families who are heavily involved in charitable giving, including many of our clients here at Chilton Trust, can utilize these vehicles as an option to their current form of charitable gifting. We are often asked the question, why choose a donor-advised fund as a vehicle for charitable giving as opposed to direct giving? Why not open a private family foundation and process donations from there? The answers ultimately depend on the client’s specific needs and/or circumstances, and the outline below will help provide further information on these donor-advised funds.
Stuck choosing between riskier stocks or safer bonds which provide little income in today’s market environment? Have you considered an allocation to Preferred securities for your trust portfolio?
Trustees are like financial physicians in a way. They follow the rule of first do no harm. No harm to the principal, that is. The issue:How does one maintain and grow assets for the remainder beneficiary while at the same time provide a sufficient income stream to the income beneficiary?
Traditionally, a 3% to 5% distribution of income to the current beneficiary while preserving the trust for the remainder beneficiary was not particularly hard to do with a 70/30 stock-bond mix. In today’s low interest rate market, neither investment grade bonds nor common stocks are offering an average 3% to 5% yield which many income beneficiaries were used to receiving.As of the third quarter of 2016, the average yield for single A rated 10 year corporate bonds is 2.75% and the S&P 500 is about 2.15% (Source: Bloomberg). This leaves trustees searching for a way to find more income.
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Documents for Medical Preparedness
When considering estate planning documents, it is important to include advance health-care directives so your family and loved ones have the appropriate guidance to make the desired and responsible health-care decisions should you no longer be able to yourself. While it is difficult to think about injury or falling ill, none of us are immune to medical risks. Further, you have the right to direct your medical care. As such, having the right documentation to define and address your health-care needs and desires is imperative to ensure your caretakers have clear guidelines. State laws vary concerning the legality and enforceability of these documents, so it is best to consult your attorney to determine the appropriate documents to prepare. While you may not fall ill in the state for which your documents are enforceable, at the very least having these documents will provide written evidence of your desired wishes. It is never too early to get these documents in order as it is best to execute them well before any medical needs arise. Lastly, communicating your thoughts on different medical treatments, quality of life and end-of-life care with your family and doctor is critical. The more they know, the easier it will be for them to fulfill your wishes.
In the years following the financial crisis, endowment and foundation returns have benefited from strong equity market returns. However, as we now enter an environment where high returns are increasingly challenging to achieve on a risk parity basis, many foundations and endowments are taking the time to reevaluate the drivers of past performance and analyze the most intelligent means to maintain returns. It is incumbent upon the governing bodies of these organizations to implement best practices in effective management of investment portfolios, and to abide by their fiduciary obligation to prudently manage investment assets. As they look to evaluate their investments and/or reevaluate their investment advisors, we believe it is important for board and trustee members to focus on the following four questions, which we hope will lead decision makers to a deeper and more useful understanding of their own objectives and needs, and ensure that they are partnering with the right investment advisory firm for their organization.