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Estate Plan for Dummies like me: 1) Why? 2) What type? 3) How much will it cost me?

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  • Estate Plan for Dummies like me: 1) Why? 2) What type? 3) How much will it cost me?

    Married, three grown kids and nearing retirement. $5 million and change in investable assets plus approx another million in house,farm and office. I have a decades old simple will somewhere. Been busy working and raising family all these years. Got to thinking may need to avoid probate and maybe need some asset protection. Wife in good health and 8 years younger than I so want make sure she is taken care of. Also have one child, though working and self sufficient, would not want to dump a large amount of money in his possession at one time.

    Thanks in advance

  • #2
    You've been here a bit from your time and posts - depends on the state. Will can be sufficient in some states vs Living Trust - on probate concerns.

    With $5M - worth taking a flier with a fixed fee Financial Advisor to get the whole Estate planning done since:

    1. Will is decades old -- if this is outdated -- overall current Financial portfolio may benefit from tweaking
    2. Complex - 3 grown children - but 'also one child' -- that mean step-child from prior marriage and three mentioned are yours but not current wife? -- with younger wife 8 years - may want a Trust to make sure your biological children are taken care of aside a separate fund for her -- eg A-B Trust. Pensions would need a careful look at too.
    3. $5M at stake.

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    • #3
      Probate is not the apocalypse. Agree it is state dependent. If you want to avoid probate for whatever reason (e.g., privacy, facilitate distribution of out of state property, Minor kids, spendthrift kids, etc.) then you need an estate plan based on trusts. I’m not sure costs are a huge differentiator. With trusts you pay up front, with probate you pay after death. Personally, in a reasonably similar position, and having just settled my MIL’s estate, I am comfortable with a will and probate. But I suspect in CA I would choose a trust structure. If you choose trusts, make sure you then transfer the assets in.

      That said, with $6M at stake, it is worth a little planning. Ask around for recommendations for estate/trust attorneys and read a few estate planning books so you know what questions to ask.* Check with a few of the recommended estate and trust attorneys on their fee structure (e.g., by the hour or fixed cost). Reassess who will be executor or trustee. If not wife, make sure your choice is willing and wife knows. There is more here than who gets what. The farm and office require transition planning as part of the process. Will one of the kids take over? If just businesses with no family ties, leave instructions on who to contact for valuation and sale.

      Regarding costs, In a major metro area I was recently quoted $1000 total for an estate plan for both wife and me (wills, POA, medical directives). Maybe less if you are in a low cost area. Frankly, I could have done the paperwork with NOLO, but wife wanted peace of mind of a professional plan. Besides, it was actually worth it for the advice we got on trusts. Even though we didn’t do it, quote on the trust was $1500, plus $300 in state fees. Note, you need a will regardless, so this would have been $2500 plus $300, not either or... Related, we interviewed two law firms to settle MIL estate. One wanted $15k just to get started. Other, I did more of the work (I would have anyway - going through accounts etc) and it cost us $3k all in. And he saved us that much or more settling debt claims.

      Also, bear in mind though that any money in your retirement accounts will not be covered by either a will or trust. You simply designate the beneficiaries in advance with your provider. This will typically cover quite a lot of your wealth. But even here, since the SECURE Act severely limited the stretch IRA etc, you need to plan which accounts to spend in life so that the right accounts are left in the estate. You also need to take these distributions into account when you plan what happens with the rest of the estate.

      *A few I liked: Living Trusts for Everyone - Sharp; Beating the New Death Tax - Lange; Estate Planning Smarts - Jacobs. WCI has a chapter in his book with the basics.

      Comment


      • #4
        $1k for an estate plan?! I'd take that deal. Over the years here I've come to understand an estate plan with POA, medical, directives, tax efficiency set up will cost anywhere from $3-5k. If your estate is $5m that is money well spent.

        Comment


        • #5
          Originally posted by Ykcor View Post
          Married, three grown kids and nearing retirement. $5 million and change in investable assets plus approx another million in house,farm and office. I have a decades old simple will somewhere. Been busy working and raising family all these years. Got to thinking may need to avoid probate and maybe need some asset protection. Wife in good health and 8 years younger than I so want make sure she is taken care of. Also have one child, though working and self sufficient, would not want to dump a large amount of money in his possession at one time.

          Thanks in advance
          The problem I see is not the structure but more of defining the asset distribution you desire and any limitations and timing that are important. How do you want the assets distributed and what restrictions one the assets if any once you are gone. You determine the objective, then get advice about the potential structures.
          You may find a small tweak in your desires makes a big difference in tax/legal issues. Value added for sure.
          With a spouse 8 years younger and a longer life expectancy, the timing of the distribution, control and ultimate destination are the most important.
          I have no problem with everything to my spouse and then to the kids. Your may have a different preference, some now some later. Once it’s distributed, you second step distribution may not happen. That’s how children can either get shorted or take advantage. Taxes and structure are designed to make distributions as you desire.
          Federal estate taxes won’t be an issue, State is a different problem.
          https://www.google.com/amp/s/www.kip...dex.html%3famp
          Seek and estate attorney in your state. You would pay them anyway for the documents.
          The attorney can suggest improvements that accomplish your objectives or improvements.

          Comment


          • #6
            Let me clarify: one wife, three biological children. Of those three children one would not make good decisions with inheriting a lump sum of money when my wife and I pass on. The other too would.

            Comment


            • #7
              Here are my thoughts on the overall process / summarized explanation of the main points:

              1) Assuming tax laws stay the same, you won't have any federal estate tax issues, but you will want to understand your state estate tax laws.

              2) For any estate plan, with no estate tax concerns, I like to keep things clean/neat so that it's easy for your spouse/heirs with the goal of avoiding probate. This can be done by having everything with a named beneficiary or titled to your Trust. There is only so much you can do with asset protection.
              - House titled Tenants by Entirety (if allowed in your state). The best for asset protection of your home.
              - Retirement accounts with primary beneficiary to spouse and contingent to a Trust. If you had 3 adult children that you weren't concerned about them making poor decisions with a lump sum, then the easiest route is naming them each outright as contingent beneficiaries. There are issues with potential for divorce/an ex-spouse getting access to that money, but in a clean situation, I prefer the practical easy solution. However, in your case, with one child that would not make good decisions, a Trust where you can dictate how you want that child to get access to their share will make sense as contingent.
              - Taxable accounts either in joint account with transfer-on-death (essentially like a beneficiary) to your Trust. If asset protection is a concern, you could title in your spouses name/Trust as an extra hurdle.
              - Life insurance with primary beneficiary to spouse and contingent to a Trust.

              3) The basic documents you'll get are:
              - A Will = a catch all and typically "pours over" into a Trust and follows what you outline there.
              - A Trust = how you want your money to be distributed/stipulations you want in place. For example, your children have access to 1/3 of their money at 25, 1/2 at 30, the rest at 35. I've seen one estate plan where the age was 55 before they could get the money, so everyone has their own intentions there.
              - Power of Attorney for healthcare / property = someone who can make healthcare and financial decisions as if they were you.

              4) The price of an estate plan varies by state/city. Bigger cities are more expensive and smaller towns you can get a better deal. Anywhere from $2,500 to $10,000 on the high-end. If you did a "joint trust" as opposed to two separate trusts, this lowers the price on the full package.

              5) Once you get the estate plan documents, that's step 1, but you need to make sure you go back and title accounts properly (updating taxable accounts as mentioned above or recommended by the attorney) and beneficiaries.

              Other optional considerations where some planning comes into play based on your goals / unique situation:

              1) When estate tax concerns aren't an issue, and with a $5 million net worth, you've likely "won the game" so you can start to think about generational planning with the goal focused on income tax planning. With taxable accounts you get a "step-up" in cost basis upon your death. So if you had a large taxable account with a cost basis of $1,000,000 and now it's worth $2,000,000, instead of paying the taxes during your lifetime, it may make sense to let that ride knowing that your wife would inherit it and the $1,000,000 of unrealized taxable gains turns into $0 of unrealized taxable gains.

              2) If you have any charitable intentions, one of the best ways to give is by naming a charity as the beneficiary of your IRA with the goal of leaving taxable accounts and Roth IRAs to your heirs. You do want to be careful with commingling charities/beneficiaries in your Trust or an IRA though because of some of the rules with distributions from inherited IRAs, but a competent estate attorney will be able to help talk through this with you in more detail.

              A lot of estate attorneys like to get things all technically correct to account for situations that happen very infrequently, so it really is balancing the "optimal" estate plan with making things easy for your wife/heirs. Having a clean and organized estate plan is one of the best things you can do for your heirs to avoid any potential arguments and saving them time/headaches with settling your estate.
              Andrew Musbach, CFP® | Co-Founder & Financial Advisor at MD Wealth Management, LLC | Podcast Host - The Physician's Guide to Financial Wellness

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              • #8
                Andrew, thanks. That does make things simple.

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                • #9
                  For what it's worth, I just received the final documents for my trust-based estate plan, pour-over will, and durable financial and healthcare POAs, and the whole package cost a bit under $3,000. Small beans compared to the value of a 7-figure estate!

                  Comment


                  • #10
                    While I didn't carefully go over the comments above and compare them to a recent good article and discussion we had on estate planning, I want to mention it also: https://www.whitecoatinvestor.com/es...is-on-my-mind/

                    Also, $3-5k could be about right for a typical estate your size, depending on the state. A good trust is the best way to keep your child from getting too much too soon, and Andrew mentioned above this: “For example, your children have access to 1/3 of their money at 25, 1/2 at 30, the rest at 35. I've seen one estate plan where the age was 55 before they could get the money, so everyone has their own intentions there.”

                    I personally like up-ing those ages just a bit, but I might go a very different direction, based on the discussion with my client.

                    One of the most important things you can do with a sizeable estate is find the right estate planner to help you get the right overall strategy for you and your family, both for disability planning and for the ultimate passing of your property. Don’t hesitate to have an initial consult with more than one planner and multiple discussions with the planner you choose before you decide on a specific plan. Although many components are always the same, some of the details of estate plans vary as much as people do in order to fit a person’s life and preferences completely. Good discussions will draw out those details.

                    Comment


                    • #11
                      One thing to note: Whatever restrictions you put on it, at some point will most likely be different.
                      The three kids will mature and have different circumstances. You may actually struggle with equal split and timing. If you reach a point that a change is desired, go ahead and make it while you can.

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