Finally doing estate planning - anyone here have an ILIT? ...

[Miss Bonnie MD]

We are finally getting wills, POAs/HCPs, living wills made (we need 2 sets since we aren't married and expecting our first child this fall; he has a son from a previous marriage).

We both have life insurance policies > 1 mill and in the unlikely event we both pass and our kids are still minors, it seems like we should get an ILIT? We don't have an estate tax issue (yet). But that still means there are retirement accounts and bank accounts that would pass to minors - so do we also need a revocable trust?? Our retirement accounts aren't an estate tax problem yet either.

Basically, we don't want substantial assets to pass to minor children. Curious how others have dealt with this?

[q-school]

Congrats!

You may be overthinking it. Or not, I'm not sure how one would approach a blended family.

But for us,
we are on our third set of wills.
Situations change. How you approach issues change. As your kids age, who you want to be their guardians may evolve over time.

We paid $1k each time. I'm sure it could be done cheaper, but just to give you a ball park.
They asked a bunch of questions.
At this point who you want raising your kids imo is more important than the money, which will need to be put into trust eventually anyways. However for us, trusts will be created in the event of our deaths. We have staged disbursement of money. We have staged disbursements of money to my sister so she could not be penalized by having two extra mouths to feed or take on vacation.
She might have to hire a lot of help. However I don't want her to quit her job and buy a huge house and have the money be a mess. I feel conflicted about setting aside a large amount of educational dollars for my kids and not for hers when they will be raised as siblings but I won't be around so oh well.
If her kids come to me I will pay for their college and theee won't be any insurance money coming my way. Hopefully never need to explore these areas.
Anyways good luck.
No trusts have been formally created. Just instructions to do so in the will so far.

[Miss Bonnie MD]

NYC seems to charge a premium for anything lawyer related. But you also got one will I assume, not 2. So let's say that's 2K whereever you are. The cheapest I got quoted was $3500 for our two sets of wills, HCP/POAs. Sounds like you had testamentary trust or trust for minors created in the will?

[q-school]

right

 

[Craigy]

You want to have some sort of guardian/trustee selected to manage money for your kids until they reach majority or another suitable age.  Whether that's in your ILIT or your testament or your testamentary trust, etc. is up to you and a question for your attorney.

Estate tax wise there can be a lot of benefits to owning insurance in a trust but you'll want to worth with a good estate planning attorney to make sure you do it the right way.  You may not have a taxable estate right now, but with a long enough window you could find yourself with that problem either by a growing estate, a change in the laws and exemptions, or both.

[AlexxT]

My spouse and I did  wills and a trust, power of attorney, etc  about 12 years ago, and re-did them with a different attorney about 2 years ago.  Each time cost us about 5k.   It was a long process, with a lot of discussions of options ( hence the cost)  A good attorney will go over the options and reasons with you.  It took us about 4 meetings and phone calls, and several months to get it all done.

You will need a trust, especially because of a child from a previous marriage.   I don't think you will need a life insurance trust, unless you'll be subject to estate tax ( I may be wrong, but then, that's why you'll have an estate lawyer handle things, and not me )

Depending on the state, you might also need a trust to avoid probate.  it's very important in California, where I live.

You don't need to figure this out on your own.  It won't really help too much, no more than it help when a patient comes in after trying to figure out what's wrong with them and what treatment they should have.  The estate attorney will be able to explain it all to you.  For a good overview of why you need a trust, read The Living Trust Advisor, and Beyond the Grave, both by Jeffery Condon.

Many people fail to re-title assets into the trust.  Be sure to do that as soon as the trust is drawn up.  That took a while, and required a lot of notarizing, etc.

I also suggest that you find a good bank to be successor trustees.  I initially had family named to manage the trust for our minor children, in the event we both died, but soon realized that they couldn't do it.  It's very complicated, and can be very time consuming.  Plus, I didn't want the people who were the guardians also managing the money.  Too much temptation there.  Also, most people can't manage their own investments.  I didn't want them messing up my kids' money.  I named Boston Private, which my attorney recommended. I met with one of their trust managers.  I was very impressed They have a strong trust department, and use Fidelity index funds.  They charge around 1% AUM  ( sliding scale) on top of what Fidelity index funds cost.  No charge unless and until they take over.  I eventually concluded that the 1%, while expensive , is probably cheaper than the damage my relatives might inadvertently do to my investments, should they fall into the hands of an unscrupulous "adviser".

 

 

 

 

[VagabondMD]

Rex wrote:

More than anything else you need to find people you can trust for any very premature death when the kids are young. If you don’t have that then you are kidding yourself about some piece of paper making it work as intended.

Click to expand...

So true! The money part is the easiest to figure out-- buy term life insurance, establish trust-done.

Identifying friends or family to raise and nurture the young children in the event of your unanticipated early deaths is challenging. It is something that I worried about a lot when the kids were young--our options were very limited, and people moved in and out of our lives over time.

 

 

[Miss Bonnie MD]

Thanks everyone.

Just having trouble figuring out if we need a TRUST now (a definite yes to wills, etc naming guardians,  etc), we would need separate ones since we are not married (meaning double the cost).

We just signed with a lawyer for the wills etc, so I'll ask him what else he thinks we need. No on the ILIT for now since we won't have an estate tax problem before the terms of those policies end.

[jfoxcpacfp]

Miss Bonnie MD wrote:

Thanks everyone.

Just having trouble figuring out if we need a TRUST now (a definite yes to wills, etc naming guardians,  etc), we would need separate ones since we are not married (meaning double the cost).

We just signed with a lawyer for the wills etc, so I’ll ask him what else he thinks we need. No on the ILIT for now since we won’t have an estate tax problem before the terms of those policies end.

Click to expand...

fyi - everybody needs their own LWT, even married couples. A LWT covers only one person, as do all the related documents (POA, HIPPA release, etc.) Although, for a couple, the cost is generally quoted per couple because the documents are usually mirror images.

[TheGipper]

Just make sure you won't have a STATE estate tax issue before you dismiss the ILIT.

[jfoxcpacfp]

Rex wrote:

At current levels it’s pretty easy to avoid federal estate issues. Frankly it’s much better to give away assets before death.

Click to expand...

Not necessarily. If you gift before death, your heirs don't get the benefits of stepped-up basis. Their basis is "carryover" basis, which is the same as yours.

[AlexxT]

Rex wrote:

All depends on the situation.  First off its also possible to greatly reduce taxes on the money.  You are paying long term capital gains in these post tax situations.  You can sell shares that havent appreciated much.  You might not be producing lots of income so your tax rate could be very low.  IF the person receiving the gift is going to put it into a Roth or if they have financial needs now then it almost always is better to give before death.  Too often you see folks waiting for grandpa to die in order to pay off their accumulating college debt.  If you give while you are alive then you can appreciate the thanks you get (which is hard to appreciate post death) and have better control over the money being spent appropriately by giving it yearly (or not).  Sure if there isnt any good use of the money now then wait for the step up in basis but that has little to do with an ILIT.

Click to expand...

OP was talking about protecting young children in the event of their parents untimely death.   None of your suggestions will help OP provide support for her minor orphaned children.

Giving away money before death will certainly avoid estate taxes, just as giving away all of your income each year will enable one to avoid all income taxes.

My goal is not to avoid taxes.  I don't care how much goes to taxes. My goal is to have as much money as possible after paying taxes.   Don't let the tax tail wag the net worth dog.

Yes, you can give 14k a year as gifts without paying gift tax.  But then you lose control of that money.  It's not a good option if you have minor children, or even children in their 20's who are not yet experienced with money.

There are some tools that can be used with adult recipients, such as Crummey trusts, or irrevocable trusts,  but again, the best tool for protecting young children is generally  to set up revocable trusts with competent guardians and successor trustees.

[Miss Bonnie MD]

I am not worried about estate taxes at this time. In the future? Yes. We will need to re do things anyway in the future when we marry, more assets, etc. We just signed on with a lawyer so I'll see what he recommends. I'll update the post once we finalize them.

[FIREshrink]

I am not a lawyer. But we went through our own estate planning process, I am handling my parents' estate now, and I've read Condon and Condon, like, three times.  

I don't see the point of an ILIT beyond estate tax minimization. What you want is a trust that limits outflow to protect your future heirs from creditors and spendthrifts. In my experience thus far, even in a fairly low cost state, managing probate assets is time-consuming and costs money, especially if probating from a distance. In contrast, trust assets barely involved the lawyer at all, and the court had no involvement. Probate assets require 5-12 months before release (in my state) whereas I can have access to trust assets within the week if I want.

Beyond this, we value trusts to provide for our minor children without worrying the money could be appropriated, by them, a future spouse, or a creditor.

We use Vanguard as a corporate trustee, to reduce conflicts of interest and family tension. The costs are very reasonable.

[StarTrekDoc]

KIS with your first version.

Living Trust and Will that sweeps everything loose into it.   Making sure all assets are under Trust (an empty trust does nothing) and correctly structured beneficiaries.

As others have mentioned, the tricky parts are identifying the responsible custodians (friends, family or institutional) and cut off/payout dates/terms-limits-exceptions-morals clause.   When the kids were young and we had little assets, our trust was quite simple.

Our latest revision this past year was a bit more specific with teenagers and a bit more assets to tidy up.