Estate planning advices

[jasonw1]

Given there are a lot of high net worth folks in the forum, can you share your experience of estate planning?

 

We have a simple will from 10 years, and we're thinking about update it and have a living trust.  We have both real estates (primary home, a couple of rental properties), and stock investments in tax account and retirement accounts.  If things continue, we expect we will bump to state estate tax and US federal estate tax. 

 

People have recommended starting a irrevocable trust and start passing assets to my kids.  Today a wealth advisor suggested a list of ideas:  Intentionally Defective Grantor Trust (IDGT) w/ Lifetime gift exemption, Spousal Lifetime Access Trust (SLAT), putting rental properties into a LLC and give some shares to my kids now etc. 

 

It seems complicated to me.  Has anyone done this? How helpful will this be?  what's the pros and cons?  How much would it cost? 

[Morgan]

Bump. I'm interested in learning more as well. 

[SharperDingaan]

Every jurisdiction is different, and has legal/accounting/advisement costs to set it up; expect to pay 2-3% of gross assets, similar to the commission on buying/selling a house. There's a lot of ego stroking, 'showing off', and the 'tax tail' trying to wag the dog; so know your priorities, and know your requirements. Any kind of resistance to a 3rd party review, or insistence upon a NDA before discussion, and instantly walk away. Also keep in mind that were the advisors as good as claimed, the conversation would not be taking place, as they should already be rich; so why aren't they? 

 

Simplest is best, and its often cheaper (after jumping the hoops & paying the fees) to just buy life insurance to pay the taxes. There are also many better solutions to creation of living trusts via the premature transfer of assets; LLC's offer a lot of freedom, with 100% of the shares gifted upon death as part of the inheritance.

 

Good luck!

 

SD 

 

 

[KCLarkin]

SD, I thought you were Canadian?

 

As a Canadian, my impression is that if you are American, you will need to do some estate planning to deal with US Estate Taxes. And it will be stupid complicated. The U.S. tax system is bizarre and designed to reward "grey area" tax evasion. Or regulatory arbitrage, to put it more politely.

 

[KJP]

15 hours ago, jasonw1 said:

Given there are a lot of high net worth folks in the forum, can you share your experience of estate planning?

 

We have a simple will from 10 years, and we're thinking about update it and have a living trust.  We have both real estates (primary home, a couple of rental properties), and stock investments in tax account and retirement accounts.  If things continue, we expect we will bump to state estate tax and US federal estate tax. 

 

People have recommended starting a irrevocable trust and start passing assets to my kids.  Today a wealth advisor suggested a list of ideas:  Intentionally Defective Grantor Trust (IDGT) w/ Lifetime gift exemption, Spousal Lifetime Access Trust (SLAT), putting rental properties into a LLC and give some shares to my kids now etc. 

 

It seems complicated to me.  Has anyone done this? How helpful will this be?  what's the pros and cons?  How much would it cost? 

 

I recommend contacting an attorney that specializes in estate planning for high net worth individuals and families.  Expect to pay such an attorney at least $5,000 - $10,000 to meet with you to understand your current assets and goals, advise you on options, and then draft the documents necessary to execute the plan you select.  If you have the level of assets you're talking about, then it's worth getting it done right.

[SharperDingaan]

2 hours ago, KCLarkin said:

SD, I thought you were Canadian?

 

Canadian based; but lot's of non resident dual national's, Cdn/UK/French LLP's, and direct asset co-ownerships. Familiar with the tax-adviser experience, and know a lot more of the Gibraltar and Cayman Island opportunities that we would prefer  Ultimately we had to be comfortable with the proposed solution, and we just weren't. US estate planning is mechanically different, but it will very likely be a similar experience .... there are only so many ways of legally minimizing taxes.

 

KJP is quite right; if you choose to go this route, use a attorney, and be prepared to spend. A big slug now, and a smaller slug every year in ongoing filing/accounting fees; 25K/1M AUM to set-up (2.5%), 12.5K/1M AUM (1.25% MER) per year in maintenance. 

 

Our view was that per 1M in investable assets, a 6% return/year is largely inevitable (long term bond bought at 6% YTM, and held to maturity). Deduct 1.25% MER (bond fund), 1.25% filing/accounting, 2.5% inflation (on a good day); and your real return is down to 1% - before taxes, and reputation risk. 3.25% if you just bought the bond directly, and clipped coupons. Is that 1% real return for all this sh1te, on a good day, really worth it?

 

Different strokes.

 

SD

 

 

 

 

[jasonw1]

Thanks all for the feedback, has anyone done this?  how much net wealth would it make sense to consider this? do people think this is even necessary?

 

I've talked to a couple of attorneys specialized in estate planning, they've quoted me $20,000 to set things up, then it's a few thousand dollars per year to maintain it.  I'm just not clear how I can access/control money once it's in trust, it seems complicated.   

 

@SharperDingaan how did you get the ongoing maintenance cost you mentioned?  I'd agree it's not worth the trouble if I have to pay 1.25% AUM for ongoing maintenance every year.

 

  

[John Hjorth]

@jasonw1,

 

I assume from your starting post that you are a US citizen. Is that assumption correct?

Edited July 16, 2023 by John Hjorth

[SharperDingaan]

On 7/16/2023 at 12:32 AM, jasonw1 said:

@SharperDingaan how did you get the ongoing maintenance cost you mentioned?  I'd agree it's not worth the trouble if I have to pay 1.25% AUM for ongoing maintenance every year.  

 

I just simplified, and compared to the typical MER on a bond ETF or mutual fund; the portfolio manager trading bonds, your return being interest + gains - MER. If you simply bought individual bonds directly, at different maturities, and held to maturity; you would get the YTM at zero risk (treasuries, etc.), clip coupons twice/year, and eliminate the MER entirely. Comes down to how active you want to be, and if you have the skill set.

 

You will also have multiple and complex new annual tax filings, that you will need an accountant to do. Additionally, every 2-3 years you will need to re-estimate how much tax this is saving/year, and make a decision as to whether to continue or not; all very 'fuzzy'. Comes down to the cost of annual life insurance (the simple) to pay the taxes that would be saved; if it's comparable/less than the estimated ongoing maintenance/year (the complex), walk away and enjoy a simpler life. 

 

We just recognized that we were being taken, and 'took back'.

The thieves were good, but we were better 

 

SD

 

Edited July 17, 2023 by SharperDingaan

[Grafter]

For background, am in the US, and work as a service provider to some of the planning (usually not directly involved, as that is more the realm of estate and trust attorneys, though I know some of the tunes), so the below is based towards that.

 

That all said, there are a number of considerations when you start getting to end of life planning.  Some is what you want to happen to the money, how much you have (and if you are getting up against the current or potential future lifetime exclusion amounts) and then trying to do so in an efficient way.  And efficient can be very different depending on what you want, and this is a very broad topic.  If you want book suggestions, I would say:

 

Beyond the Grave - For considerations of leaving money to kids and in trusts
Various books by James Hughes Jr for family wealth topics
Die with Zero by Perkins for getting use of money during life. 

 

Otherwise, for transferring assets, it is some combo of what is nicknamed: freezing, squeezing, or burning assets, which are respectively: lock in current values, using minority and illiquidity discounts, or transferring during your life (such to the various limits).

 

Though, one piece of advice, is that estate planning is not a one and done approach.  As trust tax and situs type laws keep on changing, as well as you should revisit it every time there is a major change (new kid, marriage or divorce, new type of asset), as about the only thing worse than no planning is ancient planning.  As I had to deal with a will that was 40+ years old and without a lot of changes, which was a major PIA.

[Guest]

A lot of people on here are "high net worth" but most are not at the real estate planning level.

 

If you're married, I believe to worry much about estate tax you need over $26 million (Federal level). If you have more than that...$20,000 is not a big deal at all.

 

For the vast, vast majority of people, this stuff is not worthwhile. Paying a bunch of estate planning fees might make sense if you're loved ones have some type of issues to protect them but a lot can be done by simple trusts, proper beneficiary designations and account types and registerations.

[jasonw1]

17 hours ago, John Hjorth said:

@jasonw1,

 

I assume from your starting post that you are a US citizen. Is that assumption correct?

Correct, I'm a US citizen and I live in Washington state.

"The State of Washington estate tax threshold amount for year 2023 is $2,193,000. Thus, at your death you are allowed to pass on $2,193,000 estate tax free at the State of Washington level. The tax rate is a graduated rate beginning at 10% and increasing to a maximum of 20%."

 

For US estate tax it will sunset to $5M in 2026 which I expect a lot of folks will hit that 

"However, on January 1, 2026, the exclusion amount will “sunset” and revert back to the 2017 amount of $5 million, adjusted for inflation. That's a significant difference – especially considering estate taxes of 40% will be applied to anything over the threshold"

 

[jasonw1]

8 hours ago, stahleyp said:

A lot of people on here are "high net worth" but most are not at the real estate planning level.

 

If you're married, I believe to worry much about estate tax you need over $26 million (Federal level). If you have more than that...$20,000 is not a big deal at all.

 

For the vast, vast majority of people, this stuff is not worthwhile. Paying a bunch of estate planning fees might make sense if you're loved ones have some type of issues to protect them but a lot can be done by simple trusts, proper beneficiary designations and account types and registerations.

It's not so much about the $20,000 cost to set it up, I'm willing to pay that to get things done right, and willing to pay a few thousands for annual maintenance cost.  However I'm not sure whether it's the right thing to do, what's the downside of setting up irrevocable trust and putting assets there, and I'm definitely not willing to pay 1% of AUM every year for that.  Attorneys are telling me it's something good to consider, I assume they want the business and could be biased, I'm just not sure whether it's something a regular family should worry about.   

[Guest]

6 hours ago, jasonw1 said:

It's not so much about the $20,000 cost to set it up, I'm willing to pay that to get things done right, and willing to pay a few thousands for annual maintenance cost.  However I'm not sure whether it's the right thing to do, what's the downside of setting up irrevocable trust and putting assets there, and I'm definitely not willing to pay 1% of AUM every year for that.  Attorneys are telling me it's something good to consider, I assume they want the business and could be biased, I'm just not sure whether it's something a regular family should worry about.   

 

 

Sorry man but the information you gave is just too vague. If you are near 80 and have $30 million, it is probably worth it.

 

If  you are 30 and have $20 million, it might also be worth it since you'll be hitting those markers soon.

 

If you are 50 and have $5 million, probably not worth it. 

 

Do you want your children to have as much as possible? anything to charity? any special issues with children you want to avoid or help with? Like I said, it's just too vague to say anything very helpful. 

[rkbabang]

Why a non-revocable trust with huge setup fees and ongoing yearly fees?   As stahleyp says above, If your assets are under $10M or so, wouldn't just a regular revocable trust with yourself and your wife as trustees be sufficient?  I set one of these up for about $3K in one time legal fees the transferred ownership of both my homes and all of my brokerage & savings accounts into the trust's name.   I left my checking account in our personal names because there is never more than a few $K over what we need to pay this month's bills in there anyway.   I don't know if things are more complicated depending on which state you live in though.  I live in NH with no state income, capital gains, or inheritance taxes to worry about.

 

[Jay Rent]

Jason's concern is mostly with Washington state estate tax.    

 

Even if the federal sunsets to $10mm for a married couple you really want to keep it as simple as possible unless your assets greatly exceed the threshold.

 

1.   You and your spouse can gift $17K each ($34K) to each and as many heirs as you have, each year. (although you might not want to do this until your kids are old enough and rational with money).  

 

2.   Its a tough decision to make, especially depending on current age and kids age,  but you and your spouse can give away up to $25mm before the 2025 sunset.    If you are still too young the exclusion amount will probably come down but be negotiated higher than the reversion 'sunset'  amount.    It should be $10mmn(couple) in a worse case environment.

 

For Washington state, I have no experience, but you probably should talk with a qualified estate lawyer and your estate planning should still start with the above two and also look into a credit shelter trust (A/B or bypass trust).      For Washington state , no estate tax is due when passing assets to your spouse however you do lose portability.    The credit shelter trust doubles the estate tax exclusion to $4.3mm by providing the portability.    You want to use federal gift rules to keep your assets close to $4.3mm (hopefully increased by Washington over time) and just use (hopefully cheap) term life insurance to pay the taxes above $4.3mm.   

 

With federal gift exclusion for a couple  (assuming sunset) of $10mm and $4.3 mm (Washington state) you are at $14mm before needing to look at more complex and costly alternatives.

 

If you are over $14mm (plus yearly $17K ($34K) gift to as many people as you choose) than each family is different but your heirs are probably set and you are getting to the point where you should focus more on the Gates/Buffett philosophy of expanding your charity giving.  (Or just spend it for large family exotic vacations).

 

Putting all your assets into a revocable living trust will be beneficial.  (especially for the real estate and probate purposes).  

 

I have no experience with more complex irrevocable trust planning.

[jasonw1]

Thank you so much for all your replies.

 

@Yosemite, what you shared is super helpful.  Yes Washington estate tax is the main concern.  I will look into credit shelter trust.  I wasn't sure what you mean by "just use (hopefully cheap) term life insurance to pay the taxes above $4.3mm", are you saying to buy term insurance payout which can help pay estate tax?

 

Our kids are still young, I don't feel we are ready to gift them the annual limit yet, as I don't want to rob them the joy of making money themselves.  One of my kids is very interested in finance and just got into stock investing last year, he's getting much better returns than me, and he may not need any of the gifts.  When asked how he does it, his response? "I just buy stocks which are on the rise" 

 

@rkbabang looks like I should move to NH, or one of the no/low estate tax state to die rich 

 

I'm planning to get the revokable trust set up first.  In the meantime, if anyone has experience with irrevocable trust, IDGT, SLAT etc, I'd really appreciate if you can share your experience.  

 

 

Edited July 19, 2023 by jasonw1

[jks327]

One thing is if you trust your kids, start giving them the maximum allowable amount as a gift every year.  It's less than $20k/yr but no taxes paid on this.  My main goal when I die is that my property will be protected by a conservation easement, other than that not sure where the money will go.

[Red Lion]

On 7/23/2023 at 7:35 AM, jks327 said:

One thing is if you trust your kids, start giving them the maximum allowable amount as a gift every year.  It's less than $20k/yr but no taxes paid on this.  My main goal when I die is that my property will be protected by a conservation easement, other than that not sure where the money will go.

Even if you didn’t trust them you could probably even do irrevocable trusts. Lot of work for $20k, but not if you plan to do this for decades.