Phew this is a tricky topic . . . with my parents I’m in the “spend it all on your way out” camp; on the other hand, if my siblings received inheritances then I would be hurt if my branch was left out, mainly because of my sons - their blood grandkids. But I genuinely hope and pray that my parents enjoy ALL that they have worked so hard for all their lives. They embody the American dream story.
I don’t favor the “leave out the wealthy ones” approach because it can be subjective when it comes to the definition of ‘wealth’. It can also feel like a ‘punishment’ for being responsible. Of course there are exceptions to this, particularly with special needs heirs.
With my sons I would hope to leave them something per stirpes (harkening back to law school days and this was not my forte or field of expertise so please take all that with a grain of salt) - i.e., for my sons and then their descendants. So one son’s portion would be split between his heirs should he predecease his children (it’s hard to type that out it upsets me to even think of such a thing). All that being said, I haven’t made much progress in putting something down on paper, and I should know better. Luckily my parents seem like they’re on top of this stuff.
We know a trust fund baby IRL and this person’s financial enmeshment with another family member has been incredibly destructive.
This stuff is important to figure out to the best of our abilities while we can. Even with small estates, very hard feelings can be laid among adult children, grandkids, etc. I’m praying that I do it right.
The way to understand this is to understand that the gift tax idea exists only to keep the minority of taxpayers who are asked to pay the estate tax from side-stepping it through gifts made during their lifetime. Giving money away lowers the value of your taxable estate. ** Barring changes in future laws, the gift tax is not relevant to anyone who will not be subject to the federal estate tax. **
There is no federal estate tax until your estate is in excess of about $5.3 million (double that for a married couple). Therefore, unless you expect to be over that number, you have no worries about gift taxes. If you want to give someone more than $14 thousand in a given year you are required to file a gift tax return. The return records the excess over $14k that you gifted, and you can either pay the gift tax, * or simply have the gift that would be taxable subtracted from your $5.3 million lifetime exemption *.
For the majority of people, giving someone more than $14k in a year ( $28k if both spouses do a gift) will never trigger an actual tax. It will simply whittle down your lifetime exemption.
For those out there who anticipate winning the lottery and being in a “taxable estate” position when you die (above $5.3 million), then the annual gift “safe harbor” of $14k per recipient is worthwhile doing if you think your recipients are better off with your money than the federal government.
Regarding the idea of recruiting multiple donees to re-donate…I think that would not fly in the tax court, and you’d get some very serious penalties. Whether its likely to be detected is a separate matter, but if you exploited the idea aggressively it seems likely to be reported by someone. Given that you’re not likely rich enough for it to make a difference, it doesn’t make any sense.
Also, if you gift to “dummies,” they may decide to keep the “gift” and not re-gift to the person of your choice. I can see no good from fake regifting, especially with the $5.4 million exclusion.
My inlaws did some gifting of 1/20th of some real estate. It just made title messier and had the CPA scratching his head. We had to file paperwork but it didn’t trigger any taxes, just reduced lifetime maximum.
A few years before my father passed away we had a family conversation about my parents’ house. I have several siblings and most of us owned our own homes or had enough money to buy one if we wanted. One, however, was recently divorced after years of being married to a spendthrift who didn’t like to work. Her ex didn’t provide any support so she and her minor children moved back home with my parents. My father quickly calculated that neither he nor my mother were likely going to live long enough to see the children reach adulthood and he worried about how to make sure they had a home once the estate was divided up. My parents wanted to be fair, and they didn’t want to disinherit anybody.
Our solution was to leave the house entirely out of the will. We encouraged them to add my sister to the deed while they were still living. It helped them because they were able to do some traveling and not have to worry about the house while they were away, and it helped us because we knew my sister and her children had a secure home. After my dad died my mother transferred the title to my sister and spent part of the year with each of us. We were able to take her on trips and not have to worry about the house being empty and she was able to come and go as she pleased. It’s been several years since my mom passed away, but she lived long enough to see my sister’s eldest finish the 3rd year of a 4-year state university and she was confident the younger ones would follow suit. It worked out really well and none of us regret it.
My dad’s personal effects passed to my mom after he died. Whenever my mother came to visit, she’d bring us things. She’d pay for a trip here or a dinner there. On birthdays and Christmas pieces of jewelry, silver, family heirlooms, artwork, photos, family memorabilia, her journals, and much more were given directly to the child or grandchild she wanted to have it. Her hope was that we would use it while she was still alive so she could watch us get some joy out of it. By the time she died, there wasn’t anything left to divide because she’d given it all away.
@Igloo, the kids have the right to replace the trustee from the get go. The shared control comes later, but not all that much later. I believe we have built pretty good protections in for them. You have to balance the irrevocable part with leaving the whole thing susceptible to change later by people who don’t particularly care about our desire to see our daughters and their heirs taken care of.
When we are both gone, the trust splits into two trusts with equal assets,one for D1, the other for D2. The girls will not have to deal with losing any part of their money to an irresponsible sibling.
In that case, why would you make it irrevocable? What are the advantages doing that compared instead of setting up trusts with kids as their own trustee? We could all learn from your setup.
Not sure I totally interpreted your question correctly. But as for setting up two trusts for the girls from the outset, that wrongly assumes he wants his estate to go to the kids, leaving me out. The trust established at his death is primarily to assure my financial future, in spite of the fact that I will also directly have my own share of the community assets. His trust is meant for the girls only as I see fit to distribute it to them while I’m alive. He wants whatever is left in it to go to them in equal parts after I am gone, just as whatever is left of my community portion will go to them in equal parts when I am gone. Making all this irrevocable protects these wishes from being circumvented by a future spouse who might convince one of us to change the terms, benefiting second spouse. As it is, the trust works to prevent the surviving spouse from changing the terms in a way which cuts out the girls or benefits someone not in the family.
I will also state that I have no legal experience or education, so my explanations may well be lacking in clarity. Our estate planning took months to do. Any lawyers who see poorly stated logic are free to correct it.
This is actually something we are dealing with in my family right now. My mother’s current will leaves everything in equal shares to my sister and me, and if we predecease her, to our children (per stirpes). But we realized that if we do predecease her, our spouses would not be provided for. So we are looking at having her change her will to leave my or my sister’s share to a trust if we predecease her. The trust would benefit the surviving spouse (and the children) for the spouse’s life, and then pay out to the children. The lawyer’s draft also calls for the trust to terminate if the spouse remarries, but we are leaning towards dropping that clause.
Looking at these, I’m not sure which term exactly describes our setup. I’ll say that we have a complicated estate; otherwise all this would be pretty unnecessary.
Damn, now I’m going to have to look at this crap again to nail down exactly which one best describes our situation. Not because of this thread, but so I can fully understand it.
Keep in mind what will happen to spouses. Yes, you want to provide for kids but should spouse be impoverished if they outlive the “blood” relative? If the kids inherit but spouse doesn’t, it can leave the kids much wealthier and surviving spouse surviving on SS. This can make it very difficult as costs rise due to health issues. Most experienced estate attorneys can review scenarios and make suggestions to carry out wishes, including pointing out potential flaws/weaknesses.
Seems like that could have been avoided if the DH, realizing that there was no way to know when he might inherit, had provided for his demise just the same as anyone else who was not expecting an inheritance: by purchasing life insurance with DW as beneficiary, and working/saving/investing, with those assets all going to wife in the event he predeceased her. DH’s potential inheritance is similar; if he dies, his share (by terms of the trust) goes to our Ds. That’s why he made it a priority to provide for me completely separately, as though that money doesn’t exist.
Exactly, nrdbs4. If I inherit from my folks ( likely) and then die before H our kids will get all of the inheritance ( my folks and I have talked about this) H will have his and my 401k’s , his pension from a prior job, our home equity, my life insurance proceeds, etc. He should be fine unless he decides to start buying yachts or polo ponies.
FWIW we have always saved diligently. If for some reason I inherit nothing, we will still ok financially. In fact we met with a financial advisor several months ago and we never even mentioned a possibility of inheriting.
@Iglooo - Here’s one possible (likely) explanation. What @Nrdsb4 might be describing is what used to be a pretty standard estate plan, called an A/B trust arrangement. The reason it was used is that the unified gift exemption used to be (for example) $2 million per person. If a spouse left all their money directly to the surviving spouse then the survivor would only have their own personal $2 million exemption to use when the kids got the dough. By doing the A/B trust you can avoid “wasting” the $2 million exemption that the deceased spouse had; effectively you double the exemption to $4 million. The “A” trust must be made irrevocable upon the death of the first spouse in order to preserve their exemption.
That’s probably why the “A” trust was set up to be irrevocable upon death of the first spouse although some of the other advantages that Nrdsb4 mentioned also apply.
$2 million may sound like a lot of money, but if you have a fully paid off house, a lifetime of investments and retirement plans/savings, a small business, maybe a million of life insurance proceeds in your estate (though your lawyer should never let this happen if they’re competent) then you can go over the exemption limit. Also, the $2 million was not adjusted for inflation, so in 30 years time it might be more like $750K is now. Estate taxes are/were 40%-70% at the Federal level, plus possible state taxes too. You don’t want to be hit with them if you can avoid it … unless you think the government should have your money instead of your kids
However, a lot of this is now obsolete. The exemption is now $10.9 million per married couple and you can give your unused exemption to your spouse (you couldn’t before). But maybe @Nrdsb4 did their estate plan more than 5 years ago, in which case they might have used the A/B trust. Also, even though the exemption is quite high now it’s been a lot lower in the past. Most people think it will very likely go back down at some point in the future. The law seems to undergo a major change every 10 years or so.
Not an expert, but I think I’m remembering the gist of this accurately.
I want my kids to inherit and if dh lives longer than me and has kiss with some floozy they deserve to inherit something too, just not everything! Definitely want to talk about that with the lawyers. We’ve contributed approximately equally to our nest egg when all is said and done. All our parents have now passed on so at least we know more or less what we are dealing with. (There’s a law suit going on disputing the value of one piece of property that got downzoned so it is no longer a buildable lot…)
I think you want to think very carefully about not treating kids equally. Too many possibilities for resentment. There can be very good reasons, some of which have been mentioned in this thread, but mostly I think it’s a bad idea. Even if one has twice the earnings as the other.
My husband and I married only “recently” and between us and we have three kids, none together. This is a subject we have really spent a lot of time on. This is a community property state but we both have (unequal) assets from prior to our marriage.
One issue is do the kids take equally (do his two and my one each get a third or they get half and she gets half, for example). Another issue is what is left to the remaining spouse. A third issue is that my husband has an insurance policy that if he dies “soon” there will be double the money than if he dies in say 5 years and that effects how I would feel about a division of the proceeds (IOW, as long as I have “enough” then the kids can have the rest). A fourth has to do with considerations associated with minor kids/college age kids and working age parents versus, in a few years, what will be adult children and not-working age parents. A fifth has to do with assets we acquire in our remaining years together versus premarital assets. A sixth is the fact that I think that if the estate is large enough, some should go to his school teacher ex wife as her retirement is financially gloomy.
I’m a lawyer, although this is not my area. We were very deliberate. We very consciously decided that certain of his assets would go to his children and myself 50/50…with my daughter only taking if I predeceased him (same with mine). We disavowed willing anything to each other and just accounted for what the other spouse was to get by using jointly owned accounts/rights of survivorship in certain specific assets.
I can’t imagine not treating my kids exactly equally in a will. Just because one is doing better than the other, doesn’t mean that will be the same situation 20-30 years from now. You just don’t know. Unless one is completely physically and mentally incapable of taking care of themself, and the other is a billionaire, I wouldn’t treat them differently.
@mathmom – your post in #75 has one of the all-time best typos ever! On a quick read, I thought you meant that if your husband kisses a floozy, then the floozy deserves to inherit. Pretty magnanimous of you!
