Author Topic: Estate Planning and Family LLC  (Read 13720 times)

Nigel

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Estate Planning and Family LLC
« on: November 15, 2018, 12:21:33 PM »
I'm looking into asset protection, estate planning and the value of a family llc (for those of us without an existing family business).

We're pretty close to FI, for values of the word close, but no where near RE being older.  Still we're looking at a decent sized estate and the old saying is the first generations makes it, the second generation preserves it and the third generation blows it.

According to a Forbes article I read only 5% of wealthy families inherit, 70% were from current generation business ownership and 25% from high income occupations.

https://www.forbes.com/sites/toddganos/2014/02/05/how-the-wealthiest-families-make-and-lose-their-money/#32d046af77d6

Thoughts?  I've been drafting the operating agreement for a family llc toward multi-generational wealth preservation so I've read pretty much everything google finds for me but don't have many folks in the same boat (ie FI) to bounce ideas off of.  Ideally there's someone who has already gone down this path...
 

Sam

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Re: Estate Planning and Family LLC
« Reply #1 on: December 14, 2018, 07:09:59 PM »
I’m going down this path right now and will be meeting our estate planning lawyer to sign documents for a revocable living trust next week. I have a post coming out on what I’ve learned and what other people should do. Are your assets over $11.4 million per person?

If so, look into a GRAT. These posts are coming up shortly. Stay tuned.
Regards,

Sam

ManInAVan

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Re: Estate Planning and Family LLC
« Reply #2 on: December 14, 2018, 09:14:31 PM »
Thanks for the article, Nigel!  Very interesting.

Quote
These posts are coming up shortly. Stay tuned.

Looking forward to it!

Nigel

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Re: Estate Planning and Family LLC
« Reply #3 on: December 22, 2018, 11:01:13 AM »
I’m going down this path right now and will be meeting our estate planning lawyer to sign documents for a revocable living trust next week. I have a post coming out on what I’ve learned and what other people should do. Are your assets over $11.4 million per person?

If so, look into a GRAT. These posts are coming up shortly. Stay tuned.

It’s not so much tax avoidances as wealth preservation beyond the next generation.

For me it’s more difficult than for you since my income is from wages while you have multiple businesses. A family llc seems more in line with teaching your children how to prosper financially beyond the usual advice of “study hard, go to a good college, be frugal and save money” that I got from my parents.  Granted it worked out well for me but I’m lucky to have had a career I both enjoy and am good at.  There are certainly some of my contemporaries that are in a less good place regarding career satisfaction regardless of income.  That said, even I’m ready to move to another phase after my next assignment.

Sam

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Re: Estate Planning and Family LLC
« Reply #4 on: December 23, 2018, 08:42:29 AM »
Avoiding probate court is the main reason for setting up a revocable living trust and a will.

Giving instructions for how your estate will be disseminating is far better than letting strangers try to figure out your directives for your next of kin.

https://www.financialsamurai.com/three-things-learned-from-my-estate-planning-lawyer-everybody-should-do/
Regards,

Sam

Fat Tony

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Re: Estate Planning and Family LLC
« Reply #5 on: December 29, 2018, 06:43:52 PM »
From my research, setting up a revocable living trust is actually a huge hassle. If you have a simpler financial situation without significant non-financial assets like expensive collectibles or antiques, one can simply add beneficiaries and Transfer on Death recipients on individual accounts, and use a Transfer on Death deed for real estate (*).


TOD/beneficiary accounts don't need to go through probate. I started down the living trust path and it looked like a major pain to reconfigure every single account as being owned by a trust instead, so I gave up. Are there any flaws to this thinking or other major benefits of living trusts? I guess it is easier to change your beneficiaries in one go in a centralized location, rather than modifying them in every account. I also figured that trying to create trust-type accounts at every institution could also mean another layer of indirection and potential red tape hassle when trying to perform changes, transfers, etc.

(*) http://www.edmundvincentlaw.com/blog/complete-guide-to-california-transfer-on-death-deeds

Sam

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Re: Estate Planning and Family LLC
« Reply #6 on: December 29, 2018, 07:52:16 PM »
From my research, setting up a revocable living trust is actually a huge hassle. If you have a simpler financial situation without significant non-financial assets like expensive collectibles or antiques, one can simply add beneficiaries and Transfer on Death recipients on individual accounts, and use a Transfer on Death deed for real estate (*).


TOD/beneficiary accounts don't need to go through probate. I started down the living trust path and it looked like a major pain to reconfigure every single account as being owned by a trust instead, so I gave up. Are there any flaws to this thinking or other major benefits of living trusts? I guess it is easier to change your beneficiaries in one go in a centralized location, rather than modifying them in every account. I also figured that trying to create trust-type accounts at every institution could also mean another layer of indirection and potential red tape hassle when trying to perform changes, transfers, etc.

(*) http://www.edmundvincentlaw.com/blog/complete-guide-to-california-transfer-on-death-deeds

My wife lead the charge in setting up our revocable living trust. She said it took her about 40 hours of reading and research and back-and-forth with the lawyer to understand everything and get everything down. So yes, it is a huge hassle. But hopefully, a great lawyer can guide people to the right path.
Regards,

Sam

IzzyEsq

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Re: Estate Planning and Family LLC
« Reply #7 on: December 30, 2018, 12:42:53 PM »
I'm not an estate planning lawyer, and to the extent I know estate and trust law, it's only applicable in Ohio, so take everything I'm about to say with that in mind.  The main benefit of a living trust is avoiding probate, but as Fat Tony notes, that's not a massive benefit for people whose finances and ownership interests are fairly straightforward.  Real property, bank accounts, brokerage accounts, and even auto titles can all be made subject to TOD.   The big benefits of living trusts come if you have complex assets that are not passive interests, like if you own businesses (or interests in them).  A living trust can simplify management exigencies in the event of your death or incapacitation, while letting you retain a great deal of control.  Plus, as an added benefit, a living trust will usually keep your assets (and their transfer) private in the event of your incapacitation or death, which is not what will happen if your estate goes through probate.
All the best,
Brenda

jekamom

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Re: Estate Planning and Family LLC
« Reply #8 on: December 30, 2018, 05:07:03 PM »
Some folks think the main reason for a trust is avoiding probate. If you don't want assets public, set each account up with beneficiaries and account titles making each payable on death to who you want.   The reason folks need a trust is to guide (or control) the beneficiary in the consumption of assets so that the money lasts and beneficiaries are protected from taxes they didn't know they would be liable for. 
Many set up for education or medical expenses to be paid from the corpus, even pay for a home, but the document provides control, usually thru a 3rd party (like a trust officer) to have discretion and follow the rules you set out.   The trust is a way of extending control over the money beyond the time of death of the grantor.  You can set it up how you want, protect the money from spouses or remarriage or spenders.  You can direct how it is invested if you want.  You can require a beneficiary to have a will, or that they go to college or get married.  It's your money.  You'll pay for each 1/10th of an hour someone has to spend working it, so keep it simple and teach your kids well! A trust also needs to be updated regularly as things change. 
Also know that tax rates are much higher for a trust than most beneficiaries would be liable for, and with few exemptions.  I seem to remember the tax rate is in the mid-high 30%'s  after about 10K of income annually.  Tax returns must be filed annually while the trust is "alive"(after you die), which is more $$. 


Nigel

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Re: Estate Planning and Family LLC
« Reply #9 on: January 04, 2019, 08:55:03 AM »
You can require a beneficiary to have a will, or that they go to college or get married.  It's your money.  You'll pay for each 1/10th of an hour someone has to spend working it, so keep it simple and teach your kids well! A trust also needs to be updated regularly as things change. 
Also know that tax rates are much higher for a trust than most beneficiaries would be liable for, and with few exemptions.  I seem to remember the tax rate is in the mid-high 30%'s  after about 10K of income annually.  Tax returns must be filed annually while the trust is "alive"(after you die), which is more $$.

For revocable trusts and LLCs it's generally pass through.

I believe that revocable living trusts turn irrevocable on death and end up paying the higher rate.

For irrevocable trusts you hit 37% pretty fast.

2018 taxes

Not over $2,55010% of taxable income
Over $2,550 but not over $9,150$255 plus 24% of the excess over $2,550
Over $9,150 but not over $12,500   $1,839 plus 35% of the excess over $9,150
Over $12,500$3,011.50 plus 37% of the excess over $12,500