Three Things I Learned From My Estate Planning Lawyer Everyone Should Do

My estate planning lawyer said something interesting before I decided to hire her. “People who aren't rich might need estate planning more than rich people because they might not be able to afford to pay probate fees in the case of an untimely death.

Leave it to the US court system to make the distribution of your assets upon death, cumbersome and costly. Without a will or a Revocable Living Trust, beneficiaries will pay anywhere from 3% – 8% of the assets in fees in probate and could take potentially a year or longer for all assets to be properly distributed.

Probate fees include: personal representative fees, court fees, attorney's fees, accounting fees, appraisal and business evaluation fees, bond fees, and other miscellaneous fees.

Revocable Living Trust Is Cheaper

In comparison, settling a Revocable Living Trust on average “only” costs between 1% – 3% of assets. But in addition to a clear directive of where your assets are to go, another benefit of a Revocable Living Trust is privacy. As a Stealth Wealth practitioner, the last thing you want is everybody to see what you had and what you're giving.

Think about the type of infighting that may happen amongst your beneficiaries if they deem your gifts unfair. Think about all the scrutiny your child might get if people find out she gets a large sum of money before adulthood. She just lost a parent or two for goodness sake. As a parent, the last thing you want is for your children to be judged by others.

Related: Tips for Giving Kids An Inheritance While Still Keeping Them Motivated

Estate Planning Lawyer Takeaways

Once you have a child, creating a clear will, an advanced health care directive, and setting up a revocable living trust is the responsible thing to do. Privacy, clarity, cost savings and succession planning are all important benefits. You should visit an estate planning lawyer to help you complete these important steps.

Here are three other realizations that came out of my estate planning session all of you should probably follow. I already paid the lawyer thousands of dollars in fees, so you might as well take advantage of my feedback.

1) You must forecast your death with estate planning.

Time is our greatest asset. This truth is no more apparent than when you're talking to a lawyer about death. In my 20s and 30s, I thought that if I could live a healthy life until 60, I'd die a satisfied man.

Leaving the workforce at age 34 was my way of maximizing the probability of living life with as little regret as possible. I kept thinking how horrible it would be to work at a job I no longer loved until 60 and then dying soon thereafter.

Now that I'm a father, I wish to prolong my mortality until at least 75. My new goal is to live long enough to see my kids become wonderful, independent adults each with a life partner.

Leaving this world knowing someone loves them as much as we do will let us die in peace. As a result, my wife and I are taking more action to live healthier lives.

The average life expectancy for those born in 2018 in the US is 76 for males and 81 for females. Although we are living longer, life is not nearly as long as you want it to be. At my age, I'll be damned if I waste a single day doing something I don't absolutely want to do.

Life expectancy in the United States, Canada, and the UK

Related: The Importance Of Having A Death File

2) You must forecast your wealth and estate tax laws.

Time is also our greatest asset for creating wealth due to the power of compounding. You will be pleasantly surprised by how much you can accumulate over an extended period of time through diligent savings and reasonable returns.

Once you've made your best assumptions on how much wealth you will have accumulated by the time you die, you must then forecast the lifetime gift tax exemption and the death tax rate at the time of your passing.

For example, in 2023 the estate tax exemption is $12,920,000 per person. The top marginal tax rate remains at 40%. If you die single in 2023 with $22,920,000 in wealth to pass on, your estate tax bill will be over $3.9 million dollars!

On the other hand, if you die in 2030 with $22,920,000 when the lifetime gift tax exemption has declined to $5,000,000 and the death tax rate has risen to 50%, then your inheritor's tax bill will be roughly $8.9 million! ($22.92M – $5M = $17.92M X 50%) That is a shocking amount of taxes to pay on top of the taxes you already paid to accumulate such wealth.

Related reading: Historical Gift Tax Exclusion Amounts: Be A Rich, Strategic Giver

Pay Attention To Estate Tax Exemption Changes When Estate Planning

Based on history, you can see from the chart that currently, we are at the highest estate tax exemption with the lowest death tax rate since 1997. It may be logical to assume a continued increase in the estate tax exemption and a continued decrease in the estate tax rate given the 22-year trend.

However, the doubling from 2017 to 2018 is an outlier. Therefore, it is also reasonable to anticipate an estate tax exemption decline and/or estate tax rate increase after the Tax Cut And Jobs Act expires in 2025.

With Joe Biden wanting to increase taxes on households making more than $400,000, a lower estate tax exemption amount is a high certainty.

Estate Tax Threshold Historical Amounts

3) You must give and spend more while living.

In the first scenario above where your inheritor must pay a $3.9 million tax bill, unless your inheritors are already wealthy, they may have to sell some of your assets to pay for the tax liability. If part of your estate is your business that you want to continue long after you're gone, then you may have some problems.

Would you rather pay a $3.9m tax bill to the government on assets you already paid taxes on or donate the same amount to charity while you're still alive and see how much good your gift will do?

Or would you rather pay a $3.9m tax bill or spend more money on yourself and loved ones? If there is a high likelihood your estate will be worth more than the lifetime tax exemption amount, it seems obviously better to utilize your wealth while living, rather than after death.

I strongly recommend you figure out the ideal age to decumulate and execute your plan. Dying with millions of dollars is a waste of time and money. If you have the means, why not donate and spend on loved ones while you're still living?

Whatever you decide, make sure you have an updated Schedule of Assets on file as part of your estate plan. It's an important roadmap for your heirs to reference when unwinding your final estate.

Life Insurance To Cover Estate Taxes

One common strategy to utilize for estate tax liability is life insurance. You can even set up a life insurance revocable trust so it doesn't count toward your estate exemption amount. If a large part of your estate includes a business you don't want to sell to pay for estate taxes, then using life insurance or other liquid assets is a solution.

Think deeply about your retirement philosophy and what type of legacy you want to leave to your children and to other organizations after you pass. Personally, I've adopted the Legacy retirement philosophy. Therefore, my plan is to accumulate up to the estimate estate tax threshold when I die.

Estate Planning And Consumption Smoothing

People who have been saving and investing for so long often overestimate how much they'll need to feel comfortable. I firmly believe the vast majority of financially savvy people will die with too much. This lack of financial clarity is the reason why everyone needs to do a better job at forecasting their wealth so they can consume it more smoothly while still alive.

If the estate tax exemption amount decreases or the death tax rate increases or both, then there's even more reason to spend your money now while living. Unless you're incredibly stingy, hoarding much more than the estate tax exemption limit upon death makes zero sense.

My estate planning lawyer really opened my eyes to how overly frugal I am. From driving an economical car for 13 years to downsizing our home in 2014, our expenses are back to where they were in our 20s.

Yet, our income and net worth have grown. Based on our forecasts, there is a high likelihood that we will have to pay estate taxes at our current rate.

Related: Your Umbrella Policy Likely Needs to Be Updated Thanks To a bull Market

How To Spend More Efficiently Throughout Your Life

To figure out how much more we could spend today in order to avoid paying estate taxes, I simply logged onto Empower (the best free financial tool to track your wealth) and ran a Retirement Planning calculation after inputting some income and expense assumptions.

For illustrative purposes, the output shows that using a $1,225,000 investment portfolio, I have a 99% chance of reaching my planned monthly retirement spend of $12,500 starting at age 50. The portfolio has a projected spending ability of $18,416 a month based on its current asset allocation.

Personal Capital Retirement Planning Calculation For Estate Tax Planning

With almost a $6,000/month overage on how much I can spend starting at age 50 in retirement, I plan to up my spending by $1,500 a month starting next year, so long as the economy doesn't go into a recession.

If our wealth increases the following year, we'll up our spending even more, but still maintain a comfortable buffer based on what the retirement planner spits out.

Related: Estate Planning Terminology To Be Aware Of

Utilizing Technology Makes Estate Planning Easier

This additional spending budget may help us get over our reluctance to pay for private school tuition if our son doesn't win the SF public school lottery. Just doing this estate planning exercise makes me feel much better about spending more money overall. I'm confident that once you run your numbers, you'll be able to start spending more freely as well.

If you have dependents, please write out a will, create a revocable living trust, and have an advanced healthcare directive. Not only will you better protect your loved ones and make the transfer of assets simpler, you'll also learn a lot more about yourself in the process.

Recommendation For Estate Planners

Life insurance should be an integral part of your estate planning process. A life insurance payout is usually tax-free and serves to financially support your loved ones after you are gone.

Check out Policygenius, the best online marketplace for life insurance where you can get customized quotes all in one place competing for your business. My wife recently doubled her life insurance amount for less money with Policygenius. All these years, she thought she was getting a good deal, but wasn't.

If there's one thing the pandemic has taught us, it's that tomorrow is not guaranteed. Once you get affordable life insurance set up for you and your spouse, you will feel a tremendous sigh of relief. If you don't want to listen to me, listen to your estate planning lawyer. They deal with life and death all the time!

Check online to compare life insurance rates today. My wife was able to double her coverage from $500,000 to $1 million and pay less in premiums thanks to PolicyGenius.

In the past, we had mismatched life insurance coverage amounts, which made no sense. I also got a new affordable 20-year term policy through 2041 thanks to Policygenius.

Three Things I Learned From My Estate Planning Lawyer Everyone Should Do is an FS original post.

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94 thoughts on “Three Things I Learned From My Estate Planning Lawyer Everyone Should Do”

  1. Hi Sam,

    What are your thoughts on setting up a revocable trust in a tax haven state like South Dakota? Would make for a great topic for an article with the pros and cons

  2. Beverly Minyard

    It’s crazy that if you don’t have a will that the court will charge 3-8% of the assets in fees! My wife is pregnant at the moment so we decided we need to get some kind of will in place because we have a dependent now. Thank you so much for all the tips they have been really helpful in getting our estate plan set up!

  3. Thanks for this article, Sam. Everyone needs to plan their estate, we don’t know what will happen tomorrow. And this tomorrow may be the reason why our families separated because we stay aside the important of estate planning. We always want the best for out family, of course. And I think this can secure their future once we’re gone.

  4. It’s good to know that people who aren’t rich needs estate planning more than rich people due to the cost and messiness of probate court. This article was informative. Thank you for sharing.

    1. Yeah. Damn right. Who’s got $20,000,000 to be making will arrangements. They talk about it as if this was an every day easy matter.

  5. Probate lawyers might be needed for preparation of legal documents like disclaimers or deeds, in case there is a business involved assets are mostly complex, thereby demanding guidance from a professional attorney. Probate attorney can ensure that correct legal documents are in place for either dissolving or transferring the ownership. If you are required to go in-front of the judge during estate proceedings then you will need a probate lawyer to guide you and defend you.

  6. My parents want to set up their estate plan on how they are about to turn sixty. It is good to know to they they will want to think about death taxes and preparing for that. It seems like they should talk to an estate planning attorney.

  7. I recently served as the executor of a sizeable estate in California. If you are in a situation where you are likely to be subject to estate tax, life insurance benefits are counted toward the value of the estate / lifetime gift allowance. The assertion at the bottom of the article is a bit misleading.

  8. I want to create inter-generational wealth. I don’t want to give any of my wealth to charities. Instead I want my family to have my wealth and let it grow over time. I have not seen many articles on this topic. Any references or examples would be helpful.

  9. Pay on Death (PoD) beneficiaries are another way to handle estate distributions that avoids probate and do not require a trust. They are not sufficient for real property, guardians, or other more complex issues. You can also use PoD in conjunction with a trust. The advantage is that you can often change the terms on line at any time without a lawyer. Thus they are easier to keep current as situations change.

  10. Don’t forget that best laid plans can go askew…My mom and dad were married for 65 years and a sweetheart in his retirement apt chatted him up……Beneficiaries lost 300,000 instantly. He was 97 years old and she was about 70.

    Think about talking to an attorney about having a trust that activates if an event happens…..called a springing trust and most often for kids that are wild, etc.

    Men’s brains go back when they get dementia……sure I was hot when I was 30 years old and sure, I am the same today……Enter the sweetheart compliments and chat-up dates. Dad’s own doctor said “Do NOT let the significant other manage your money”…..well she did.

    Be aware…….your assets could go to “her kids and leave yours out in the cold”

    1. a lot of places have a law that says that marriage revokes a will, except a will made in contemplation of that marriage. This protects the new spouse against previous commitments, so generally a good rule EXCEPT when it is a mature-age marriage and the will benefits children of an earlier marriage. Be sure if you (or your parent) are getting married again, provision is made – if necessary by a new will – for the earlier beneficiaries, unless the person remarrying intends to cut them out.

  11. Vivian Black

    You made a great point about forecasting death to make sure you can predict when you will need a certain level of wealth. My husband and I are looking for help getting our parent’s estate liquidated and we wanted to find tips on why it’s important. We will keep these tips in mind as we search for a professional that fits our needs best.

  12. Eli Richardson

    I liked what you said about making the most consideration for the result of the wealth you will be accumulating. This is something my godfather should consider so he can get his will done. With that set, I will recommend him hiring a lawyer to get the best out of his will.

  13. Larry Weaver

    Thanks for explaining how the average life expectancy of those in the United States is between 76 to 81 years. My wife and I just found out that we are going to be having a child, so our future has been in consideration quite a bit lately. I think speaking with an estate planning attorney would help us plan out our future better so we can be better prepared for when we reach our senior years.

  14. Thomas Peterson

    It was helpful that you mentioned once you have a child it’s good to have a clear will. I had a daughter a few years ago and watching her grow has been a great experience. I would love to get in touch with an estate lawyer in the Biloxi MS area and get a will in order to help give her what she needs should I meet an untimely end.

  15. Dave Anderson

    That is a good point that time is your greatest asset when doing estate planning. Maybe it would be good to get some estate planning done and try to predict my timeline. It would be hard to forecast my death, but it would be necessary so I could get the planning done.

  16. Your points about quality of life, and the policy of doing what pleases you and adds significantly to life goals are very important to hear.

    Our family got swamped economically by large medical bills from our father’s many coronary events; and he died early with no reliable assets. Our mother worked hard at a relatively low-paying job; but had been well educated; and my father had a good education as well.

    All the children had access to solid parenting; quality education; and were gifted with high expectations and a reasonable chance to attain them. Every one of them was successful in their respective career fields, and did just fine.

    BUT, when talking about our relatively economic success and stability, our sister made a very pointed statement, “You’re still living like you’re poor Irish. Buy a ****ing new car, for **** sakes.”

  17. Michael Lee

    It is really interesting they you put a lot of this in financial terms. I think think that it would be great to talk to an estate attorney in the term of life expectancy. I think that it is crazy the amount of taxes there is in estate law.

  18. People without dependents need a will too! It is very important. If you are single and dies without a will and have siblings the probate process can become a nightmare. If you are single and have no siblings but do have relatives it is even worse.

    EVERYBODY needs a will.

    Sam – you make no mention of long term care planning. Did your estate planner not discuss this with you? Have you planned for this?

  19. Oh, I did also want to say that I totally agree with your point about consumption smoothing and increasing spending. I’ve consciously started to increase my spending in recent years as I’ve approached my FI number since I am still working and am starting to realize I’ll probably work and earn income a lot longer than I need to.

    Also, individuals can give up to $15,000 per year to any other individuals without paying gift taxes or having to file a gift tax return. A married couple can give $30,000 per year to each of their kids, grandkids, siblings, or anybody at all. This can be a very valuable estate planning tool and can keep your estate within the estate tax limits, especially if you start the giving early enough or have enough heirs. My grandparents started giving to each of their kids and and also to their grandkids in the 1980s. They quit during the recession in 2009 then started back giving to their kids only a few years later. They are still going to owe estate taxes when they die as they’ll be about $1,000,000 over the limit. But if they hadn’t begun giving so long ago, many millions more would be taxed at a huge rate when they die – and they wouldn’t have gotten to see us use and appreciate those funds in our lives along the way.

  20. Just wanted to chime in and point out that probate is not as big of an issue in many states as it is in California. In many states it is much cheaper and faster, and unless you’re really concerned about privacy issues there’s no reason to have a revocable living trust. As a financial planner I see rev trusts pitched and sold to many seniors who have very little if any need for them.

    Also, there are perils to watch out for with revocable living trusts. Many people go to the cost and hassle of setting up a trust but then don’t retitle all their assets and actually move them into the trust. This is a giant waste of time and money. It’s also a bit more of a pain to operate your life within a trust. If you actually put your house, cars, bank accounts, investments, etc. in a trust there is an added layer of paperwork and hassle to most transactions.

    1. What about testementary trusts? These don’t need the maintenance but need to go through the probate once it takes effect. Any downsides with it other than the probate?

  21. A hearse has no luggage rack. Spend it all while you are alive. my kids do fine on their own. Give greatly and die broke.

  22. I did not see any mention of a Charitable Gift Annuity. My wife died 2 years ago. My daughter is sort of a spend thrift so I put 2 houses into a revocable trust to give her $1,000 per month plus an offer to pay for tuition and books at a college. I planned to donate to various charities after death so I opened charitable gift annuities with them and they pay 7% for single life at 82. When I die the charities get the remainder. Some of my bank accounts list an orphanage as beneficiary. Other banks, (in the same state , PA) will not list a charity as beneficiary. Are GCA a good idea?

  23. This is the government doing its estate planning – by taking the people’s arbitrarily. Of course no politicians’ names are tied to the laws…like making sure you don’t leave any prints on the crime weapon. What thieves by trade they are.

  24. Estates contain other “things” besides money. And these need to be addressed in legal documents, too. I have a literary executor I have already named, she agreed. But I still need to put it in writing. I also own artworks that some people have asked for; I need to address those as well. Then there are pets, if they outlive you. I realize your specialty is money, but then there is the rest of life.

    I urge you to encourage people to be an organ donor. I’m an organ recipient and wouldn’t be here writing this if someone hadn’t made that decision – then informed their family members of it, and put it in writing. That is passing along life, far more valuable than any amount of cash, stocks, bonds or saved taxes. Thank you for providing all the advice you did.

  25. Jack Horton

    My wife developed early onset Alzheimer’s and despite having a DPOA on her, my pension fund has refused any distribution to me claiming Erisa restrictions (?). Again, this is my pension fund. My advice is to get all pension funds transferred as soon as you can into self directed IRA’s. Pensions are not routinely included in trusts.

  26. Having to manage the affairs of two parents and one estate (so far) across state and international borders, here is what I learned.

    1) I had to make sure all accounts have a beneficiary. This avoided probate. The loved one had a house, did not expect to return and no one else lives there, so it was sold converted to cash, and partly transfer that into one of those accounts with a beneficiary on it (or some other will substitute clause i.e. TOD) and the rest in a trust.

    2) The DPOA does not always work smoothly to get access to what you need. As an agent in NY, with the principle domicile in FL (with an FL DPOA) trying to execute it for accounts in Canada, I had to be prepared to jump through a lot of hoops. Remember that fine print you do not read when signing up for an online account for a local broker or bank, whose headquarters are located in MA but the fine print says laws of the state of MO apply. Guess what, I had to look up the POA laws for the state of MO, read them carefully as well as the laws for the state under which the POA was drafted as well as what NY state laws apply. In some cases, business may be flagrant about breaking the law in not accepting the POA unless I did such and such. The good news is that business cannot refuse it (or require that the principle use one of its POA forms) in most states, but they certainly can make it frustrating. I had to the balance the costs of getting a court order to get the business (bank) to comply versus jumping through their hoops (I once had to get legal opinion from a US attorney that the POA was enforceable in another country).

    3) A health Care proxy is good to have when needed especially if it includes DNR clauses. However, in the majority of cases it was really not needed to make care decisions for an individual as I was an immediate family member and no other family member was challenging my decisions. Most medical facilities will work with you if you are an immediate family member and have a POA (of course they want to get paid). HIPAA is no excuse for not releasing info, although some will try it if they don’t want to work (too lazy) on the request (i.e. medical records).

    4) If you are the principle, don’t go paperless – If you pass away, get a stroke etc, how will anyone find your assets? My mother kept everything on paper, easy to find. My father kept no paper. When my father needed my help (lost 30 years of memory) it took going through divorce records 10 years old that my mother kept to realize there had to be more assets somewhere. A month later after doing some tracing of accounts I found another 350k. The good news I got him out of the nursing home and he is now back to normal. Had he not drawn up the DPOA, he would have been there a long time. I have some old 401ks never got a statement in over 15 years, guess what, I went online and checked the box to get paper statements. No one would know where I kept my money without them.

    1. You’re exactly right about not going paperless. In the last year, I have seen two cases where a husband died suddenly, and had kept all his financial records and transactions on a computer. In one case, the computer was password protected and the spouse had no idea what the password was. Some very expensive computer experts and forensic accountants are going to make a lot of money.

    2. Danny said “don’t go paperless.”
      You are absolutely correct. My experience settling three estates is that I was thankful that the principles had paper records. That’s the only way the executor/administrator can find assets.
      I worry about the current generation that keeps all their records online. If they don’t leave a current list of their email addresses, user names and passwords, how will anyone find their assets. If they don’t see your emails – and they can’t without access to your user name and password – they won’t see all those nice, neat paperless reminders.
      I receive constant requests from various financial agencies (credit card accounts, brokerage accounts, bank accounts, insurance accounts) to go “paperless.” Sure it might be convenient. But there is no substitute for getting a paper statement in the mail. Remember: the executor/administrator has no idea you have these accounts. So when he/she sees a paper statement arrive in your mail, he/she knows to investigate further.
      So I strongly reiterate: Don’t Go Paperless!!!

      1. Agree. We signed a huge binder for our revocable living trust, have our will in print as well. This reminds me, I need to go update all my pre-tax retirement account beneficiaries to our trust.

        1. On the paperless question, I would just say that getting online access, even if view-only or “transact but don’t distribute” levels of access, is also possible. We recently convinced my in-laws to move their financial assets from 5 or 6 custodians to one. It makes it easy to consolidate and make sure there aren’t just a bunch of overlapping holdings. I have access to trade for them, and my wife has full power of attorney control. They are 98 and 92 years old, so they still have access in principle, but their interest and ability to transact is pretty low, they just get automatic monthly distributions to cover their expenses. It took us years to get everything liquidated (hard precious metals account) or transferred in kind, but now it is — we think!— one-stop shopping. The company shows the 4 “authorized accounts” for the in-laws, and then my own money in a separate category, then my 529 for my son separate, and finally a nfp charity account I have control over separate from that. It’s a helpful online platform. I assume any good broker will do that.

  27. One area of vulnerability for adult children just beginning their life is the absence of an advocate. By this, I mean draw up a Power of Attorney and Medical Directive for each young adult to sign and have their parents be their advocate until as such time they have a spouse who can take that role. HPPA laws can dramatically impede medical decision making in the absence of a medical directive and could make for a nightmare if an adult child should have an accident with coma or head injury. Estate lawyers can provide many cautionary tales.

  28. We will see how you feel when a woman comes along who sees all the mistakes you have made and is determined to change your son into the person he should really be, proving that a “son is a son until he takes a wife.”

    I am amazed how often this is a surprise to unsuspecting parents.

    1. Very cool, but I don’t understand. Can you highlight a specific example to clarify? It’s something like a divorce happened to you where your child was ripped away for some reason and your spouse got sole custody? Thanks

      1. What follows is necessarily an oversimplification.

        at the best syndrome is like finding your office access revoked without any reason after doing an amazing job.

        At the worst it is like having someone kidnap your son, holding him hostage.

        Things do not have to be this way. Always plan for your reasonable position in his life. Try to guard against this early by NOT enabling your son; enabling garners resentment. At the same time establish an exceptionally tight family in which you matter, in the hope he will end with someone who has the same values and can see room for you in his adult life.

        1. OK, but can you share some specifics? And are you saying it’s better not to have any safeguards in place if something were to happen to parents? What’s the right balance?

          It’s hard to know where you are coming from because you haven’t shared anything about yourself. Readers might assume you are a divorcee with an ungrateful child who turned into a deadbeat after you tried to do everything to provide for your spouse and son.

          1. I have actually shared quite a bit about myself previously, although I am not divorced and I have no deadbeat children. I offered some very useful specific advice about how to help a son stay connected to his “birth family” after marriage. You can think about it if you wish.

            1. Ah yes! The father of a daughter who decided to go to W&L and be a lawyer, but ended up a comic instead of going to W&M.

              I remember our previous conversations now. Yes, I agree, giving too much is no good.

              But I absolutely think it is vital to create a clear will/revocable living trust just in case.

              Giving someone a map through the jungle is the least I can do.

  29. Some employer offered legal insurance plans, such as ARAG or Hyatt, will pay up to 100% for the creation of a trust. It’s worth checking out.

  30. Robert Graham

    This is a good prompt for me as well. I need to update my will and paperwork. I took care of updating my insurance this year, now comes this step.

    I don’t know what the right thing to do for passing on wealth is. Too much or too little is damaging. I think it’s Buffet that was quoted as saying, “Enough to do anything, but not enough to do nothing.” It’s a great sentiment, but it seems like a needle to thread with all the possibilities.

  31. Interesting data points:
    *101 of 331 estates over $50 million in 2013 paid no taxes. Maybe lots of donations – maybe to family foundations that will pay family members to manage the money.

    *Overall the group with over $50 mil in assets paid $7 billion of their $55 billion in assets. 13% effective tax. Seems like a good spot to target, >$50mil, less then 13% to the feds. :)

  32. When it comes to dying with too much money (and be subject to pitchfork taxes):

    Rather than fretting about how to distribute your wealth to charities and such, the easier and much more relaxed approach is to just not make the money in the first place. If you are in your forties or fifties and already have reached half the death tax exemption then why stress out and risk making your life even shorter? Why lose sleep at night in higher-risk higher-return investments? De-risk, invest in safer lower return assets, be part of a slower, more mediocre economy. Let the pitchforks eat a slower growing economy. After all for many of them that is their political dream.

  33. Chances are you will be updating any will or trust you have now anyway. We made a will out when our children were small, to pick guardians, and executors. Now we are making a new will because our children are adults, and they will become the co-trustees and co-executors. No need for guardians obviously. And honestly, this may not be our last will, as we may wind up in another state and choose to revisit another attorney in the new state. In addition, we have no grandchildren or married children at this point, but may in the future, which might cause us to revise the will again.
    At this point we set up an “empty” trust, because we plan on putting our next home into the trust to avoid probate. We did not do it with our current home, as we were young and didn’t feel both of us would die while living in it.

  34. HI Sam, I’m curious why you’re planning to go back to work full time when you’re already underspending? Is it just for enjoyment sake?

    1. There’s a lot of reasons. One, being a full-time dad is very tiring and I need a vacation after two years but going back to work. Two, I expect my net worth to decline in a bear market. Three comma I do like the camaraderie.

      How about you? What’s your situation?

      1. I’m still at work but I’ve moved from FT to contracting. It’s a lot less of a commitment and it gives me more flexibility to travel and enjoy my time. I also still get the social interaction I crave and a pretty steady flow of work.

        I’m prepared for work to dry up at any time, but for now, as long as it flows, I’ll keep at it. It’s a good balance for me in my late 40s.

  35. Hey Sam! Great post. This is what I do for a living, both drafting estate plans and probate and trust litigation, so I’ve had lots of experience with people having their plans done right, and with what happens if things blow up.

    I don’t know that it’s necessarily cheaper to do a trust versus probate. It can be, but I’ve also seen it go the other way. Probate is generally a fixed fee that is a percentage of your assets, and the percentage decreases as the size of the estate increases. Trusts can be cheaper if it’s a one-shot deal, but if you change your mind and amend or restate your trust often enough, you could end up spending more on your trust.

    I still think trusts are a better idea for about 80% of people, though, for different reasons. Trusts are infinitely more flexible than probate. If you have a surviving spouse and children who need support immediately after your death, a trustee can take care of that seamlessly without having to petition the court for a family allowance. That could take time, which means you might have bills going unpaid in the meantime. Or if you have family businesses or real estate that need an active person in place immediately upon your death, a trust can put that person in place right away, rather than having to petition the court and having it take months (typical scenario) or, at best, at least a week (assuming you hire an attorney that same day and rush into court on an ex parte basis), both of which cost $$$. With a trust, the trustee just takes over, without needing the court’s permission. Easy peasy.

    With a trust, you can also set all sorts of conditions for distribution of your assets, such as providing for college, trickling out distributions over time, or having big chunks of payouts at different milestones. You could pay out 1/3 of the inheritance at age 35, 1/3 at age 45, and the remainder at age 55, for example, which would help protect against your child’s potential immaturity/spending sprees, or against your child’s spouse who may try to spend the inheritance or just take advantage of the inheritance being deposited into a joint bank account, and then walk away with half of it in a divorce. Trusts can also provide creditor protection, so if your child gets sued, the trust generally won’t have to be liquidated to satisfy the judgment.

    I think the durable powers of attorney (for both assets and health care) are critically important, too. Those should come standard with any estate plan. Most states have a statutory form for that, so anyone can go online and download a basic form for those. Even if you don’t have a trust prepared, I would recommend that everyone do that. A significant portion of the population ends up with dementia in their declining years. Dementia is something to plan for, as much as death is. Having agents in place to manage your health care decisions and your finances if you ever become unable to do that for yourself is a really good thing. The process for establishing a conservatorship over someone, and having someone appointed by the court to do that, and having the court oversee it (requiring annual petitions to be filed and accountings to be prepared, which means attorney and court filing fees every year) can get really, really expensive. If you already have a durable power of attorney in place, and particularly if you have a complete estate plan which includes a trust, you can save a lot of time, expense, and hassle.

    1. To your point about money being doled out in increments at certain ages, to possibly protect a child in divorce – I thought that any inheritance received is not part of marital property- is this incorrect-

      1. I can’t speak as to the laws of your state, but that is probably correct. In California, where I practice, that is correct. BUT–and this is a big one–the second a child takes that inheritance and deposits it into a bank account titled in the name of husband and wife, or takes the funds and deposits them into a bank account (even in just the child’s name) that also has community property funds in it, the money is commingled, and therefore becomes community property. There are some very limited exceptions to that, but that would be a whole separate blog post.

    2. Thanks for the feedback! Forgot this is what you do for a living. I will only amend the revocable living trust if we have another child or if our assets grow beyond forecasts.

      I would hate to ask permission from probate court to get things done.

      I think our estate planning lawyer is our durable power of attorney. Is that not a good idea since she is the one who understands our objectives and drew everything up for us?

      1. You might also amend the trust as your life changes, i.e., as your child grows up, gets married, has his own children, etc. Some people have unfortunate or fortunate circumstances that change how their kids receive the money. I wasn’t trying to discourage anyone from amending their trust. A trust may turn out to be more expensive in the end (or maybe not), but the flexibility is really the selling point, I think. If you have a kid that develops a serious mental illness or a substance abuse problem, you’re going to want to be able to change things, e.g., by flipping your trust into a special needs trust so your kid doesn’t get disqualified for SSI and other benefits. You can’t do that with a will that gives the kid a lump sum.

        Totally agree, having to ask the probate court for permission is never efficient.

        Um… for your DPAs, I would hope that you and your wife named each other as your first choice for attorney-in-fact (that’s what the agent under a durable power of attorney is called). After that, I would name family members or close friends that you trust as alternate choices. After that, I would name a professional/corporate fiduciary (e.g., First American Trust).

        I’m not a big fan of corporate fiduciaries, but I think it’s marginally better than naming your attorney. (At least their hourly rate is cheaper, and they generally have more experience managing assets.) My issue with corporate fiduciaries is that they tend to prefer their own institution’s investments as opposed to investments that you might prefer (real estate, etc.). They also tend to be so risk-averse that they will sometimes not be as flexible as you like.

        Example: I went to a seminar once where they were talking about an example of a trust that had ample assets to provide for a beneficiary. The beneficiary just got married, and wanted the trust to buy him a house. The trustee was (rightfully) concerned about the trust buying the house, the house being transferred to joint tenancy, and the new wife potentially walking away with half of the value of the house in a divorce. So the trustee just said no to the house. I asked whether the trustee would consider alternatives, like buying the house and selling it to the couple with a loan, so the couple could repay the loan and build equity jointly as they paid it off. Or the trust could buy the house outright and keep it titled in the trust, so the wife wouldn’t acquire an interest. They flat-out said no. With a family member trustee, all of those things would be possible, and would greatly benefit the beneficiary.

        I would usually only name an attorney if you really had no other options in the above categories. I always think it’s a little strange when attorneys are listed as successor trustees and/or attorneys in fact. It just looks a little shady, unless you really have a long-standing, trusting relationship with your attorney. And if your attorney retires or moves out of state, it may be almost impossible to find them, or they may not want to administer your assets from a long distance. You’re less likely to lose touch with trusted friends and family members, or even a corporate fiduciary, which probably has a very strong interest in maintaining an online presence.

        So, in order of priority, I would name (1) your spouse, (2) very close friends or trusted family members, and then only if you can’t find 2-3 possibilities among those categories, would I name (3) an professional/institutional fiduciary, or (4) your attorney. (Note: if your attorney is also a very close friend/family member, I would include them in category (2), not (4).) [Sorry for the long response]

        1. ….Me…60 yr.s old, retired in Ca. Divorced for 20 years/never remarried/not likely to ever remarry. 2 children (daughter & son) under 30 yr.s of age. Daughter married & living in Co…Son is Autistic & living in a group home in Boise Id. (lost him in ugly divorce in 2000) Mother moved with child out of state to Idaho in 2010 after Ca. Family Law awarded full legal/custody. Now I have a million (est) in net worth & would like to see my wealth split 50/50 between son & daughter upon my death. Have Will/Trust in place but names daughter for all of it. Is there a way to make sure my special needs son is taken care of without having to make a leap of faith with my daughter or Ex-wife who may or may not carry out my wishes? This has been a nagging issue with me for a while. You say you practice in Ca? I’m in Sacramento. I would like to discuss this with you. Your contact info, please.

          1. This is definitely something you can do, Lawrence. You can set up a trust that leaves 50% to your daughter, and the other 50% to your son in a special needs trust. The special needs trust would generally provide for the things that your son needs/wants that aren’t provided by public benefits, without disqualifying him from receiving those public benefits. Your daughter could be the trustee, or you could name a professional fiduciary or corporation to serve as trustee. An attorney can talk through the options with you.

            I am in California, but in Orange County, so I’m quite a ways from you. Also, I don’t use my blog or online presence here to drum up client business, because that makes things messy from a legal ethics perspective. But please do search for an attorney in your area who can help you set this up. Google and Yelp can be your friend, here. Ask the attorney whether they have experience setting up special needs trusts. You want it to be carefully drafted so you don’t accidentally disqualify your son for SSI or Medicaid.

            This scenario, by the way, is a very good example of why trusts can be so useful. If you just left your property to your kids 50/50 in a will, your son would receive a lump sum distribution, which he would then have to spend down to almost zero before qualifying for government benefits again. Or you’d have to leave it all to your daughter and hope she does the right thing, and that she doesn’t end up with her own credit/lawsuit problems that might jeopardize the money. Good for you for thinking ahead! Good luck.

          2. Make sure to follow up an update the beneficiaries for your accounts. We were told if the special needs child was named instead of the Trust, the money won’t be directed to the Trust and directly to the child (take precedence over what’s in the will), thereby jeopardizing government benefits. Your attorney will tell you how the beneficiaries should be written. We had something custom written and on file at our brokerage accounts (e.g. Vanguard and Fidelity).

      1. Generally speaking, you always want to do a revocable trust, because that allows you to change your mind about what you want to happen with your property. There are only very limited circumstances where you might want an irrevocable trust. (One example might be if you and your spouse are in your eighties or so, with children from different marriages, and you want to provide for your spouse while also making sure they can’t change the beneficiaries of the trust to cut your children out of it. But you could still do this with a revocable trust that becomes partially irrevocable upon the death of the first spouse.)

        If you and your spouse have a ton of assets and you’re trying to reduce the value of your estate for estate tax purposes, you might consider setting up an irrevocable trust for the benefit of your children/grandchildren, and giving the annual exemption amount to each of them every year. That will start building up their nest egg/college fund/whatever, while reducing the value of your estate.

  36. Sam, great article. Thanks for posting it.

    What about setting up a credit shelter bypass trust or an irrevocable trust to protect your assets above the tax exemption amounts?

    1. Hmm, have no idea what that is, but will ask my estate planning lawyer and read up online. I have another post coming up, and that’s regarding the GRAT. Fascinating stuff.

  37. Diane Menke

    Very timely!

    My parents are already in their mid seventies and in so so health. They have only just now at the urging of my sibling and I started to plan.

    While they aren’t wealthy they do have real estate assets that can throw off cash, and some annuities to look forward to.

    But they had no plan for how to end their FT/OT working careers by at least slowing down, and how to move to a slower, simpler, affordable life style.

    Meeting with the elder lawyer specializing in this really opened their eyes to possible very pleasant next steps in their retirement. What we learned during 1 45 min meeting will help our family put a great plan together and its one my folks seem to feel buy in about. They feel in charge.

    I learned that the trust we set up can be added to as time goes by, by either my folks or my siblings and others as the trust may be past on to the generation behind us. This was a nice thing to know about.

    My folks are immigrants who came to the US with $10 in 1959. They worked very hard their whole lives. It really feels good to know there will be money to take care of them as they age and need more help. Meanwhile they will have money to live on and enjoy life.

  38. Great advice! Estate planning can be daunting and rather overwhelming too. But it’s so worth it especially if you have kids. The sooner the better too. I know several seniors with adult children who put off estate planning until their 60s and 70s. They’re still living so better late than never but for me I’d much rather get it done in my 30s/40s and sleep easier at night.

  39. Other lessons/considerations I found from my own estate planning:

    Enlist all of your assets in the revocable trust that you can. For other accounts that have to be held as individual (checking/saving/money market accounts, etc.) make all accounts transfer on death to the trust or those (usually your liquid assets) will have to go to probate regardless of your trust.

    Consider if you have multiple generations in your family of bypassing your direct descendants to spread the taxable impacts. My parents will be leaving their revocable trust to my son (current taxable income $0), his sale of property from the trust will save 20% in taxes on gains for at least another decade before he joins us working folks.

    Discuss the rules you choose to attach to your money. Be honest about the people you are thinking of leaving money to. If they are not a person who can do the most good with bulk funds, set up a distribution schedule.

    Consider your trustees. If you have a child/children that would need to be cared for, do you want the same person to handle their estate and care for them? Or is there someone who would manage the accounts better for your child/children’s future. There is more protection when there are checks and balances. – Enlist your trustees before you name them. Deal with your family members who may assume they would get your child/children if it isn’t your intent to send your child to them.

    Consider adding an “independent” party to your medical directive. We have a family friend who is a doctor with hospital experience and have asked her to lend her input to our family in the instance that one or both of us end up in the grey area of life and death. Where medical technology can keep you alive but the life you live may not be the quality of life you would want. Yes this is generally what your written directive addresses but trust me, you will ALWAYS want the comfort of knowing you made the right decision. It is our hope that an educated and caring voice will help our family carry out and be comforted by the true intent of our medical directives.

    Learn your state laws on inheritance. Shared property states can impact your distribution plans.

    Finally – Totally agree with Sam, Enjoy what you have worked so hard to build, share it as liberally as you are comfortable with. After all, you won’t get to see the good your money can do when you are dead.

    1. For my checking accounts, savings accounts, and CDs, I have it as a POD (Payable on Death) with two beneficiaries receiving the funds upon my passing. PODs keep your money out of probate even with large sums. Just notify your bank that you want this. I did it on my bank’s website. Google “Payable-On-Death” accounts for more info.

      – The Ropefish

    2. Before skipping generations, check into the “generation skipping” rules. I think there are some “gotchas” there…

  40. Eh, beyond a certain spending level it stops making a difference until you jump to the next level of lifestyle…which is often a hefty jump.

    In the scenario above of $21M vs $13M thats about $4.8M more inheritance after taxes.

    That’s a lot of money.

    1. I guess it’s a judgement call. If you’re already inheriting $11.4M tax free, will $4.8M more change your life?

      I’d much rather spend the millions in estate taxes while living on experiences, things, family members, and charities than give the money to the government.

      Most financially savvy people are much more efficient at spending their money than the government.

        1. Yes, with 3 kids that’s $5.6M vs $4M each.

          $123K @ 2.2% withdrawal rate vs $88K…

          As long as I’m not forgoing some experience or things I want to do in order to save more then that seems like a reasonable difference in outcome to me.

      1. I can think of two cases why people end up leaving a lot more money than the estate tax exemption in the US. If you have a rich lifestyle then you need the assets to produce the income to support it. Your house(s) might be worth more than the exemption. The other is where you have a private business, which you don’t want to sell (maybe your children are now running it) which is worth much more than the exemption.

        If you are planning to give to charity then it seems to make a lot of sense to give while you are alive if you have enough still to live on as you get an income tax deduction then as well as less estate tax (but lose out on compounding).

        I think you and your wife can get a total of twice the $11.4 million exemption to pass onto your children if you do the paperwork correctly?

        BTW I didn’t understand the numbers in the retirement planner. The spending rate seems to be about 7% of the median amount at age 50 and don’t you have more than $1.25 million now?

        Luckily we don’t have an estate tax for now in Australia and also not in Israel where my parents lived. We only paid about $2000 or so I think for probate in Israel, though it took a long time.

          1. You’re hilarious. Having read you for years, I’d but a zero after that 1 and maybe even more than that.

  41. Ten Bucks a Week

    I learned you should get your health directives in order. That way if you become a vegetable it is clear what you want others to do rather than having then fight over a terribly difficult decision.
    Many employers offer a lawyer benefit and thus often covers making a trust.
    Enjoy your extra spend.

  42. My parents are nowhere near the exemption limit but met with an attorney to discuss trusts and wills before they decided to retire. They too left the meeting with the surprising conclusion they should increase their spending as well. You can’t take it with you, so why not do all of the things you’ve put off for so long and finally live a little?

    Growing up, their frugality imparted some wise spending habits on me and I’m thankful. And since their life-altering meeting, it’s been hard to recognize them based purely on their spending patterns. And you know what? I couldn’t be happier for them.

    They’ve worked very hard to get to where they are and they deserve to enjoy their money. Even if it comes at the expense of my inheritance. I don’t need the money, nor do I want it, if it means they can’t do the things in life they really want.

    It’s funny how thinking about death makes you value the life you have now. It also reconciles your long-term goals with your long-term actions. Aligning your expectations for life expectancy with your money expectancy might make us all a bit less stressed.

  43. I always get riled up at the mention of the estate/”death” tax. It just floors me that the government thinks it is ok to tax an estate after it has already been taxed during the life of the individual who accumulated it. It is essentially double taxation.

    I have a will but have procrastinated a lot about doing a revocable trust. I know I need to but always have postponed it. The probate court system is another demonstration of the “wonderful” efficiencies of government at work. Anything to avoid it really helps out your heirs.

    1. Bene Jesuit

      Don’t you get it. We really own nothing. At least not enough to build intergenerational wealth.

      We are but vessels upon the Holy See. For the Roman Empire never really fell. It was rebranded.

      1. Meh. Nothing lasts forever but I’m figuring the US is still good for a few more generations.

        So multi-generational wealth is possible is you plan for it.

    2. They aren’t really taxing you though, they’re taxing the heirs who are receiving the money. Money is always taxed when it changes hands. I pay taxes on the money I earn. When I buy groceries, that grocery store pays taxes on the profit it earns. If I pay a cleaning lady, she pays taxes on the money I would pay her. Nobody argues double taxation in those scenarios so I don’t get why the estate tax is looked at that way. Just because the money is coming into their pockets via the sale of my estate vs a paycheck, why should there not be any taxation?

      Of course, this is also overlooking the fact that it’s only after they’ve received 11 million dollars does a single penny get taxed. Personally I thought 5 million was way too high threshold. Make it 25 times the median home income which would put around 1.4 million and it would naturally rise as median income does.

      1. There is a lot of confusion over terms and people calling it a “death tax” are further obfuscating things. Currently we have an estate tax, meaning they ARE taxing the estate owner (posthumously, granted). If the heirs were taxed then it would be an inheritance tax, which is not the case in this country, but would make more sense than taxing a person for dying, as an inheritance can at least be considered as a kind of income.

        It might not seem entirely fair for the individuals but we live in a society and there have to be some compromises between what is best for individuals and what is best for society or both ultimately suffer.

        The proper use of an inheritance tax would be to ensure that really vast fortunes are broken up from time to time, so that we don’t wind up with what becomes, to all intents and purposes, a mostly hereditary aristocracy (it may already be getting too late for that).

        The way to implement it would be through a very large exclusion, say 50 million in today’s dollars, after which there would be a steeply rising progressive tax such that even someone of Warren Buffet’s level of wealth would have a hard time leaving more than a billion dollars to a single individual. However, if someone with, say, a billion dollars, left it to twenty different people in equal increments, and the exclusion was 50 million, no taxes would be due, but an enormous piece of power (above a certain level, money is really just power) would have been prevented from landing on one person that did not earn it.

        Then there is the problem of what happens with inheritance taxes if medicine gets good enough that most rich people stop dying (it’s not quite as much science fiction as it used to be) and almost no one ever inherits. Of course, even under the current system, that would put an end to estate taxes and do crazy bad things to income/wealth inequality.

    3. Xrayvsn’s statements are profoundly misleading: “the government thinks it is ok to tax an estate after it has already been taxed during the life of the individual who accumulated it. It is essentially double taxation.”

      Someone who bought $1000 of Berkshire Hathaway stock in 1965 and never sold would have an estate worth hundreds of millions of dollars today. Since Berkshire Hathaway has never paid dividends, this estate would never have been taxed.

      1. Wasn’t the $1,000 to buy Berkshire Hathaway stock taxed though? It was, and those tax dollars could have compounded easily to millions today if the government invested it in a similar fashion.

      2. I agree with Sam. This is AFTER TAX dollars at work, so the fact that I chose to put it in some asset that did well does not mean the Government gets to get to tax it again. If for some reason I put all my after tax dollars into a savings account and got minimal interest (which btw would be taxed ongoing), and end up with $50 million in savings, does the government get to get its grabby hands on a large portion of it through this death tax when all I want to do is pass it to my kid? It is basically a thinly veiled redistribution of wealth plan and penalizes those that make good financial decision with their AFTER TAX money to fund those that typically fritter it away.

        Now conversely, say I took a huge gamble with my AFTER TAX dollars and lost $50 million and die promptly after. Will the government give my heirs money back via the estate from my wild swing and a miss?

        1. If the original investor sold it, the gains would be taxed (albeit at a different rate).

          I’d like to say a quick thanks for creating and enforcing laws, investing in infrastructure, regulating markets, and everything else they do that allows a passive investor to put $1000 in Berkshire Hathaway and other US corporations. They might be pretty bad at creating good laws, enforcing them, etc etc etc, except for all of the other countries that don’t have a 100+ year track record of growth. Even after paying a (reasonable) tax rate, it’s a good trade-off.

          Also, if I ever have to worry about an estate tax, that’s a good problem to have. I’m sympathetic to the inheritance of a productive business, but other than that I believe intergenerational wealth is a bad thing for everyone (including the heirs).

          1. You are outside of your mind if you think our government is responsible for the good things that have been created in this country. The government has done NOTHING that the private sector would not have done better, faster and more efficiently.
            Saying you’re fine with giving earned money back to the government for distribution as it sees fit is insanity.

            1. I can’t believe someone who follows NPR would make such an ignorant remark. Please show me all the successful roads, police departments, and fire departments developed with private dollars. Most utilities started out as public entities because no private company had the resources to create the infrastructure necessary and still make money. It was only years after governments made the major infrastructure outlays that many became privatized. My God, man we are communicating now on a medium that was developed by the government at a time when no private company would ever have invested in it because there was no immediate profit potential. You are the one “outside of his mind” if you really believe what you wrote.

            2. Hmm. As in private prisons are better than government one? Or as in health insurance? The administrative costs for managing Medicare are far less than the admnistrative costs to run _any_ private health insurance company. Please, give us a break!

          2. If the original investor sold it they would pay capital gains tax on that gain, however if the original investor dies and passes the stock to his heirs then the heir generally takes a date of death step up in the basis for the stock and the gain from the purchase to the death of death is not taxed. Only the gain from the time the heir inherited it to the time it is sold will be taxed at the capital gains rate in most cases. This little twist in the tax law is one of the methods the rich use to keep the wealth in the family regardless of any exclusion in the tax code, be it $11 million or $400k. It’s all a big game, talk to an account and tax attorney if you want to protect your wealth now, and a financial planner and an attorney specializing in estate planning if you want to protect your wealth for your family down the road. Why do you think all the really rich people have so many lawyers working for them?

            I agree with the general point of this article, get a will and a trust, if you are going to potentially leave money to children, not that you intend to, but you never know when a bus will come along to strike you down early, then create a separte trust that will leave that child’s share protected for that child when they reach majority, or however you want to dictate. A good estate planning attorney can draft this up very easily, while you will never see your planning pay off, it will pay off. My mother died intestate, and it took almost six years for her estate to clear probate. At the very least eliminate the hassle, your kids will have enough on their plate dealing with losing you, don’t make a bad time worse when you have the power to plan around it.

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