Recently we sat down with Paul Livingston and Jennifer Koenig of Schell Bray PLLC who are experienced estate planning lawyers to “look beyond the numbers.” Here are 4 questions we put to our experts.
1. Is equal always fair?
Chances are your children and their families each have very different financial pictures and levels of income. You may also have children working in a family business while others are not. How do you fairly reward sweat equity? Perhaps there are health issues that create inequities in your children’s finances. There can be issues with children who have special needs, or struggle with addictions and need oversight. Some ideas to consider in order to “make things fair” might include leaving the family business to children who work in it and leaving otters assets (such as life insurance) to other children. Parents can also play a big role by setting expectations during their lifetime that minimize potential conflict among their children down the line.
2. How much is enough when you are leaving money to your children?
This is a huge issue for many parents as the consequences of doing it wrong can have lasting and devastating impact. Some families don’t want their children to “spend” inheritance during their working years… As Warren Buffett famously stated, the perfect amount to leave children is “enough so that they would feel they could do anything, but not so much that they could do nothing.” Consider limiting distributions until a certain age, link a desired behavior to distribution (i.e., make distributions equal to income earned by the beneficiaries). Limit distributions to a certain percentage a year while providing allowances for health emergencies and education needs and establishing a trust that is overseen by a wise and faithful Trustee. Some families simply carve out an amount or percentage for their heirs and then let the rest pass to charities.
3. With whom will your family place the responsibility of overseeing the execution of your estate planning?
Is it wise or fair to have a child serving as the executor of an estate that will benefit all their siblings? If there is a Trust, who will serve as trustee and will they have expertise and the competence to serve for the long haul? If you’re like most parents you want this transfer of wealth to be a positive thing, but if there is a vacuum created by the loss of a patriarch, perhaps it is wiser to have a corporate fiduciary implement the estate plan who can see beyond the emotion. Remember it’s always smart to address these issues when everyone is healthy and getting along.
4. What about estate taxes?
Estate tax exemptions have varied over time. While there is talk that the White House would like to get rid of the estate tax we have to assume it’s going to be here for a while and plan accordingly. For people who don’t have taxable estates, gifting needs to be examined carefully to optimize income tax efficiencies. So discussions concerning a step-up in basis of property are important to decide the timing of gifting. Finally, it is a good idea to focus on making gifts that don’t have taxable consequences including: annual exclusion gifts, qualified medical and tuition gifts and Grantor Retained Annuity Trusts.
We hope this has been helpful and we recommend a proactive approach as you consider the time to look at estate planning. We have several very competent attorneys and estate planners in our community and we recommend that you work closely with one to ensure your goals are met. Until next time, thanks for your support and friendship.