Thanks for all your money advice. I’m not going to ask you if I can afford to retire and when. I know we are blessed financially and I know it’s hard to give advice to rich people. What level of estate planning do you need at different levels of wealth, from, say, a $1 million estate to a $10 million estate to a $100 million estate?
I am 51 and my wife is 50. We have two children, 19 and 21, one of whom is going to law school and the youngest is going to medical school. Our estate is worth $18 million. Our assets include a primary residence of $2.5 million, $5.4 million in nearly all non-Roth IRA/401(k), $4.5 million in brokerage and savings accounts, and $6 million in income-producing real estate.
The rest of the estate is divided between cars, furniture and jewelry, etc. I don’t expect any value from the company, and I’m not sure we’ll ever be able to sell it. I’m also not counting on our projected inheritance of $2-3 million sometime in the next ten years, but if this becomes a reality it will have to be taken into account for estate taxes.
Unfortunately, my wife was diagnosed with terminal cancer seven years ago and upon her death this will complicate my tax situation. I expect to live to be about 85-90 based on my health and family history. Our careers peaked two years ago at about $1.2 million, and have since scaled back due to attrition, with a current household income of about $750,000 per year. We have no debts.
We hope to be able to pay all the costs of higher education for the children over the next seven years. We want to continue giving ten percent of the tithes and giving gifts to the children every year, up to the annual limit. Furthermore, I am a simple guy and don’t care about the complexities of spending on junk and the hassle of maintenance or excessive travel, but I enjoy traveling in moderation with my family.
How much estate planning would an estate like ours need? We continue to maximize our retirement/HSA accounts, but because we feel we have invested well, we now spend a larger portion of our paychecks on comfort, college expenses, tithes, medical and health insurance, renovations, car expenses, travel and eating out.
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Your wording is encouraging. Complicated does not necessarily mean difficult. – MarketWatch illustration
You ask the right questions – and at the right time.
The division of your estate among your children and their children will create a complicated tax situation, but your wording is encouraging. ‘Complicated’ does not necessarily mean ‘difficult’. And although you have more important things to worry about now with your wife’s diagnosis, you would be wise to organize this now rather than later.
You and your wife can do this together, or you can take the lead. Either way, estate planning for a $1 million, $18 million, or $100 million estate will require the same vehicles (a will, a revocable trust, health care directive, and financial power of attorney) and people (an estate planning attorney, financial advisor, and/or CPA). to help manage your assets.
Jennifer L. Campbell, partner at Karlin & Peebles in Los Angeles, California, suggests a bypass trust (also known as a credit-shelter trust). This helps wealthy people avoid estate and inheritance taxes. In this case, a select amount of assets are placed in the trust, which becomes irrevocable upon your death, and your heirs receive income from the trust.
“The terms of the bypass trust can vary significantly,” she says. “Typically, however, the bypass trust is structured so that it may qualify as a marital deduction trust, allowing the survivor to claim the decedent’s estate and gift tax exemption as the survivor’s property and the assets in the bypass trust to receive a new one. basis upon the death of the survivor.”
Trusts are typically very flexible and can be written to include distributions to pay for graduate school, weddings and other life milestones, Campbell says. “These trusts can be held for life or can be cashed out at different ages [and] the flexibility to plan for the generation-skipping transfer tax, currently equivalent to the estate and gift tax exemption.”
For assets that do not go into a trust: You can name your children as beneficiaries and/or prepare death transfer deeds. Don’t put their names on the deeds so you can take advantage of the step-up basis, which applies capital gains to fair market value at your death instead of the original purchase price. An advisor will help you further shape your trust(s).
In early October, the Internal Revenue Service announced a new estate tax exemption on wealth transfers during your lifetime and upon the decedent’s death of $13.99 million per person for next year, up from $13.61 million in 2024. The annual gift exclusion rose to $19,000. for 2025, compared to $18,000 this year; it is double that for married couples.
But soon there will be a spanner in the tax law’s works: Unless Congress takes action, that exemption is expected to “disappear” or change to $5 million in 2026; it will be indexed to inflation, which will likely bring it to $7 million. That’s the maximum amount of assets you and your wife can leave to your heirs without paying federal estate taxes.
To take advantage of the lifetime exemption of the first to die, consider a “credit shelter” trust, says Neil V Carbone, trusts and estates partner at Farrell Fritz PC. You should also consider the benefits of trusts for your children, he adds. As they get older, they may have different needs (and wants).
“The trust assets could be used to provide money for their education, first homes and business ventures, among other things,” he added. “Before splitting their assets into separate trusts for each child, they could include a ‘pot’ trust that would benefit both children until the youngest reaches a certain age.”
There are also tax planning strategies to consider in the event of a terminal illness, Carbone says, such as shifting low-basis assets to the terminally ill spouse so that they receive a higher basis upon death, provided the husband remains alive for a while. at least one year after the transfer has taken place.
“Depending on the state you live in, there may be state inheritance taxes, and many states have exemptions that are well below the federal exemption amount,” says Clay Stevens, director of strategic planning and partner at Aspiriant in Irvine, California. “The rates can vary by as much as 15%. In those states, you need a specifically drawn up estate plan to minimize such taxes.”
Stevens recommends that you consult regularly with your financial advisor. “We recommend that customers review every five years and update every 10 years,” he says. Given the possible upcoming changes to estate taxes, he suggests annual discussions. Who you talk to regularly can also depend on the relationship and how comfortable you are working together.
Campbell has a slightly different take: “When it comes to who should help you and your wife with your estate planning, you’re going to want to have a team,” she says. “The estate planning attorney is typically the team leader, with your financial advisor and accountant playing a valuable role in ensuring that the plan you choose produces the results you envision.”
“Estate planning is not just what happens when you die, but also what happens if one or both of you is still alive but unable to make decisions,” she adds. “If you cannot manage your affairs and you have not made any plans, the court will appoint someone to manage your affairs while you are still alive.” So the more you do now, the more likely you are to avoid that.
Good luck to you, your wife and your family.
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