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Recent Updates
December 25, 2008
It's Never Too Late To Have a Happy Childhood
Don't talk your way out of an inheritance
I talk endlessly about not procrastinating about your own estate plan. But what do you do when someone close to you procrastinates?
A few months ago, Ron put his 88 year old father William in touch with me to update his estate plan. William had recently moved to Illinois from Ohio, soon after his wife died. Ron helps his father pay bills and go over his statements, so he is aware of the extent of Dad's assets.
Both Ron and his sister are doing (just) OK financially. They each have children of their own and bear the burden of college costs. William's estate is worth about $5 million.
William's existing will leaves everything to Ron and Ron's sister in equal shares, while disinheriting a third child.
I met with William and made a few suggestions:
- Update his powers of attorney. Since POAs tend to be state-specific, he should now have Illinois forms reflecting, among other things, his change of address.
- A revocable living trust to avoid probate upon his death. Keeping a family out of court is a typical estate planning goal.
- Generation Skipping Trust (GST) planning. Although it would not save taxes at his death, fully utilizing his GST exemption would be the equivalent of William giving Ron and his sister a gift of his applicable exclusion amount, on top of the rest of their inheritance. When Ron and his sister die, the money in a GST exempt trust would not be includable in their own taxable estates. That means, ultimately, more money to William's grandchildren.
- Make annual gifts. William can gift $12,000 to each of his children (or anyone else) during his lifetime and pay education and medical-related items directly to providers. He can also establish 529 plans for his grandchildren's (and/or great grandchildren's) education and make 5 years worth of gifts to each 529 at once--$60,000--without depleting his applicable exclusion amount.
- Make additional gifts to his children, up to $1 million, resulting in a depletion of his applicable exclusion but shifting future growth outside his taxable estate.
- Give to charity.
William ultimately hired me only to execute new powers of attorney. Regarding my other recommendations, William told me he would think about everything and get back in touch with me. I called him about two months ago. He said that he was still thinking about my recommendations and would get in touch with me if and when he wanted to move forward. We have had no contact since then.
Ron called me yesterday, aware that his father never updated his plan or made any gifts. He voiced the opinion that William is legally competent, but has a controlling, mean and paranoid personality. These negative traits are becoming more pronounced. He asked me to call his father again, but I refused his request.
My advice to Ron was simply to honor his father's wishes. Visit with him every so often. Call him regularly, even if the conversations are usually brief. Tell him he loves him. Remind his children and grandchildren to be in touch with him occasionally. But avoid the subject of William's estate planning. If he pushes that envelope, William could easily get it in his head that Ron is overly interested in his money, eagerly awaiting for him to die. In that event, William may finally get around to updating his plan--by disinheriting Ron. Better the estate should be subject to probate and estate tax than for Ron to do anything to jeopardize the relationship and future (albeit diminished) inheritance.
