I am delighted that you are reading this column. It is designed to provoke creative thinking about what will ultimately happen with your home, your assets and your wealth. It is designed to make you think more creatively as you consider the impact on your kids, your grandkids and your community.
Most of us prepare a will and a trust and give less thought to the distribution of our wealth than we do to the design of our front porch gardens. We rather automatically leave our estate to our kids in equal shares. I view this as a small-scale tragedy. This approach fails to take into account differences among family members, the needs of our community and multigenerational, protective planning.
How do I see the role of the estate planning lawyer? An attorney doing this type of work is more of a family counselor than a lawyer – if the job is being done properly.
Should you treat all of your kids the same?
This, of course, is up to you. It is perhaps instinctive to treat everyone equally. But you should think about it.
Some of our kids are substantially wealthier than other kids. Some work extremely hard, while others do not. Some face personal or professional challenges, while others do not. Some have kids and other financial responsibilities, while others do not.
A dear friend has three kids, all of whom are responsible and hardworking. One of them has struck it rich in his field of endeavor. Nevertheless, his very thoughtful, loving parents are leaving him an equal share of their estate. There is certainly nothing wrong with this, because they thought about their own emotions, and made a very conscious, aware decision. I am not, in other words, suggesting that a particular child should be financially punished because she is smarter or more successful. My point is that you should think about it.
Another close friend has a child who struck it even richer. He told his parents to leave him nothing. With the exception of a portion of the father’s 401(k), they are leaving their entire estate to their other child, who works as a social worker in a major urban area.
A direct bequest fails to capture divorce, litigation and estate tax
Virtually everyone should leave assets to dynasty trusts, which we call family protection trusts, rather than directly leaving assets to their kids.
The first protective point has to do with divorce, noting that the divorce rate in California still hovers over 50%. If assets are left directly to a child, he or she is likely to put some of those assets into his or her name along with the spouse. If there is ever a divorce, half of those assets can be lost. If the assets instead go into a dynasty trust, those assets are segregated and will not be subject to divorce division.
If a child is sued and directly inherits money, those assets are exposed. If they are instead inherited in a properly structured dynasty trust, there is a very high level of litigation protection.
If assets are inherited directly, they are part of your child’s estate. If they instead are inherited in a dynasty trust, all or most of them can be enjoyed and grown, but will not be part of your child’s taxable estate. This can save millions of dollars for the perfect grandchildren.
Like it or not, there are many tax challenges that confront all of us and that require attention.
The preparation of a revocable living trust does little or nothing to avoid estate tax. If you own a home in our community, your total estate is likely to exceed $6 million in value. After 2026, this means that you will face the 40% estate tax. Proactive planning can entirely avoid or substantially reduce this level of estate tax exposure.
If you do not yet have it, obtain a copy of my book “Beat Estate Tax Forever,” which explains strategies and tools that can be used to reduce or eliminate estate tax exposure.
Property tax looms even larger. Proposition 19 ends many of the benefits that flowed from Proposition 13 and Proposition 58. When you die, property taxes will skyrocket. You can take steps to avoid this outcome, but not if you only prepare a simple trust and ignore the issue. You have to be proactive.
What if everyone in our community left 1% of their estate to the charity or nonprofit of their choice? The impact would be remarkable. I urge you to think about it.
Many have created family foundations, which do not have to hold tens of millions of dollars. The purpose of a family foundation is to address issues that concern you. It may be the environment, global warming, education, homelessness or anti-Semitism. A family foundation is also an opportunity to involve your kids and following generations in a socially conscious endeavor.
I view the many tax benefits of charitable giving as secondary, though they are very real. More important is that we are all members of a community. We all benefit from our community. We should simultaneously think about a plan that protects our family members and enhances quality of life while supporting social and other issues that are important to us. Our overall estate plans can and should address both.
Think about the goals of your estate plan. Did you give it a moment’s thought and take a superficially satisfying approach? Or did you think more comprehensively and consider the unique needs of each family member? Did you think about protecting assets you will leave to the next generations? Did you think about steps you might take to reinforce family values while strengthening your community?
If you have not pursued these very personal questions, it is time to review your trust and all other elements of your estate plan.
Michael Gilfix, Esq., is a partner at Gilfix & La Poll Associates in Palo Alto. For more information, call (650) 493-8070 or visit Gilfix.com.
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