Multi-Generational Planning

Case Study: Michael & Pam

Michael and Pam have been married for 50 years, and are very proud of the legacy they will some day leave behind. However, between inflation, the national debt, and a host of other concerns, they are worried that their 3 adult children and 7 grandchildren will not have enough to enjoy the same lifestyle that they’ve enjoyed.

Concerns

  • Michael & Pam have heard that there is something called a “death tax” but they aren’t exactly sure how that works, or if it will apply to them. They know that they had some estate planning work done years ago, but aren’t sure how that works with death taxes.

  • Years ago, Michael set up a life insurance policy that was owned by an ILIT (irrevocable life insurance trust), where his brother agreed to serve as trustee. But when Michael’s CPA recently asked him if he was keeping up with the Crummy letters required for such a trust, he had to admit he was at a loss.

  • Michael & Pam would prefer that the Tahoe vacation home stay in the family forever and be used and shared by their children and grandchildren. However, John is concerned that upon his death, between increased property taxes and home owner’s insurance, the Tahoe house will need to be sold at some point because his kids won’t have the funds to cover the annual expenses.

  • Finally, Michael & Pam are concerned about their portfolio and the state of the economy. They have had a stock broker for years and their accounts have grown, but now they are sitting on large unrealized gains and their stock broker is never around.

Solutions

  • The first step in the process is to build a personal net worth statement and a comprehensive cash flow analysis, showing year-by-year what the various forms of income are vs. the expenses. When Pam saw this, she said it was the first time she really understood where all of the assets were and where the income was coming from.

  • The second step in the process is to take the existing estate planning documents and diagram them onto a single sheet of paper (1 for the Wills & Trust and 1 for the ILIT). Armed with this information, Michael & Pam now actually understand exactly what will happen to their assets when something happens to them, and what will be paid in estate “death” taxes.

  • The third step in the process is to review the tax return with Michael & Pam, line by line, asking questions and pointing out areas for improvement.

  • Finally, the fourth step in the process is to review the investment account statements, and show exactly which investments should be kept, sold, or trimmed and what the tax implications would be for taking such action.

  • Ultimately Michael & Pam’s planning included the implementation of charitable remainder trust, an LLC for the Tahoe home, a donor advised fund, partial Roth conversions, a change of ILIT trustee, and a host of other solutions that were necessary to achieve their financial goals.

  • In addition to the solutions that were implemented for Michael & Pam as parents, the plan also included a separate plan for Michael & Pam as grandparents. This plan included 529 plans with 5 year forward gifting, incentive trusts to encourage work instead of leisure, when and how to add kids to the family business so they can start building wealth inside of tax-free Roth IRAs, and a host of other ideas.

Michael & Pam have had these worries for years. We helped mitigate their nerves while also implementing a host of techniques to maximize their family’s legacy for the next generations.

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