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Prologue. Continuing our comments about some of the questions raised in the Wall Street Journal full page
estate planning synopsis of March 25, 2002, this issue of our newsletter will deal with some of the other
common questions and situations that arise in planning for the transfer of wealth to succeeding generations.
With estate tax liberalization, estate taxes are often eliminated or minimized as a driving factor in estate
planning.
The Basics. Trusts almost always come into play where there is any significant amount of wealth. A married
couple with more than $1 million in joint assets needs at least a credit shelter trust to make sure that no
estate taxes will be payable regardless of the order of death.
However, planning doesn’t stop there. Some issues which your clients should consider, hopefully with your
counsel, are dealt with in this newsletter. These are questions which we try to go over with clients, whether
their joint assets are $500,000, $5,000,000 or $50,000,000.
1. Divorce. How do we protect our wealth from the consequences of a divorce on the part of a child or
grandchild?
2. How much should the children get? This is a question generally only in larger estates. Should there be a
limit on the amount of wealth passing to each child, and/or grandchild? What are the alternatives?
3. When should the children get their inheritance? Clients choose ages from 25 to 45, and recently we have
seen many clients opt for trusts which do not distribute to children until children reach older ages such as 55
or 60. Their rationale is that children are not able to save for retirement these days, often spending as much
or more than they earn, or that the risks of divorce should be substantially minimized by the time a child
reaches late middle age, thus protecting the inheritance from creditors or spouses that can intervene if
property is distributed to a child at a younger age.
4. How do we take into account need versus equality? Do we take into account prior gifts and loans? If the
parents have forgotten these types of assistance, you can bet that the children have not. Also, despite
parental protestations, children are inherently unequal in education, health, living standards, and success of
marriages. Does a parent penalize a successful child and benefit a child who needs the inheritance more?
5. What about grandchildren? Should there be a percentage or specific gift to grandchildren? How much, and
at what ages? Will these gifts help or spoil the grandchildren? Should the grandchildren’s gifts be deferred to
later ages? The answers to many of these questions will depend on the amount of money involved and
whether grandchild gifts will usurp parental rights and directions. One of the reasons for gifts to a grandchild
of any significant amount is often to "punish" wayward children by distributing money directly to grandchildren
or great grandchildren where, in many cases, to recognize that there are children who are not fiscally
responsible.
Solutions. The answers to these questions and their practical solutions in estate planning terms are as
varied as there are individual needs and families. There is no one-size-fits-all formula.
Despite reluctance to talk about money and finances, communication is strongly recommended. Children are
often reluctant to bring up the subject with parents, fearing to appear greedy. Parents often don’t want to
"spoil" children or grandchildren by letting them know what the plans are. At a minimum, children should
make sure that parents are consulting their financial advisors and estate planning professional at least every
five years, as they grow older, to make sure that their plans are up to date and take into account current family
circumstances.
Family Businesses. If there is a family business with some children active in the business and others not,
unique planning challenges are presented. Is there going to be an attempt to equalize, or is there outright
favoritism to those children active in the business? Planners should make sure that there is a dispute
resolution mechanism cranked into any transition plan so that children who stay active in the business can
resolve differences through buyout rather than expensive "corporate" litigation.
Considerable thought should be given to equalizing provisions for children who are not active in the
business, such as making them beneficiaries of life insurance policies, or requiring corporate redemption of
shares of inactive children at some point in time.
Charity. In the case of large estates where it is likely that a vestigial estate tax will remain, a charitable
solution is often the best way to pass wealth to succeeding generations using Charitable Lead Trusts and/or
Family Foundations. These solutions are not just for the "billionaires". They can provide for wealth transfers
that are beneficial to the family, as well as our society, without taking the form of large payments to Uncle Sam
in the form of taxes.
Conclusion. Most clients and advisors never get around to asking some of the hard questions and assume
that the plain vanilla approach, "spouse for life", balance to the children equally, distributed at age 30, will
meet every need. More and more clients are realizing that there is more to estate planning than simply
avoiding taxes. There are a lot of other questions involving family harmony involved. If you have clients who
will benefit an objective discussion and analysis of their estate affairs, either in updating or creating new trust
plans, please do not hesitate to call Jim Modrall at (231) 941-9660 for a no obligation consultation.
©BRANDT, FISHER, ALWARD & ROY, P.C.
This newsletter is provided for informational purposes and should not be acted upon without professional
advice.
| WEALTH CONSERVATION: PROFESSIONAL ALERT Brandt, Fisher, Alward & Roy, P.C. |
| August 2002 TRANSFERS OF WEALTH - QUESTIONS FOR EVERY FAMILY by James R. Modrall III, J.D., C.P.A. |
| If you would like to receive future editions of the monthly Wealth Conservation Newsletter directly to your e-mail account, please e-mail our office using the following link: Estate Planning Newsletter |
| Brandt, Fisher, Alward & Roy, P.C. Attorneys at Law |