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Estate Planning conundrum

Home Estate Planning Estate Planning conundrum

  • Avatar anontoday 
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    Status: Physician
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    Scenario:

    Parents have two children, and would like to initiate distribution of estate without too much family discord.  Total estate not huge but sizable (ie the house children grew up in and some investments).  Plan by parents is to consider selling half of the value of the house to Child B, essentially having Child B buy out Child A’s share).  Then, give this amount to Child A.

    Both kids are sensible but have very different takes in life and in different family situations.  Both children are not financially strapped in any way.  Child A has a family (non adult kids and spouse, only have been married for several years) but Child B is single (and will likely stay that way for good).

    Issues of concern/ inquiry:

    Child A is not interested in inheriting cash, as this will increase total asset at risk to creditors.   Parents are also not very comfortable with idea that Child A’s spouse may get access to the estate (currently Child A lives in community property state), which upon discussion with Child A, Child A is understanding and willing to comply.

    What are some options for Parents?  Passing estate off to grandkids?  How and what type of entity can Grandparents set up for grandkids?

    Thanks for any input.

     

    #52284 Reply
    Craigy Craigy 
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    Difficult for me to grasp what is going on here.

    They’re giving away their stuff during life?  Selling half the house to one kid and giving cash to another?  Giving cash to the kid who doesn’t want it, foresees some sort of creditor problem, and whose spouse they’re afraid will take the cash?

    LEVEL 1 WCI FORUM MEMBER.

    #52292 Reply
    Liked by mamaham, adventure
    Avatar Kamban 
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    Status: Physician
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    Joined: 08/01/2016

    Is child B willing to buy the house and then give half its value to Child A or his children? If not the parents have to sell the house.

    Each parent can give up to $5.5 M each in total to whoever they wish in their lifetime.

    They should have an estate plan so that upon their death half the assets go to Child B and half goes to Child A’s children and have a trustee for them. This might mean meeting with estate lawyer.

     

    #52300 Reply
    Avatar StarTrekDoc 
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    Status: Physician
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    Joined: 01/15/2017

    properly set up Living Revocable Trust should be able to keep the assets and eventually the monies safe from creditors and prying hands like the Mrs. as long as the trustee isn’t the sibling husband.   The stipulations of the trust can be VERY specific on how the monies are distributed and scenarios as much and as creative as the estate lawyer wants to be at setup.

     

    #52336 Reply
    Liked by anontoday
    Avatar adventure 
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    Status: Spouse
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    Joined: 10/24/2016
    What are some options for Parents?

    Click to expand…

    Tell Child A buy the house?

    Tell Child A to use the $ to pay off the creditors?

     

    This house is similar to the biblical parable where King Solomon had to help 2 women share a baby. Perhaps they need to learn to share.

     

    #52365 Reply
    Miss Bonnie MD Miss Bonnie MD 
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    Status: Physician
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    Joined: 02/14/2017

    Rec seeking advice from an actual estate planning lawyer. CA as you said is a CP state and I believe a living trust would do the trick but not sure. And these laws are state specific (not sure where parents are)

    Is there a real risk to “creditors” ?

     

     

    "Being rich is having money; being wealthy is having time."

    Miss Bonnie MD --> Wealthy Mom MD @ http://wealthymommd.com

    #52370 Reply
    jfoxcpacfp jfoxcpacfp 
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    Status: Financial Advisor, Accountant, Small Business Owner
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    Joined: 01/09/2016
    properly set up Living Revocable Trust should be able to keep the assets and eventually the monies safe from creditors

    Click to expand…

    An RLT does not provide protection from creditors. The main purpose is to avoid probate, which is not always desirable.

    Parents have two children, and would like to initiate distribution of estate without too much family discord.

    Click to expand…

    This will mean there is no step-up in basis at death. It will also leave the parents at the mercy of the children for support. It wouldn’t be the first time that the parents have given up their house and have ended up in a nursing home on Medicaid b/c the children wanted them out.

    Child A is not interested in inheriting cash, as this will increase total asset at risk to creditors.   Parents are also not very comfortable with idea that Child A’s spouse may get access to the estate (currently Child A lives in community property state), which upon discussion with Child A, Child A is understanding and willing to comply.

    Click to expand…

    This can all be worked out in a properly-drafted LWT (Last Will and Testament). The creditor risk is the same for cash, a house, or an IRA inherited by a non-spouse beneficiary (Clark v. Rameker, 134 S.Ct. 2242 (2014).

    I strongly recommend this couple seek qualified legal advice. A financial planner would be a good complement to their situation, also.

    Johanna Fox Turner, CPA, CFP, Fox Wealth Mgmt & Fox CPAs ~
    http://www.fox-cpas.com/for-doctors-only ~ [email protected]

    #52372 Reply
    Liked by anontoday
    Avatar StarTrekDoc 
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    Joined: 01/15/2017
    properly set up Living Revocable Trust should be able to keep the assets and eventually the monies safe from creditors 

    Click to expand…

    An RLT does not provide protection from creditors. The main purpose is to avoid probate, which is not always desirable.

     

    Click to expand…

    No protection from creditors while it is revocable at the Parents level – true.

    OP wants protection of assets from Child A creditors — not Parent creditors.

    Once the parents die it is set in the Trust and the Trustee has control of the assets.

    The creditors of Child A, like any other grubby sticky hand unnamed creditor evil step-mother/spouse, will have a difficult time accessing these funds and probably can’t compel a distribution.

    #52375 Reply
    Liked by anontoday
    Faithful Steward Faithful Steward 
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    Status: Financial Advisor, Small Business Owner
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    Joined: 06/12/2017
    Child A is not interested in inheriting cash, as this will increase total asset at risk to creditors.   Parents are also not very comfortable with idea that Child A’s spouse may get access to the estate (currently Child A lives in community property state), which upon discussion with Child A, Child A is understanding and willing to comply.

    Click to expand…

    Leaving Child A their inheritance in a trust could satisfy the creditor protection and prevent Child A’s spouse from getting access to the assets.

    Michael Peterson, CFP® | Faithful Steward Wealth Advisors
    https://ProsperousPhysician.com | (717) 496-0900

    #52377 Reply
    Avatar anontoday 
    Participant
    Status: Physician
    Posts: 13
    Joined: 12/05/2016

    Is child B willing to buy the house and then give half its value to Child A or his children? If not the parents have to sell the house.

    Each parent can give up to $5.5 M each in total to whoever they wish in their lifetime.

    They should have an estate plan so that upon their death half the assets go to Child B and half goes to Child A’s children and have a trustee for them. This might mean meeting with estate lawyer.

     

    Click to expand…

    Yes, both children prefer to only have one inheritor of the house, hence Child B will buy out Child A’s share. (Ex, house worth 1 mil currently, Child B will give Parents 500k in exchange for full inheritance of the house after their passing).

    Parents prefers to distribute most of their wealth prior to their passing in order to minimize afterlife estate management for children.   Both children do not live in the same state as the Parents, tho Child B lives closer and has more frequent contact.

    Will look into estate lawyer.

    #52399 Reply
    Avatar anontoday 
    Participant
    Status: Physician
    Posts: 13
    Joined: 12/05/2016
    What are some options for Parents? 

    Click to expand…

    Tell Child A buy the house?

    Tell Child A to use the $ to pay off the creditors?

     

    This house is similar to the biblical parable where King Solomon had to help 2 women share a baby. Perhaps they need to learn to share.

    Appreciate the input and correlation to the bible.  Perhaps the big difference here is that neither Child A or B really want the house (aka Baby).  They are not fighting over the inheritance of the house. The Parents, tho, would want to be as fair as possible to the offsprings. Hence, Parents trying to come up with an appropriate solution.

     

    Click to exp
    #52402 Reply
    Avatar anontoday 
    Participant
    Status: Physician
    Posts: 13
    Joined: 12/05/2016
    Child A is not interested in inheriting cash, as this will increase total asset at risk to creditors.   Parents are also not very comfortable with idea that Child A’s spouse may get access to the estate (currently Child A lives in community property state), which upon discussion with Child A, Child A is understanding and willing to comply. 

    Click to expand…

    Leaving Child A their inheritance in a trust could satisfy the creditor protection and prevent Child A’s spouse from getting access to the assets.

    Click to expand…

    Who should be named as the trustee, then?  Wouldn’t naming Child A as the trustee expose that person to the same risk to creditors or possible future ex spouse? 3rd party (non family) member?

    #52403 Reply
    Avatar anontoday 
    Participant
    Status: Physician
    Posts: 13
    Joined: 12/05/2016

    @jfoxcpacfp- will look into Living Will and Testament

    Parents would prefer to avoid

    1. probate

    2. problem with combined will vs. individual will, hence would like estate settled prior to either Parent subject to widowhood.

     

    Yes, will look into legal advise and cfp.

    Also, appreciate the mentioning of being at the mercy of children and nursing home (did think of that).  Currently, Parents are not living in the house of inheritance, hence not at high risk of eviction.

     

    #52408 Reply
    Avatar StarTrekDoc 
    Participant
    Status: Physician
    Posts: 2047
    Joined: 01/15/2017
    Child A is not interested in inheriting cash, as this will increase total asset at risk to creditors.   Parents are also not very comfortable with idea that Child A’s spouse may get access to the estate (currently Child A lives in community property state), which upon discussion with Child A, Child A is understanding and willing to comply. 

    Click to expand…

    Leaving Child A their inheritance in a trust could satisfy the creditor protection and prevent Child A’s spouse from getting access to the assets.

    Click to expand…

    Who should be named as the trustee, then?  Wouldn’t naming Child A as the trustee expose that person to the same risk to creditors or possible future ex spouse? 3rd party (non family) member?

    Click to expand…

    3rd party fiduciary  –   many brokerage/investment houses do that now — including Fidelity.   start with their brokerage, IMHO.  or trusted nonfamily member if they are willing.

    Do NOT name Child A as the trustee for this reason and potential for Child B interaction issues.

    Even if they do name Child A as trustee (not recommended) spendthrift clauses can be inserted to minimize risk; but think it’s just not smart to mix trustee and beneficiary.

    #52416 Reply
    jfoxcpacfp jfoxcpacfp 
    Moderator
    Status: Financial Advisor, Accountant, Small Business Owner
    Posts: 8115
    Joined: 01/09/2016

    properly set up Living Revocable Trust should be able to keep the assets and eventually the monies safe from creditors

    Click to expand…

    An RLT does not provide protection from creditors. The main purpose is to avoid probate, which is not always desirable.

     

    Click to expand…

    No protection from creditors while it is revocable at the Parents level – true.

    OP wants protection of assets from Child A creditors — not Parent creditors.

    Once the parents die it is set in the Trust and the Trustee has control of the assets.

    The creditors of Child A, like any other grubby sticky hand unnamed creditor evil step-mother/spouse, will have a difficult time accessing these funds and probably can’t compel a distribution.

    Click to expand…

    You are correct that, once the parents die, the trust becomes permanent. But it is not a RLT any longer. A better option is probably going to be a testamentary trust or an irrevocable trust. They are better at handling the complexities of trust protection than the RLT default, which isn’t intended to handle these complexities. RLTs are meant for probate avoidance, not asset protection.

    And, c’mon, not all creditors are grubby stick hands lolol just like all step-mothers are not evil…or maybe it’s just that nobody has called me evil to my face lately 😈

    Johanna Fox Turner, CPA, CFP, Fox Wealth Mgmt & Fox CPAs ~
    http://www.fox-cpas.com/for-doctors-only ~ [email protected]

    #52419 Reply

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