A common misunderstanding we hear all the time from parents is one that Jim and Tiffany experienced with their son and daughter…that as life changes, so should your Life (and Estate) Strategy.
The big misunderstanding is that once you sign your “Estate Documents” you are done and can put it on the shelf and forget about it…NOT TRUE…and a dangerous misconception by many. When you have an Estate Strategy, it isn’t just a bunch of documents in a binder, it is your wishes organized in such a way that they can be carried out exactly as you desire. And as frequently as your life changes, so should your Estate Strategy.
For example, let’s say you had an exciting year this past year. Maybe you had another child, one hit the age of 16 and was driving, one child turned 18, you lost a parent, came into some inheritance, bought a second house or rental property, changed jobs (and income) and a host of other things that go on in our everyday lives. Any of these happen to you this past year? I’m betting one or more of this short list happened in your life. And with a new President, how will your taxes be impacted with the new 2017 Tax Cuts and Jobs Act? Lots of questions and the answers lie in your Estate Strategy.
As a side note, if any of these things have happened to you over the past year or two, I would strongly encourage you to invest 10 minutes in the privacy of your own home and take our free RISK ASSESSMENT PROFILE. It will give you some quick insights into your current risks and give you a rating you can use as a baseline. It is a great place to start for everyone.
Another misconception is that if a trust is irrevocable, it can’t be changed. Not true. We employ several strategies to make necessary changes to irrevocable trusts, including terminating the trust.
This brings me to the story of Jim and Tiffany…a couple who had us put together an Estate Strategy for them. One of the issues we had to figure out was how to deal with their estate when they passed away. They are still quite young and in turn, had young children when we first met. Over the years things have changed and so has their Estate Strategy. For example, one of the approaches we used was to set up separate Trusts for their two children, Brent and Brittany.
When we prepared these trusts several years ago, they desired to have their two young children, Brent and Brittany, inherit one half of their estate in separate trusts until they reached age 21, when they would receive a third of their trust. Upon reaching age 23 they would get half of their remaining trust, with the balance being given to them upon reaching age 25. Today, Brent and Brittany are 30 and 28. So, upon the deaths of Jim and Tiffany, they would each receive their full inheritance.
Jim and Tiffany’s estate is worth about $5 million. So, Brent and Brittany would each receive about $2.5 million on Jim and Tiffany’s passing. When Jim and Tiffany initially designed their Estate Strategy, they didn’t know how Brent and Tiffany would handle money. Today, they know Brent is irresponsible while Tiffany is a dedicated CPA and great at managing money. If Jim and Tiffany died today, Brent’s creditors could sue him and seize a huge chunk of his inheritance.
As part of updating their Strategy to reflect these changes in their children and to meet the wishes they had for their children, we changed courses and recommended they amend the trusts and make them a trust that would last a lifetime. We call these trusts Inheritor’s Trusts. While Brent and Tiffany can have the use and benefit of the assets in the trust, including the right to withdraw cash for medical emergencies, their inheritance will be protected from the claims of creditors. This is a huge advantage for Brent. But as expected, Brent didn’t like the idea because he couldn’t get at all the money right now, but Tiffany thought it was great to keep it for a very long time.
Customizing Jim and Tiffany’s Estate Strategy to continually meet their wishes for their children is something that lives and breathes just like they do…it is continually moving forward. Now with a modified Strategy, the inheritance for Brent and Tiffany can now help save their estate and leave a legacy for Brent and Tiffany with a very nice financial safety net.
Maybe you have an Estate Plan instead of an Estate Strategy. First, it’s better than having nothing in place. But you can do so much more when there is a strategy guiding your wishes instead of just a bunch of documents. Life isn’t defined by documents…it’s defined by our desires and wishes. I encourage everyone to better understand the difference…it is a difference that can last a lifetime!