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MY HUSBAND AND I WERE late bloomers when it came to estate planning. Though we took care of the basics when we became parents, such as purchasing term life insurance and naming a guardian, we never had a professionally executed will and trust until 2016, when we were in our late 50s.
Observing my in-laws, now in their 80s, made us realize how important it was to get our own estate-planning house in order. My husband, who is an attorney, has been named as the beneficiary and trustee of their estate. Understanding my in-laws’ financial lives, so we’re prepared when the time comes, hasn’t been easy—and there may be a bumpy road ahead. At the same time, there are complex issues to consider with our own adult daughter and the inheritance she would receive.
Although we’d drawn up a will and living trust in 2016, we had never transferred any assets into the trust. We wanted to remedy that, build in some guardrails for our daughter’s inheritance and name a different trustee. But there was a problem. When I emailed the local attorney who’d helped us draw up our estate plan, the email bounced back. I called his office and left a message, but no one ever returned the call. Our estate attorney had ghosted us.
Caught in the middle of the “sandwich”—wanting our estate to be easier to manage than what we’d observed in the older generations of our family, but also wanting to wisely provide for the younger generation—we decided to start over. It was an expensive process, but we’re far more satisfied with the results. Here’s what we learned.
We needed a better attorney. We discovered after the fact that the guy we’d hired in 2016 wasn’t actually an expert in estate planning. He was a divorce attorney who did a little estate work on the side. To find a more qualified attorney, we sent an email to our condo community’s group list. Four neighbors quickly replied with the name of the same local estate-planning attorney. We had a winner. A few weeks later, we had our first appointment with her.
You get what you pay for. Before our first appointment, our new attorney sent us a detailed online intake form which pulled together our basic details, contact information for family members, assets and so on. At the first meeting, she explained that we’d meet at least four times. Each meeting would have a purpose. First, we’d talk about our goals and parameters. Second, we’d discuss the outline of what she had come up with. Third, we’d sign final documents, review everything in detail and receive a to-do list. Finally, she’d follow up and make sure we had correctly transferred assets into our trust.
Our previous attorney had basically left us with “here are your documents, and good luck figuring out what to do next.” The price tag for this recent do-over was nearly double what we paid the divorce lawyer who ghosted us, but the value was excellent.
Expertise matters. One of our most important goals in our recent process, beyond just getting our act together, was to ensure that our 20-something daughter could manage her inheritance if something were to happen to both of us. Our new attorney came up with a plan: After we’re both deceased, the assets in our living trust would pass into a trust she also created in our daughter’s name. This trust has various guardrails to make sure the money is well managed and distributed over a period of decades. For example, if our daughter later marries and then gets divorced, her trust will remain her separate property.
In the years between setting up our first trust in 2016 and now, I’d read various articles about what you should or shouldn’t put into a trust, and they had just confused me. If we both died today, the bulk of our estate would consist of life insurance payouts and retirement accounts, and we had named each other as primary beneficiaries and our daughter as the secondary or contingent beneficiary. We did not, however, really want our daughter to receive that much of a windfall at this point in her life.
Our attorney explained that we could change the beneficiaries for both our life insurance and our retirement accounts to either our trust or our daughter’s trust. This was on our to-do list after our third meeting, and it was cumbersome to do. But we now know that, if we both suddenly pass away, the mechanism has been created to meet our goals and, more important, the assets are under the trust umbrella.
Naming a trustee. Because aspects of our estate may be contentious, we decided it would be better if an objective third party was our “successor trustee,” meaning the person or entity who takes over once we’re both gone. We also felt that we didn’t want to put that burden on a family member. Instead, we arranged for a local financial services fiduciary to serve as both the executor and trustee of our estate. They charged a $200 set-up fee and, when the time comes, the trust will be billed hourly for the services needed.
Setting up this third-party oversight was the final piece that made us feel comfortable that our daughter’s inheritance would be well managed. The trustee will distribute assets according to the schedule we created and manage things like inherited IRA withdrawals so that there’s no trouble with the IRS. We gave the names and contact information of both our new attorney and the trustee firm to two family members and to our daughter. That’s all they need for now.
What obligations do we have to our heirs? Offer your thoughts in HumbleDollar’s Voices section.
Dana Ferris and her husband live in Davis, California. She’s a professor in the writing program at the University of California, Davis, and is the author or co-author of nine books on teaching writing and reading to second language learners. Dana is a huge baseball fan and writes a weekly column for a San Francisco Giants fan blog under the nom de plume DrLefty. When not working, she also loves cooking, traveling and working out.
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The fees for professional estate administration can be quite substantial….
And they get billed after the person/people who set things in motion have departed the scene. Not only can there be outright fraud, but there are also possibilities of firms being bought, successor corporations having different priorities, and trustees being more concerned about protecting legalities than maintaining or increasing the value of an inheritance.
One thing I did appreciate is that your attorney was not associated with your executor and trustee! One thing that gives me pause is that the executor is the trustee. That might save money, but it might also lead to a lack of accountability.
But most of all, I’m glad that a) you set up your plans thoughtfully and considerately and b) you actually got the documents done and funded your trust!
When I had to make revisions to a trust set up by a family member, I realized that attorneys often write documents such that no other attorney would want to revise or defend them, but since you are married to an attorney, you probably know this far better than I do. It was also a bit of a shock when my large brokerage firm couldn’t find the phrasing they were looking for in the trust documents (from a locally well-known, respected and referred estate attorney.) The prose was dense enough I had to point out the places they were looking for.
But your attorney is also ahead of that one in that a) my family members did not understand the documents they received and b) they did not realize that since they had not funded the trusts, they were not yet of any value for estate planning.
Our estate could end up being fairly substantial, not so much because we ourselves are so wealthy, but because our daughter’s grandparents are likely to leave a sizable inheritance. While I’m sure you’re right that it can get expensive, it’s worth it to us to have that money managed for our daughter in the years to come. Our attorney thinks highly of this fiduciary and was pleased to hear that we were going to use her firm.
Yes, actually FUNDING the trust was the big step, and it was a lot of work. We had this to-do list, and I thought it would maybe take me an hour or two. It took days, and some tasks took WEEKS!
Thank you very much for the interesting article, DrLefty!
I had a question: At what point should one consider a trust? Obviously at $10,000 it would be overkill, but at $10 million, one should likely consider it: so when is the tipping point at which point one would be better off doing one?
I’m not sure the amount of money itself is really the “tipping point” variable. Having a trust allows the owners to have control over how the money is distributed over time, for example, if there are minor children and you don’t want them to get all the money until age 30, or if you want to skip a generation and leave money to grandchildren. With a simple will, that money is just distributed to the named recipients when the owner passes. There are also probate costs and tax considerations with regard to wills vs. trusts.
But this is a really complex area of law and finance. I actually bought and read “Estate Planning for Dummies,” and the one take-away I got from that whole book was “hire a professional”–because of the tax implications in particular.
Thanks for your article.
One thing that my wife and I did over the past couple of years is sit down face-to-face with our heirs and told them our wishes. My wife does not have any children, so this involved sitting down with my two adult sons and their wives. I also provided them both with a copy of our recent wills that details our wishes. My oldest son will be the executor.
I think that it is important to have a face-to-face discussion of your wishes early on and let the beneficiaries and non-beneficiaries know your reasons. That way if someone is going to be upset they can be upset with you rather than the executor/trustee. One stipulation that we put into our wills is that any heir has to complete Financial Peace University (https://www.ramseysolutions.com/ramseyplus/financial-peace) before receiving any inheritance.
As I mentioned, we named a non-family member trustee to avoid any possible conflicts. If any family member gets mad at her, well, that’s what she’s getting paid for.
My grandfather had a trust, and a bank was the trustee. That actually served everyone well because there were beneficiaries of the trust who tried to exert pressure to get funds earlier. The bank was able to administer things objectively.
Thanks for the interesting article. We have estate documents: will, DPOA, medical directive, digital asset directive and a revocable trust. Our house is in the trust and all other assets are in investments with designated beneficiaries. Assets are roughly 1/3 each roth, taxable and TIRAs.
Our biggest concern is if dementia or other long term illnesses would occur and consume a substantial part of our savings which we hope to leave to our children. A 2 or 3 year SNF stay would not hurt us but a very long one would.
Any suggestions to preserve our assets for our children?
We bought long-term care policies awhile back. We were both employed by the state of California at the time and got a good group rate, relatively speaking. We were also able to get policies for our mothers through our employers.
Financially, we’re kind of in between. I don’t think we quite have enough money to self-insure for long-term care, but having the LTC policies should be enough, along with our regular income, to cover those needs should they arise without emptying our estate of assets.
After reading your article I am concerned that the federal and state tax obligations from naming a trust as beneficiary have not been fully considered. As a retired CPA I previously observed, more than once, the taxable income from a traditional IRA or 401(k) lump sum distribution or RMD to a trust being taxed at the trust tax rates when not distributed to the trust beneficiary(s) in the same tax period when the trust receives the distribution. Federal trust tax brackets are very compressed when compared with the brackets of an individual. In 2023 undistributed trust taxable income over $14,451 is federally taxed at a 37% rate.
As many California residents know, you have the dubious distinction of living with the highest state income tax in the country. Your top marginal income tax rate reaches 13.3%, given the additional 1% tax on income over $1 million. Last I checked California income tax brackets that apply to irrevocable trusts are the same as those for single taxpayers.
What to do?
I doubt you intend the trust to contribute up to 50% of the IRA distributions to US & California taxes. If you feel it is necessary to have a trust to protect a beneficiary from their own actions you may want to consider being aggressive in converting your traditional IRA deferred taxes to a Roth during your lifetime so there is no tax bomb like when the trust receives a traditional IRA distribution.
Years ago I was in a continuing education class and the speaker was attorney Anne McKinney who practices and teaches in the estate and trust area. She told a story of a donor making a substantial family gift during life to determine the three possible outcomes to decide if a beneficiary is ready to handle a large inheritance.
Ms. McKinney’s story that day-
You gift early and the donee uses the money well and all are happy.
You gift early and the donee wastes the money but learns a lesson. The wasted money was small in comparison to the ultimate inheritance. Again, you should be happy for the wisdom you have passed on.
You gift early, the donee wastes the money and does not learn a thing, but you do. It was the third result that the donor used to decide to establish a trust.
Happy planning.
Thanks for all the info! Our estate attorney is also a CPA, so we’re confident she’s on top of the tax implications of how things are set up. My husband is a tax attorney, but for business, not personal income taxes. We’re well aware that we’re over our heads when it comes to estate planning and taxes.
Dana, very helpful article. Can you please specify how you found the “local financial services fiduciary” who acted as the executor and trustee? Thank you.
Here in Arizona, the attorney drawing up my estate plan gave me a list of all the licensed fiduciaries in the state, highlighting a couple recommendations. I interviewed a few before deciding.
I actually found her on my own. Just did some research online and met with her and then ran the idea by our new attorney, who knew her and approved of the idea of naming her (firm) as our trustee (and executor).
Thank you for this, a good discussion of a complicated (and often uncomfortable) topic. While wills and living trusts are relatively straightforward, irrevocable trusts and other after-death estate planning issues get complicated real fast, and isn’t a DIY project. For example, since Congress eliminated the “stretch” IRA in 2019 for most, trusts and IRA’s don’t work very well together, as RMD’s and forced emptying of the IRA after 10 years make for some rather unfortunate planning and tax nightmares. Your investment in professional advice in this regard is a good one, IMO, and finding someone who specializes in this ever-changing area is a must.
And how do we KNOW that we have found that “someone who specializes in this ever-changing area”? I don’t think recommendations from friends gets it done—they might like his nice manners or clean office or something. If I go to a CPA for accounting or CFP for financial planning, I feel confident that they have passed the tests set up by those organizations in those fields. Is there such a thing for trust writers?
One of our neighbors who recommended this estate attorney is herself a CPA and very savvy. I knew that if this attorney passed muster with our neighbor, she was good enough for us. And it turns out the attorney is also a CPA.
Yes, this was one of our main concerns. I don’t think we’re going to be able to roll our entire IRA/401K portfolio into Roths before we have to start taking RMDs, and we worried about our daughter inheriting sizable IRAs and not knowing how to handle the required distributions.
One of Ed Slott’s favorite sayings is “Where there’s a will….it won’t help your IRA…” I’ve had plenty of people tell me that they are sure their inherited traditional IRA isn’t taxable, because their estate attorney assured them that the account gets a set-up in basis at the time of death, and no tax is due. Um, no, that’s not how it works for IRA’s; but of course finding this out now, after the account has been emptied or re-titled, it’s too late to do anything about it. Ouch!
In the case of a traditional IRA, a trust may offer some limited help in the case of a spendthrift problem, but often at a huge tax cost–which kinda defeats the purpose. Life insurance, and Roth IRA’s seem to work somewhat better with a trust, since with the Roth the RMD’s are generally not taxed and the forced 10-year emptying of the account won’t also generate a massive tax bill. So converting as much as you can to Roth right now seems like a good strategy, and definitely a step in the right direction.
We talk about Roth conversions, but we’re still working, so they don’t make sense for us right now. We’ll have from 65-75 to make the conversions before RMDs start kicking in. It’s hard to do the math in advance about how much that will amount to over the ten years—we don’t even know what the tax brackets will be!
Congratulations on the article, and even more on finding a good attorney and getting all that planning done. Did the attorney recommend the fiduciary? BTW, as someone who just wrote an article on end of life decisions, which I documented along with my will, I did notice that you made no mention of powers of attorney or a living will.
We did all the POAs/end-of-life stuff as part of the process. We’d also done that much in the 2016 version. One of the points your article pointed out for me was that we need to get those documents into our medical records. Our attorney even gave us separate copies for that purpose, and I’m seeing my primary doc this week and planning to take them along.
I actually found the fiduciary myself. I met with her last fall and that’s when I tried to get in touch with our previous attorney and was ghosted. Our new attorney knows this fiduciary well and was pleased that we’d chosen to work with her.
Super.
Exceptional article, Dana – and likely a top-of-mind item for many HD readers as we navigate through the third trimester of our lives. Your decision not to name a sibling of your daughter as trustee was a compassionate one for all involve parties. A surviving child who by default must act as trustee for their parents estate assets likely will catch many arrows from their brothers and sisters on the decisions they make. Lengthy emotional battles around inheritance funds inevitably lead to intra-family divisions that may never heal.
Enlisting a reputable estate planning attorney ( one who specializes in this area of the law) should not to be looked at an expense, per se. It is an investment made with love that we willingly prepay for the benefit of the next generation. Family harmony for survivors after we depart (and peace of mind for us, in the present moment) are the rewards of this loving investment.
An investment and not an expense—that’s a great way to put it! Thanks for the kind words.
Dana, thank you for this useful article. My family situation had some similar problems and concerns to work out. My wife and I were also late in putting in place a proper estate plan, but it is very comforting to know that it’s done.
It really is comforting—a big exhale!