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Setting up our estate planning

October 17, 2019

We have made some progress on our estate planning!  The first meeting with a lawyer is complete.  We came out with more questions than answers, but I hope we’ll be able to get this sorted out soon.

The easiest piece to set up is the “what happens if both of us die” part. Everything goes in trust to LO, and she is taken in by our designated caretakers.  We considered the pros and cons of having the trustee and the guardian be different people, and opted to make them the same. We chose a second person to take in our dog, and designated a small sum of money for his care.

The tricker piece has been trying to figure out how to set things up such that LO is protected if only one of us passes.  The default arrangement the lawyer posited was that everything goes to the surviving spouse. Our house and our non-retirement assets are placed in the trust, and retirement accounts, since they avoid probate anyway, pass directly to the surviving spouse.

I asked about an A/C trust such that LO would be included.  Then we got confused.  We have relatively few non-retirement assets, aside from our house.  We have so much room to save in tax advantaged accounts that we haven’t needed to build up outside investment accounts.  So, almost all of our non-house assets pass directly to the surviving spouse, and only the house is split between spouse and LO under an A/C trust.

But do we actually want LO to have ownership of half the house?  Not really.  The surviving spouse still will have to live there, or at least, live somewhere. What use is half a house to LO, if it isn’t liquidated? The lawyer offered a clause that would delay LO’s inheritance of half the house until the house was sold, and only T or I could determine when it was sold.  That seemed a little better, but still could box in the surviving spouse in terms of living arrangements.

Backing up, how much of the retirement and house do we actually want to designate for LO versus for the surviving spouse?  At least half of my retirement accounts should rightfully go to T.  I suppose the other half could go to LO, assuming it would also be used by T for her benefit until she turns 18 years old. But really, if T were to need any of “my” retirement savings for his retirement, I want him to have it!  Plus, there are tax benefits to having retirement accounts go to a spouse versus a child.  (But maybe those are mostly estate tax benefits, which we don’t expect to impact us.)

The situation we are trying to protect against is one where the surviving spouse remarries, and later passes away.  We don’t want LO’s rightful share of any assets to be diluted, or even lost entirely, to a future spouse and/or a future spouses children.  We can assume that the surviving spouse could handle this appropriately in a prenup and/or their own estate planning, but it seems prudent to try to set up some protection now now. On the other hand, a poorly set up trust can cause a lot of problems.

Basically what I want is:

  • T gets the house, no questions asked.  LO needs no entitlement to our primary residence.
  • Everything else I own goes to T at first.  He can spend it to benefit LO and himself until he retires.
  • If T remarries, he can continue to spend to benefit himself and his future spouse, and of course, benefit LO.
  • When he passes, any remaining assets go to LO. The future spouse shouldn’t have access to these funds. But, I suppose the future spouse could inherit the house….  Or at least live there until she passes, then LO gets it.  I wouldn’t want to kick a (presumable old) lady out of her home when her spouse has died, just because I have put much of my own money into it before I died.

The 3rd and 4th bullets are not simple!  The third bullet allows for use “my” assets before any “unrestricted” assets, minimizing those that will eventually pass to LO instead of future spouse.  I think we are looking for a QTIP trust, but I need to look into this further.  Maybe a “C” trust is indeed a QTIP?

(Note – we are using our legal insurance for this, and I’m not convinced that we have the right lawyer.  I would have hoped for a little more guidance on this during our visit.)

So, how are your estate plans set up in the case that just one of you passes?  Do you leave it to the surviving spouse to be sure to protect the children in case of remarriage?  Or do you have legal protections in place?  Also, do you think (minor or adult) children should be entitled to anything directly when one parent passes, or should it remain with the surviving parent?  Is there an Estate Planning for Dummies book I need to read?

8 Comments leave one →
  1. October 17, 2019 7:02 am

    We’ve left everything to the surviving spouse. I guess I would only think that DH would get taken by a gold-digger when the kids have been adults for a long period of time and don’t really need our money anymore.

    • October 17, 2019 9:22 am

      That is true. I think it is less about a gold digger, but money can make mostly decent people people do strange things. The worst case scenario is that an adult LO gets nothing and everything I saved in my life goes to people I’ve never met (minus what T needs). That is sorta OK but not ideal. But I could assume T figures out how to protect what my intentions are as best as he can.

      It is not a bad solution, and we may start with that just to get something in place. Luckily, our legal insurance is really affordable so there is only a minor cost to redoing it all next year.

      • October 22, 2019 11:29 am

        My assumption was that DH would have to have dementia in order for him to not do a prenup protecting our kids, but after thinking harder about this I realized that wasn’t necessarily a great assumption and we had a discussion about scenarios in which he remarries after I die and the importance of pre-nups for later marriages. We’re both sort of less concerned about our kids once they’ve graduated college, but it does make sense to protect some of our assets for them should we die with larger estates.

        I think the next time we update the will, I will ask our lawyer if we can put in a non-binding reminder that that is my desire into the will itself.

  2. October 17, 2019 8:19 am

    We don’t have kids, but we do have a survivorship clause because our separate estates go to very different people if both of us die. (Like, I wrote out my parents since they’re retired and he didn’t.) And even if only one of us dies, our estates are somewhat different too – my husband doesn’t necessarily get all of my assets nor him mine. And we will use life insurance most likely to give a portion to his parents if he dies first and they’re still alive.

    I would say that you might want to have another “first meeting” with a different lawyer to see if they have more useful answers for you. One thing I would be careful about (and a good lawyer should make sure of this, which is part of the point of some of these trusts) is that any assets left to T, if they have a terminable interest (i.e. at his death), then they won’t qualify for the unlimited marital deduction against your adjusted gross estate. Other things I’ve learned in estate planning is that you should be careful about leaving any assets not in trust to a minor child as legally they can’t own anything! So setting LO as the beneficiary on anything directly isn’t the best idea.

    • October 17, 2019 9:27 am

      We accumulated most of our assets as a married couple, so it makes sense that you would have a different approach. When I say LO is the beneficiary, I did mean in trust to her.

      At this point, I don’t foresee us hitting the estate tax limit of >$10M, but something to keep an eye on.

      I’ll have to see what our legal insurance covers in terms of another lawyer, and the best way to move forward. The good news is that we can at least sort out the “what if both of us die” question quickly, which feels most urgent.

      • October 21, 2019 8:12 pm

        It’s less about when we accumulated our assets (our net worth has almost doubled since we got married!) and more about the wealth differential between our families, that we don’t have kids, and that I actively hate one of his siblings. Like, I ruled that I had to be dead before that sibling could have any legal power on anything.

        Agreed, the what happens if both of you die is the most critical due to the guardianship issue.

  3. Amy permalink
    October 18, 2019 6:55 pm

    I saw a trust lawyer and the actual
    Solution to your problem is separate trust for you and T. He didn’t recommend it for our level of assets as it’s twice the cost and he said the “Cinderella scenario” for a biological child is not that common. (And he does a lot of big estates, our estate is a pittance and that’s even including multiple millions purchased in life insurance)
    I did specifically inquire about the same concerns you have as I was sick with a possible terminal condition and I still think I will likely die before my spouse. We have one child together and I assume he will remarry as we are still in our 30s. I only hope that he will continue to love the child we created and will allow him the resources to grow up, and well, anything beyond that is gravy. If his next wife squanders all my 401k savings, I am just grateful she helped raise my son.

    • October 20, 2019 11:23 am

      Thanks for this insight! I still don’t quite understand how separate trusts would fix things, but I’m not an expert. I do think there are vehicles that solve this in a single trust (QTIP??), but they put strings on money for T and may have negative tax implications. I have no particular reason to assume I will die young/first, so I may just let it be, at least for now. We’ve been thinking about it a lot. Our assets are not so much, either.

      I know if I were to be the surviving spouse, I’d definitely take care to set up a fair prenup/estate plan if I remarried, and I can likely trust T will do the same.

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