It happened again. A beloved & wealthy performer – this time, Aretha Franklin – passes away without a will or trust to protect her family & fortune. The same thing happened with Prince a few years ago and his $200 million dollar estate continues to be caught up in court proceedings and will be significantly eaten away by inheritance taxes and lawyers fees. Not a happy note for the relatives of two amazing musicians.
While they say that death & taxes are the only two certainties in life, it doesn’t need to be that way for your estate. We worked with an attorney a few years ago to establish living trusts to guard our assets. While I sometimes report on how our retirement assets are growing, in fact we have virtually no assets. Our house, retirement savings, and other accounts are all owned by two trusts: one in my name and one in my wife’s.
It was critical for us to think through these issues, since Minnesota is considered one of the “Worst States To Die In” according to Forbes. Our state has a relatively low estate value exemption amount and a rather high inheritance tax rate. The Federal Government currently has a $5 million dollar estate exemption, but many states, like ours, tax much smaller estates – leaving heirs at risk to a big tax bill.
By transferring all of our assets to our living trusts, we benefit by playing a shell game of sorts. Our assets won’t ever be inherited, in a sense. Instead, the names of the trustees will simply change names: from ours, in time, to that of our son. We established the trusts when he was still a minor, so we appointed a sibling to serve as a trustee until he turns 21 (which is just a few weeks now).
Putting your assets in a trust does not mean that you don’t have full access to the money. The trust is completely revocable, and since we are the current trustees, we can still spend the money as if it is our own. We had to do some paperwork to originally transfer the assets but that only took about a week to get everything set up and signed. The only difference we see day-to-day is that our statements come in the name of our trusts instead of our own names.
The whole process of setting the trust consisted of a couple visits to a trusted attorney and it cost us just a few thousand dollars. Estate tax law is always changing, so every once in a while we get a note from our attorney asking for us to look at signing an addendum to keep things up-to-date.
In addition to benefiting from the significant tax savings – which would certainly eat up hundreds of thousands of dollars – we also took this as an opportunity to think through other end-of-life issues. Our living trust work was also combined with health care directives, funeral desires, and other inheritance specifics. Not fun things to think about, but better to address them in writing now than not being able to address them before it is too late.
We run into our attorney now and then and I always wryly remark that “we’re not dead yet, so we don’t know if you’ve done a good job or not!” Hopefully, the effort we’ve made at this point of our lives will make things smoother at the time of our passing. When I see a story in the news about someone like Aretha or Prince and the legal troubles they have left, it makes me feel more secure.
Here is a LINK to more information to more information on living trusts from EstatePlanning.com.
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