The Wealth & Wisdom Blog

I am not here to see you, son, I’m here to see your kids!  Anyone in my family knows my mother does not play “Minnesota nice;” she says it how it is.  Over Thanksgiving, and really during any family gathering, my mother makes it a point to prioritize time with her beautiful, athletic, and well-adjusted grandchildren.  My siblings and I don’t need to be present for my mother to enjoy Thanksgiving.

Perhaps by reason of seeing their own grandchildren over the Thanksgiving holiday, it seems like I have many discussions this time of year with my clients about how to best provide for their grandchildren through their estate plan. In this month’s update, I provide (i) some of the reasons for why clients decide to provide directly for grandchildren; (ii) the tax rules relevant to making lifetime gifts for grandchildren, and (iii) emphasize the importance of coordinating an estate plan with lifetime gifts.

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Have you listened to any good books on tape recently?

Neither have I, and yet I have not stopped using the term “books on tape” when referencing the audiobooks on my Audible subscription.  My use of the term “books on tape” has caused no shortage of confusion with my children, who have never used a CD player, let alone a cassette player. Just as physicians and biologists are interested in determining what functional use a body part may or may not have, our firm attempts to identify aspects of a client’s estate plan that are only vestiges of the past; that is, anything that has no real current purpose and is just weighing down the clients and their advisors.  Outdated (or “vestigial”) estate planning structures can take several forms, including:  (1) outdated provisions within a client’s legal documents, (2) the investment or bank accounts owned by a client that no longer serve the purpose originally intended, and even (3) an outdated physical medium by which information is being held or communicated.

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“It turns out your friend is only mostly dead.”

In the 1987 fairly tale adventure movie, Princess Bride, Billy Crystal plays Miracle Max, an unemployed magician who is able to concoct a magic potion in order to return Wesley, the movie’s protagonist, to life again.  Wesley’s friends had brought Wesley’s body to Miracle Max after Wesley had been tortured to death by the evil Prince Humperdink.  Upon arrival, Miracle Max tells the friends that Wesley was only “mostly dead” and not “all dead.”  “If it turns out your friend is all dead,” Miracle Max explains, “there is only one thing you can do, which is to go through his pockets and look for loose change.” Like all good fairy tales, Miracle Max is able to concoct the magic potion, bring the “mostly dead” Wesley back to life, and Wesley and his friends have fun storming the castle to save the Princess Bride from Prince Humperdink.

In the course of estate planning discussions, some of our clients might tell us that they do not wish to “rule from the grave” or exercise a so-called “dead hand.”  When they are “all dead,” they might not wish to act like they are only “mostly dead” by directing children or other beneficiaries as to how their remaining assets should be managed.   While I certainly appreciate the desire to provide adult beneficiaries assets without limitations, there could be tremendous advantages to creating on ongoing trust structure (what I call a “testamentary trust”) for the benefit of a child, grandchild or other beneficiary.

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During his heyday, I tuned in nightly to watch David Letterman’s “Top 10 List.”  I was recently reminded of Letterman’s Top 10 lists as I patiently listened to a client of mine provide yet another excuse for why “now was not a good time” to address certain estate planning decisions. In his defense, this 80-year old client is facing a number of difficult decisions related to the succession of his family business, decisions that will likely disappoint certain family members.  While his continued desire to “kick the can down the road” avoids difficult conversations, it will ultimately lead to more family disharmony if the plan is never implemented before his death.

Therefore, in honor of David Letterman’s Top 10 lists, here is my “Top 10 Excuses For Not Completing Your Estate Plan,” some of which (*) are actual client excuses:

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Will that be cash or credit?  For many years now, I have paid even my most minimal purchases on credit, not cash. While placing $2.95 on my credit card for a doughnut and coffee still seems a bit odd, at last I avoid taking the extra time to run to the cash machine.  Of course, once the credit card statement is received at the end of the month, the cumulative effects of the caffeine and sugar kicks I enjoyed over the previous month are a distant memory.

Estate planning has numerous “pay now or pay later” conundrums, including the decision of when to withdraw assets from tax-deferred retirement accounts.   If the current tax bill making its way through Congress is enacted, individuals with significant balances in their IRA, 401K or other tax-deferred accounts should review and perhaps reconsider how their retirement account planning impacts their overall estate plan. Among other important provisions of the “Setting Every Community Up for Retirement Enhancement” (“SECURE”) Act, the bill would require that, following the death of the account owner and his or her surviving spouse, the entire retirement account must be withdrawn within ten years.

As I have summarized previously, tax-deferred retirement accounts are taxed only as the account owner withdraws assets. Following the death of the original account owner, the new account owner(s) are likewise taxed only as they withdraw assets.  These new account owners are required to withdraw a required minimum distribution (“RMD”) on an annual basis, which is generally based upon his or her life expectancy.  By withdrawing only the RMD, the new account owner can “stretch” the retirement account over his or her lifetime, thereby minimizing the income tax burden.  However, if the SECURE Act is enacted in its current form, it would effectively eliminate the opportunity to “stretch” the tax-deferred account, thereby significantly increasing the family’s overall income tax burden.

If the SECURE Act is enacted, individuals with significant retirement account balances might consider the following strategies:

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When my wife and I were first dating, I had the opportunity to enjoy family dinners with her family.  Each of my wife, sister-in-law, brother-in-law, and their parents are very good cooks, and each of them have particular views on how a meal should be properly prepared.  Anlauf family dinners are characterized by great food and no shortage of opinions regarding the meal.  Early on, my brother-in-law, who also came to the Anlauf family by marriage, gave me this sage advice—whatever you do, enjoy the great food, but stay out of the Anlauf family kitchen.

Similar to the Anlauf family kitchen, some people create an estate plan in which there are too many cooks in the kitchen. (more…)

Most individuals need to establish an estate plan that names at least three separate legal “fiduciary” positions.  In some cases, it may be necessary to name as many as five (5) separate legal positions.  In some cases, one person may fill more than one fiduciary position, although it is important to carefully consider the roles that each person would play.

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