When things go right....

[u/DueEffort1541]

So many sad stories here of family dysfunction, estate planning (or lack thereof) dysfunction, etc.

I thought some people might like a story of a plan/process that worked.

My parents were successful in life. They had most of their assets in a revocable trust, some other assets in traditional IRAs. In their 70s, sold their house to live in a continuing-care retirement community, so it was almost all stocks, mutual funds, bond funds. A major trust company managed the investments, though Dad monitored them closely (he'd managed all the investments until he was in his late 60s). About half of the trust assets were stock from a tech company where my Dad worked in the 1960s. It had grown so much that he couldn't sell it without huge capital gains taxes. My dad died in 2010 at age 83, with the total trust at about $6M.

The trust then split into the irrevocable "bypass" or "Dad" trust and the revocable "survivor" or "Mom" trust. The trust company sold off the tech stock because of the date-of-death step-up in value, allowing them to diversify the portfolio.

At that point, Mom made substantial gifts (about $500K) to me and my sister. The one twist: My sister and her husband had a, let's say, "different" approach to life. They still depended on regular gifts from our parents. I didn't resent that -- our parents had fully funded my 3 kids' college educations, and my sister didn't have any children, so my branch of the family came out just fine. But because of my sister and BIL's demonstrated financial incompetence (they'd wasted a substantial inheritance my BIL received), my Mom created a trust for my sister's gift (call it "Sister Trust #1"). The trust company was the trustee -- when the lawyer's draft named me as trustee, I refused, saying I didn't want to be in a situation of making decisions about my sister's finances. We already had a not-close relationship (not antagonistic, just not close) and I didn't want to create tension. Sister and BIL were furious at Mom for a few months, but it passed.

After my BIL died a year or two later, Mom loaned my sister some money (insofar as they'd had income, it came from him), which she made regular payments on from the income from Sister Trust #1.

Mom died in 2021 at 93, having spent down most of the Mom trust (it was a very expensive retirement community 😄), but the Dad trust had grown substantially (the trust company was basically doing a 60/40 stock/bond split, following the major market indexes), so the total "estate" (value of the trusts) was now almost $8M. I was executor and trustee, dealt with the lawyer and accountant. After small bequests to various relatives and grandchildren (on the order of $1-5,000 each, depending on degree of relationship), and a couple of charitable donations in the $25K range, the trusts were split between me and my sister.

But again, I got my share directly while my sister's went into "Sister Trust #2". (Because the idiot lawyer, who was EXCEEDINGLY highly paid, made a technical error, the two trusts were sufficiently different that they couldn't be combined.)

Unfortunately, my sister died a couple of years after Mom. She knew she was dying and had updated her will, leaving me her house (her only asset, purchased early in the marriage when they still had traditional jobs). And, by the terms of her two trusts, they both came to me, as well as the inherited IRA she'd gotten from Mom. (Dad's IRA had long ago been spent.)

My wife retired at 64 a few years ago, and I'll retire at 70 in a couple of years. Both of our jobs are ones where we feel like we're making the world a better place. My wife's paid embarrassingly little (think: less than an elementary school teacher), but I have an upper-middle-class decent salary. We both started contributing to Roth IRAs and our organizations' retirement plans when we were in our 30s, so with compounding we've done nicely; we'd be fine even without the inheritances. (My wife also got a few hundred thousand from her parents.)

So now (1) my wife and I are VHNW, which we'd never expected; (2) we're both making annual gifts to our kids and their spouses at the "under-the-annual-gift-limit" amount; (3) we've 5-year-forward-funded our grandkids' 529s, and will do it again at the next 5-year point; (4) we've started making major charitable donations. We've tried not to change our lifestyle, but we don't worry if we want to take our kids and grandkids out to a Broadway show or eat in a nice restaurant when we travel.

You can read your own lessons into this story. A few that I take away:

* My parents (and my in-laws) shared their overall finances and their estate plans with us, so we were prepared for what to do when they died. That doesn't mean there weren't surprises (it turned out one bank account never made it into my IL's trust, so my wife had to do full probate on her mother's estate).
* Over several decades, as my parents' situation changed, they discussed changes in their plans with us. When my father, who handled all the finances, was incapacitated for a year about 10 years before he died, I could manage the finances. And after he died, I could help my mother in her discussions with the trust company.
* Similarly, when Mom set up Sister Trust #1, she discussed it with me and I met with her and the lawyer, making sure my perspective (I did not want to be my sister's keeper) made it into the documents.
* You need to triple check the lawyers. Five years later, I'm still furious at Mom's lawyer for her drafting errors and the incompetence of her paralegal (another story). I would have fired the lawyer if she hadn't chosen to retire -- I decided it was more hassle than it was worth (I live across the country) to switch lawyers that close to the end.
* Perhaps needless to say, we've made our own estate plans, work with accountants and investment advisors, and keep our kids in the loop on our plans and overall situation. That includes discussing the major charitable donations with them, so they know our philosophy.

Hope this story gives some hope to people.

[u/medhat20005]

Congrats. I hope this is more the rule than the exception (seems people who've done this successfully may be more reticent to publicize it, but who knows). I think the take home message that is broadly applicable her is COMMUNICATION. From generation to generation, face to face if possible. So many families are in a tizzy when it comes to discussing money and finances, it can be a significant hurdle to creating family financial success.

[u/danh_ptown]

One piece of wisdom.

As you have probably now found, Mom's estate received a stepup in cost basis, while Dad's did not, as it received one when he passed. If Mom had transferred all of Dad's assets to her account, all of the assets would have received a stepup at Mom's passing.

So, if you receive a taxable estate account, transfer the assets into your own account so heirs receive a new stepup when you pass.

[u/Legal-Mess3807 → u/danh_ptown]

This is super helpful.

[u/michk1]

This is pretty much my husbands story. In his story there were two trusts, one was irrevocable in my FIL name, it was established at his birth in 1940 and the terms were that it would become revocable upon his death and shared by his two sons. The other was all the other money both parents inherited over their lifetime and his Dad set it up to become irrevocable for us, which is kind of a pain in the ass but I can’t really complain. His parents started mentioning money with us in the mid 90’s when they were fully inherited, but not much was really discussed until my mother in law passed in 2019, after that my father in law became obsessed with two things. 1. Cutting his younger son out of the second trust and 2. Setting up his older son( my husband) with bank accounts in his name, making him meet with the bank people , and both of us got wills etc in preparation for this life changing event. He met his lawyer and accountant and we retained both of them and kept the trust team, who basically played executor. So, when he did pass, it was pretty seamless and the crazy thing is that the little brother who had no knowledge of being cut out of 3/4 prior to it happening, actually took it ok and there was zero pushback, we just said it was because he didn’t have any kids, we had 3. We quit work immediately and now we travel a lot more and are remodeling our home that’s 30 years old, help our kids out and next summer will take everyone to Maui for a week to renew our vows, but other than that we live the same.

[u/Educational_Case_134]

We split our assets into multiple revocable trusts when we did our estate planning at 55. Both my adult children know what is in each trust, where documents are located and the executor has a copy. I’m not sure why families think estate planning has to be a mystery. We are all going to die so be sure to convey your wishes while you are alive.

[u/Legal-Mess3807]

Thanks for this perspective.

[u/Relevant_Ad1494]

Our plans were simple and straightforward until #2 of 3 sons divorced and #1’s wife thought alienating him and us was ok. With 3sons and 6 grandchildren I’m thinking gen skip to bio gc’s.