I recently took an exam that featured three (3) hypothetical case studies. The goal was to identify and address key issues of estate planning faced by each client – each one representing common financial and family circumstances.
Over the next few blog posts, I want to explore each of these case studies a little further and share with you my thoughts on each scenario. This is a good exercise to understand the thought processes and details one must go through when developing a sound estate plan.
The Client’s Story
The first is Ms. Victoria Smith. She is a widow whose husband passed away in 2010. Victoria has three (3) children (all adults) and six (6) grandchildren (all minors). She was a successful professional for many years, retiring in 2020. Victoria does not have any plans to remarry, but might reconsider if the right person came along. No Federal estate tax return was filed for her husband’s estate, and, therefore, no “deceased spousal unused exclusion amount” (DSUEA) will be available upon her own death.
Prior to her husband’s death, Victoria and her husband created reciprocal wills. This allowed for her husband’s entire estate to be transferred to Victoria outright. There was no bypass trust for her, and Victoria did not exercise any disclaimer of the amount received from her husband. As of now, her primary financial assets consist of the following:
• Residence: $3.5 million
• Life Insurance: $2.5 million
• Vacation Home: $2 million
• 401(k): $3 million
• Spousal Rollover: $500,000
• Stocks and Bonds: $1 million
• Cash and Savings: $200,000
Victoria’s estate planning goals were clear:
- Enjoy the income from her assets during her lifetime
- Spend as little of the principal as possible
- Leave the remaining property to her children, equally disbursed
- Save as much in taxes as possible
- Some asset protection for her property
Now that we understand the client and her goals, let us take a look at some of the key issues we would focus on when reviewing and updating Victoria’s estate plan.
Review of Existing Estate Plan
First, we would review her existing estate plan, which primarily consisted of a Last Will and Testament that is more than eleven (11) years old and lists her deceased husband as her primary beneficiary. This could cause a variety of problems, if something were to happen to Victoria before her planning is updated. Therefore, her Last Will and Testament should be updated, with certain strategic estate planning measures addressing Victoria’s current needs put into place. Another concern is where Victoria lives, where probate proceedings tend to be very lengthy (even if not contested).
Estate Planning Strategy
The crux of Victoria’s estate plan came down to two (2) options: update her simple Last Will and Testament or explore revocable living trust-based planning. The trust-based planning approach could help avoid probate, and might arguably be better for facilitating her own disability planning and the overall update of her estate plan. It may also provide more robust asset protection planning for her beneficiaries.
Other issues to cover in Victoria’s case were estate tax concerns with her assets totaling a net value of $12,750,000. We would look into four (4) types of tax considerations:
- The estate and gift tax
- The generation-skipping tax (GST)
- Income tax
- The real property tax consequences of her actions
There are many other issues to consider to best address Victoria’s specific needs, as with any other estate planning case. There is general due diligence (for example, confirming beneficiary designations), asset protection planning, life insurance policy review, life insurance policy ownership, family gifting, charitable gifting, and so much more that we cannot fully cover in this one article. If you would like to read my entire legal proposal for this particular case study, download it below.
Stay tuned to my blog for more hypothetical case study reviews. It may help you understand what truly goes into the process of estate planning, and the most important factors you and your family need to consider when creating your life plan.
If you are looking to develop your estate plan or update your existing plan, contact me today to get started.
