Estate Planning Ideas?

[Big C]

What is the name of your state (only U.S. law)? CA

My girl friend wants to set up a will/trust structure that is as tax efficient as possible and provides an ongoing allowance to her parents and siblings. She wants to include me as well both as a beneficiary and as executor/trustee.

Her assets are:
1) Personal effects ($25K)
2) Cash and accrued vacation ($15K) some credit card debt ($7K)
3) Condo ($320K with $300K of debt)
4) Term life insurance ($300K)
5) 401K plan ($400k)
6) Life benefit transferable annuity ($20K cash value, $315/month currently)

The tax situation of her intended beneficiaries is:
1) Me high income (30% bracket and heading up - 20 years until retirement)
2) Parents (SS income only - 85 years old)
3) Siblings very low income (disability only - 50 to 55 years old)

What would you set-up? Will Only? Will and Trust? Who would you make the beneficiaries of the life insurance and 401K plan? The estate? The people and which ones? A trust?

At issue is her concern that any lump sum distribution to her parents and siblings would be squandered. If possible she wants me to provide a $10K per year living allowance (plus extra funds on occasion for travel - if it appears the money will not run out before they die). She is not concerned about my ability to handle a lump sum. Can such an arrangement be done via an estate? Or is a trust the only way? Giving all 401K monies to me as a beneficiary would seem to be the worst from a tax perspective but the best from a "control" point of view. Can I be bound by a contract? Is this the will or a separate deal? How and what is an appropriate form of compensation for me as an executor and/or trustee assuming I am a beneficiary? How about if I wasn't?

Ideas? Thoughts? Seems easy to go around in circles and/or research and/or talking to lots of professionals. We are looking for a strategy and then to paper the right deal.

 

[FlyingRon]

The personal effects and miscellaneous stuff will have to be handled by a will. I'd not throw a lot of expectation into "accrued vacation." That will likely evaporate if she dies or quits. There's usually no requirement for an employer to turn that into something tangible.

If she wants to meter out money from the grave, she'll have to have a trust. If you are the responsible one, she'd make a revocable trust with her as the trustee now and you as the successor trustee. The estate is too small under the current rules to attract estate/inheritance tax issues. The various assets would need to be named in the trust and things like the life insurance would use the trust as a beneficiary.

If you're relatively young, you could roll over the 401(k) proceeds into a another tax deferred (IRA) vehicle.

I would suggest that spendthrift trusts are a bit involved and it would behoove you to consult an estate planning attorney to set such up. All the questions you have will be answered by them. Trustee compensation, etc... are all pretty standard things.

At this point maybe the two of you well off siblings should look into paying the legal expense of setting up things for a lot of the family. I can tell you having things like Advance Medical Directives, and Health Care POAs will make things a lot easier in the long run in case one of these family members becomes incapacitated. We got in just under the wire on my Alzheimer-inflicted mother in law. I've got my proxys, trust documents, etc... all in the fire safe and my siblings know where that is in the case of our passing (my sister is an attorney and is the logical choice if she doesn't predecease us as the successor trustee/executor....of course you must always revise these things as life situations change).

 

[curb1]

This whole thing took a turn for the worst when you said "My girl friend". I can't believe how many situations I have witnessed when a girlfriend/boyfriend is involved in the estate planning of their significant (not married/no kids/no legal ties) other. Especially as you have laid this out with so many desired variables.

Her estate is relatively small. Being "tax efficient" will not be a problem. The problem will be the costs of administering this with the variables/concerns that you have given. Do you want to fill out the tax forms and do the accounting of the trust every year until the assets are dispersed?

My suggestion is to keep this simple with a will. Name beneficiaries for the assets. Disperse the money on death and be done with it. Let the chips fall where they may. Why dole out such small amounts with the only satisfaction of being in control from the grave.

 

[LdiJ]

This whole thing took a turn for the worst when you said "My girl friend". I can't believe how many situations I have witnessed when a girlfriend/boyfriend is involved in the estate planning of their significant (not married/no kids/no legal ties) other. Especially as you have laid this out with so many desired variables.

Her estate is relatively small. Being "tax efficient" will not be a problem. The problem will be the costs of administering this with the variables/concerns that you have given. Do you want to fill out the tax forms and do the accounting of the trust every year until the assets are dispersed?

My suggestion is to keep this simple with a will. Name beneficiaries for the assets. Disperse the money on death and be done with it. Let the chips fall where they may. Why dole out such small amounts with the only satisfaction of being in control from the grave.

She wants to make sure that her parents and siblings are cared for, for the long term. Big C, its ticklish for you to be the trustee. That is a big responsibility for you to take on for your girlfriend's family...particularly if you are also to benefit from the trust.

 

[Hot Topic]

Talk about "ticklish." What if the two break up?

 

[tranquility]

My suggestion is for the girlfriend to see an attorney so she can express her wishes in private. Think about how this looks otherwise. Boyfriend going to the internet to find a way to arrange that he gets a lump sum while the others do not in order for him to be able to manage that money as trustee (with him as remainder beneficiary). Cool. I wonder if anyone else will feel there was undue influence on the principal or anything?

While the plan is a little bit more complicated than a normal revocable trust (in order to protect everyone), it is certainly an option. But, you can't do it--she does. At an attorney of her choice those who could stand to gain advantage from the plan had nothing to do with.