Thank you for all your money advice. I’m not going to ask you if I can afford to retire or when. I know that we’re blessed financially and I know it’s awkward to give advice to wealthy people. What level of estate planning does one need at different levels of wealth, from say a $1 million to a $10 million to a $100 million estate?
I’m 51 and my wife is 50. We have two children,19 and 21, with one starting law school and the younger planning on medical school. Our estate is worth $18 million. Our assets include a primary residence of $2.5 million, $5.4 million in almost all non-Roth IRA/401(k), $4.5 million in brokerage and savings accounts, and $6 million in income-generating real estate.
The rest of the estate is split between automobiles, furniture and jewelry, etc. I am not counting on any value of the business, and I am unsure if we will ever be able to sell it. I also am not counting on our expected inheritance of $2 million to $3 million sometime over the next decade, but if this materializes it will have to be considered for estate-tax purposes.
Unfortunately, my wife was diagnosed with terminal cancer seven years ago and, upon her passing, this will complicate my tax situation. I expect to live to around 85-90 by health and family history. Our careers peaked two years ago at about $1.2 million, and have since cut back due to exhaustion with a current household income of about $750,000 a year. We have no debt.
We’re hoping to pay all higher-education costs for the children over the next seven years. We wish to continue tithing 10%, and give gifts to the children every year up to the annual limits. Other than that, I’m a simple guy, and don’t care for the complexity of spending on clutter and the hassles of maintenance or excessive travel, but enjoy travel in moderation with family.
How much estate planning would an estate like ours need? We continue to max out our retirement/HSA accounts but, feeling we have invested well, are spending more of our salary now on creature comforts, college expenses, tithes, medical expenses and health insurance, remodeling, automobile expenses, travel and dining out.
What kind of help do we need?
Estate Planning Guy
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Your wording is encouraging. Complicated does not necessarily mean difficult. – MarketWatch illustration
You’re asking all the right questions — and at the right time.
The distribution of your estate to your children and their children will create a complicated tax situation, but your wording is encouraging. “Complicated” does not necessarily mean “difficult.” And while you have more important issues on your mind now with your wife’s diagnosis, you are smart to get organized now rather than later.
You and your wife can do this together, or you can take the lead. Either way, estate planning for a $1 million or $18 million or $100 million estate will require the same vehicles (a will, revocable trust, health-care directive and financial power of attorney) and people (an estate-planning attorney, financial adviser and/or CPA) to help manage your assets.
Jennifer L. Campbell, partner at Karlin & Peebles in Los Angeles, Calif., suggests a bypass trust (also known as a credit-shelter trust). This helps wealthy people avoid estate and probate taxes. In this case, a select amount of assets are put in the trust, which becomes irrevocable upon your death, and your heirs receive an income from the trust.
“The terms of the bypass trust can vary considerably,” she says. “However, most commonly, the bypass trust is structured so that it can qualify as a marital deduction trust, which allows the survivor to claim the decedent’s estate and gift exemption as the survivor’s own and allows the assets in the bypass trust to receive a new basis at the survivor’s death.”
Trusts are typically very flexible and can be written to include distributions to pay for post-graduate education, weddings and other life milestones, Campbell says. “These trusts can be held for life or can be directed to pay out at various ages [and] the flexibility to plan for the generation-skipping transfer tax, currently equal to the estate and gift tax exemption.”
For assets that don’t go in a trust: You can name your children as beneficiaries and/or create transfer-on-death deeds. Avoid putting their names on the deeds so you can avail of the step-up in-basis that will apply capital gains on the fair market value upon your death rather than the original purchase price. An adviser will help you structure your trust(s) in more detail.
In early October, the Internal Revenue Service announced a new estate-tax exemption on wealth transfers during your lifetime and upon the decedent’s death of $13.99 million per person for next year, up from $13.61 million in 2024. The annual exclusion for gifts rose to $19,000 for 2025, up from $18,000 this year; it’s double that for married couples.
But there’s a spanner in the works of the tax code coming soon: Unless Congress takes action, that exemption is scheduled to “sunset” or change to $5 million in 2026; it will be indexed to inflation, which will likely bring it to $7 million. That’s the maximum amount of assets you and your wife can leave to your heirs without paying federal estate tax.
To utilize the lifetime exemption of the first to die, you may wish to consider a “credit shelter” trust, says Neil V Carbone, trusts and estates partner at Farrell Fritz PC. You should also consider the benefits of trusts for your children, he adds. They may have different needs (and wants) as they age.
“The trust assets could be used to provide funds for their education, first homes, and business ventures, among other things,” he adds. “Before splitting their assets into separate trusts for each child, they could include a ‘pot’ trust that would benefit both children until the youngest is a specific age.”
There are also tax-planning strategies to be considered in the case of a terminal illness, Carbone says, such as shifting low-basis assets to the terminally ill spouse so they get a stepped-up basis on death, provided that the spouse survives for at least one year after the transfer is made.
“Depending on the state you reside in, there may be state inheritance taxes and many states have exemptions well below the federal exemption amount,” says Clay Stevens, director of strategic planning and partner at Aspiriant in Irvine, Calif. “The rates can be as high as 15%. In those states, you will need a specifically drafted estate plan to minimize such tax.”
Stevens recommends meeting with your financial adviser regularly. “We recommend that clients review every five years and update every 10 years,” he says. Given the possible upcoming changes in the estate-tax rules, he suggests annual conversations. Who you talk to regularly may also depend on the relationship and how easily you work together.
Campbell has a slightly different take: “In terms of who should help you and your wife with your estate planning, you will want to have a team,” she says. “The estate-planning lawyer is typically the team leader, with your financial adviser and accountant playing valuable roles in ensuring that the plan you choose will yield the results you envision.”
“Estate planning is not just what happens at your death, but also what happens if one or both of you are living but unable to make decisions,” she adds. “Usually if you are unable to manage your affairs and you have done no planning, the court will appoint someone to manage your affairs while you are living.” So the more you do now, the more likely you are to avoid that.
Godspeed to you, your wife and your family.
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