Estate Planning: Don’t Set It and Forget It (Part 2)

Last month, we spoke about ‘dusty wills’ when you have to blow off the dust because it’s been so long since you reviewed them. The same can be said for the entire estate plan as a will is only one portion of the plan. Our client commitment is to ensure that ‘life events’ such as marriage, divorce, birth of a child, move to another state, death of a beneficiary or receipt of an inheritance is considered when planning (and reviewing) estate plans. Our work is to quarterback the team of specialists in tax planning, debt management, banking, and law, etc., to make sure that we are all on the same page and working together to meet our client’s important vision for their life.

When we recognize a need for a specialist in estate planning, we turn to experts like Paul Brown, who is an estate planning attorney and president of Chandler & Brown, Ltd. in Minneapolis. In Part 2, he continues to share some real-life examples of what can happen if oversight is neglected.


Failure to Consider State Estate Transfer Taxes

The Federal Estate tax exemption has increased significantly over the last several years to over $11.5M. Because of that, many believe that estate planning with trusts is no longer a concern.  However, Minnesota is one of few states where we retain a STATE estate tax that may surprise your heirs if you don’t plan accordingly.  Transfer taxes and inheritance tax can have a significant impact on your estate plan. But with properly planning, it can be completely eliminated in certain situations.

For example, you can leave an unlimited amount to a spouse. However, currently the Minnesota Estate Tax is about 15% on anything over $2.7M that is left to a non-spouse. And this amount will increase to $3M after 2020.

Let’s say a couple has a $6M estate and no estate plan in the year 2020. They own everything jointly so when the husband dies, everything goes to the wife automatically without tax.  The husband wasted a credit against the tax for $3M because everything went directly to the wife. When the wife dies, the first $3M is tax free. The second $3M is taxed at roughly 15%.  That is a $450,000 mistake.

To set this up properly, when the husband died, the second $3M should have been set up in a trust for the wife. Because the trust owns the money instead of the spouse, you can preserve the credit against the tax.


Keeping the Inheritance in the Family

Inheritance is considered an asset. Without a trust in place, money that is willed to an adult child will typically pass to that child’s spouse and not to the grandchildren of the deceased spouse.

Let’s say Grandpa leaves $1M to his son without a trust, when the son dies, it will go to his wife. If she remarries, it may never get to the grandchildren. So we use trusts even if children are older to ensure that it stays in the family.


Keeping Land or Family Cabins in the Family

There is often a great deal of emotional and sentimental attachment to family cottages and hunting land. This type of property produces some of life’s best memories, especially for children. It can also be the source of conflict and sibling estrangement.

Many times, I’m hired to clean up cases where land or family cabins have been willed to multiple family members. I have a case where the bachelor farmer left his farm to his four nephews. Each nephew has a spouse so, in effect, there are eight owners to the property since in most states the spouse must sign off on real estate documents. One of the nephews went through a divorce and the other nephews had to buy the ex-spouse out. Setting this up in a trust could have avoided this from happening.

In another instance, the family cabin was left to the four kids. One son died and the wife remarried. Now you have a cabin where ¼ is owned by non-family.  It’s very costly to clean these situations up so it’s like buying the cabin twice.

Here’s another example. There is a family farm that is left to six siblings. Five of the sibs live up in the Twin Cities and they wish to sell the place. The sixth sibling uses the land for hunting and wants to keep the land.  The family ends up in court trying to get a judgement to order the sale. This is a $20K legal bill in addition to bad blood among the siblings.

There is a case in South Dakota where there were nine siblings all in their 80’s and 90’s. When they die, the next generation of owners could be as many as 50 family members between children and grandchildren. This situation will be out of control and prove to be a disaster when the initial goal was just to protect the land.

Using a trust can avoid these nightmares. It is important for land owners to know the value of their property. But think ahead on how to increase its value for future generations and to identify their heirs early on with a trust. The heirs can collectively manage the trust, lease out the land for farming and may receive enough income to pay expenses.


Planning for the Nursing Home

In Part 1, we highlighted a story about a husband who was unable to choose a nursing home for his wife because he didn’t have healthcare documents in place when she suffered a stroke.  A bigger question is who pays the bill. Currently, nursing home costs average $80-90,000 per year.

The state doesn’t have the money to pay everybody’s bill so they are making it tougher and tougher before they will step in and pay the nursing home bill. When a family cannot finance a nursing home, they will need to spend down to a certain level before the state will pay the bill.

For instance, if the husband goes into the nursing home, the wife can have roughly $140,000 in assets, plus the house and car. If you are over that, you must spend down to that level for the state to pay the bill. A single person who goes into a nursing home can have about $3,000 in assets and the home is only protected for six months before the state will force the sale.

If you have enough money, you can self-insure. Many of my clients could afford 1-2 years of these costs. However, if the stay runs on 4-5 years, this becomes unmanageable for most people. Long term care insurance should be considered by families. If you wait too long, you can’t get this insurance.


Do-it-yourself Estate Plans

When I speak at seminars, I often get the question about “Do-it-yourself” trusts.  My response is that I used to do my own electrical work.  When I hit the switch, I didn’t know if I was going to be electrocuted or the lights would go on. I highly recommend a specialist in estate planning.

Years ago, I had a case where we did a plan for the family. After the husband died, the mother decided to make some changes to the plan on her own to save money.  In the end, the mother saved about $450.00 and the two daughters ended up spending about $80,000 in legal bills trying to fix what the mother did.

Trusts are a critical estate planning tool. They protect assets and family members and avoid probate; the process of transferring assets through the court system when there is a death. This process can usually take 1-2 years and sometimes can tie things up for 3 years. This is a waste of money and a waste of time. A trust simplifies distribution of assets to beneficiaries after death.


Simplification of Asset Transfer:
The Greatest Gift You Can Leave Your Loved Ones.

Sharon Olson will call me in to meet with her clients. Sharon says that over the years she has found several examples where individual clients have created the perfect estate plan with the correct details and documents in place. But she emphasizes that the plan WILL NOT WORK unless assets are titled correctly and beneficiary listing are consistent with the estate plan. In that situation, all of the money and time spent on an estate plan can be for naught.

We cannot stress the importance of teamwork to create a cohesive flow in constructing an estate plan. The financial advisor and estate planner both work together to get it done right. And many families have expressed gratitude for the foresight and effort and for their loved ones to have cared enough to make it easy for them during a very difficult time.

“When we get the call to learn of our client’s death from a family member,” Sharon states. “It’s a good feeling when we can convey to the trustee that everything is in order and simplified with proper planning. That is the greatest gift our clients can pass to their loved ones.”


Olson Wealth Group is a full service wealth management firm. With wise counsel and clear strategies, our experienced specialists provide tailored approaches that strive to maximize wealth. For more information, please visit

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