What should I know about estate planning?

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Topic Author
mrscatterbrain
Posts: 51
Joined: Tue Nov 03, 2020 2:05 pm

What should I know about estate planning?

Post by mrscatterbrain »

Hello fellow Bogleheads!

I am 30 years old, healthy, and happily living with my partner and our two-year-old boy in Texas. Now that I have my own family, I've been wanting to learn about how I can take care of them in case the worst happens.

I am completely clueless about estate planning. I do not have a will. I don't even know what a "trust" is, or if I should have one. I was wondering if you could help me get started on the right path to doing "estate planning" the right way.

Here's a brief synopsis of my family and financial situation:

My partner and I have been together for over 5 years, and our very happy with our relationship as is. We have kept our finances separate. We have our own individual bank accounts and retirement accounts. We've discussed marriage before a handful of times, and we agree that the only thing that would change about our relationship is the tax-filing status. Perhaps there are some other benefits we're not aware of.

We are currently renting; however, we are looking to buy a house within the next year. My partner has been unable to find work during the pandemic since we moved here a year ago, so I will be the one saving for the downpayment and paying the mortgage, bills, etc. Should I include her name on the mortgage when we buy? She owns a condo in Colorado and rents it out.

Below are the assets I have that come to mind as something I could leave for my partner and son:
  • Bank accounts: my own (not joint).
  • Brokerage account: individual (not joint)
  • Retirement accounts: I have a 401k and Roth IRA. I have named my son as the beneficiary to both of these accounts
  • I am one-third partner in an LLC with my two brothers. We inherited a few small properties when our father passed away. We rent them for passive income. This was set up before I met my partner. If I go, I've considered giving away my third to my partner and son
What can/should I do so these assets pass on to my partner and son in the easiest way possible? Is there a way for them to avoid an inheritance tax? Do I need to hire an attorney or estate planning professional?

If I go, I'm currently thinking of naming our son as my primary beneficiary. Since my partner is his mother, I'm assuming she would naturally be "managing" the assets until he comes of age. Perhaps this assumption is wrong, however.

Thank you for the advice!
MrScatterbrain
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Peter Foley
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Re: What should I know about estate planning?

Post by Peter Foley »

The absolute minimum is named beneficiaries on accounts and a will. I would be hesitant to list a 2 year old as a beneficiary rather than the child's mother, your partner. That is just me, perhaps, but not naming your partner could create problems in managing the account.

What would happen to your son if you and your partner were killed in a car accident?
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galawdawg
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Location: Georgia

Re: What should I know about estate planning?

Post by galawdawg »

mrscatterbrain wrote: Sat Jan 30, 2021 12:32 pm Hello fellow Bogleheads!

I am 30 years old, healthy, and happily living with my partner and our two-year-old boy in Texas. Now that I have my own family, I've been wanting to learn about how I can take care of them in case the worst happens.

I am completely clueless about estate planning. I do not have a will. I don't even know what a "trust" is, or if I should have one. I was wondering if you could help me get started on the right path to doing "estate planning" the right way.

Here's a brief synopsis of my family and financial situation:

My partner and I have been together for over 5 years, and our very happy with our relationship as is. We have kept our finances separate. We have our own individual bank accounts and retirement accounts. We've discussed marriage before a handful of times, and we agree that the only thing that would change about our relationship is the tax-filing status. Perhaps there are some other benefits we're not aware of.

We are currently renting; however, we are looking to buy a house within the next year. My partner has been unable to find work during the pandemic since we moved here a year ago, so I will be the one saving for the downpayment and paying the mortgage, bills, etc. Should I include her name on the mortgage when we buy? She owns a condo in Colorado and rents it out.

Below are the assets I have that come to mind as something I could leave for my partner and son:
  • Bank accounts: my own (not joint).
  • Brokerage account: individual (not joint)
  • Retirement accounts: I have a 401k and Roth IRA. I have named my son as the beneficiary to both of these accounts
  • I am one-third partner in an LLC with my two brothers. We inherited a few small properties when our father passed away. We rent them for passive income. This was set up before I met my partner. If I go, I've considered giving away my third to my partner and son
What can/should I do so these assets pass on to my partner and son in the easiest way possible? Is there a way for them to avoid an inheritance tax? Do I need to hire an attorney or estate planning professional?

If I go, I'm currently thinking of naming our son as my primary beneficiary. Since my partner is his mother, I'm assuming she would naturally be "managing" the assets until he comes of age. Perhaps this assumption is wrong, however.

Thank you for the advice!
MrScatterbrain
Based upon what you have mentioned about your personal and financial situation, you absolutely need to consult with an experienced estate planning attorney. The mother of your child would be well-advised to do the same. The sooner the better.
Topic Author
mrscatterbrain
Posts: 51
Joined: Tue Nov 03, 2020 2:05 pm

Re: What should I know about estate planning?

Post by mrscatterbrain »

Peter Foley wrote: Sat Jan 30, 2021 2:17 pm The absolute minimum is named beneficiaries on accounts and a will. I would be hesitant to list a 2 year old as a beneficiary rather than the child's mother, your partner. That is just me, perhaps, but not naming your partner could create problems in managing the account.

What would happen to your son if you and your partner were killed in a car accident?
I have family in the states. My partner’s family lives in Europe. If my partner and I were to be killed, our son would go to my family. Would this wish go in the will, or something else?

If I were to name my partner as the primary beneficiary and my son as the contingent beneficiary, are there any tax/legal implications due to us not being married?
Topic Author
mrscatterbrain
Posts: 51
Joined: Tue Nov 03, 2020 2:05 pm

Re: What should I know about estate planning?

Post by mrscatterbrain »

galawdawg wrote: Sat Jan 30, 2021 2:38 pm Based upon what you have mentioned about your personal and financial situation, you absolutely need to consult with an experienced estate planning attorney. The mother of your child would be well-advised to do the same. The sooner the better.
How much do estate planning attorneys typically charge? Is more than one session with them needed?
neverpanic
Posts: 749
Joined: Sun May 10, 2020 12:26 am

Re: What should I know about estate planning?

Post by neverpanic »

mrscatterbrain wrote: Sat Jan 30, 2021 12:32 pm Hello fellow Bogleheads!

I am 30 years old, healthy, and happily living with my partner and our two-year-old boy in Texas. Now that I have my own family, I've been wanting to learn about how I can take care of them in case the worst happens.

I am completely clueless about estate planning. I do not have a will. I don't even know what a "trust" is, or if I should have one. I was wondering if you could help me get started on the right path to doing "estate planning" the right way.

Here's a brief synopsis of my family and financial situation:

My partner and I have been together for over 5 years, and our very happy with our relationship as is. We have kept our finances separate. We have our own individual bank accounts and retirement accounts. We've discussed marriage before a handful of times, and we agree that the only thing that would change about our relationship is the tax-filing status. Perhaps there are some other benefits we're not aware of.

We are currently renting; however, we are looking to buy a house within the next year. My partner has been unable to find work during the pandemic since we moved here a year ago, so I will be the one saving for the downpayment and paying the mortgage, bills, etc. Should I include her name on the mortgage when we buy? She owns a condo in Colorado and rents it out.

Below are the assets I have that come to mind as something I could leave for my partner and son:
  • Bank accounts: my own (not joint).
  • Brokerage account: individual (not joint)
  • Retirement accounts: I have a 401k and Roth IRA. I have named my son as the beneficiary to both of these accounts
  • I am one-third partner in an LLC with my two brothers. We inherited a few small properties when our father passed away. We rent them for passive income. This was set up before I met my partner. If I go, I've considered giving away my third to my partner and son
What can/should I do so these assets pass on to my partner and son in the easiest way possible? Is there a way for them to avoid an inheritance tax? Do I need to hire an attorney or estate planning professional?

If I go, I'm currently thinking of naming our son as my primary beneficiary. Since my partner is his mother, I'm assuming she would naturally be "managing" the assets until he comes of age. Perhaps this assumption is wrong, however.

Thank you for the advice!
MrScatterbrain
You don't sound "scattered" at all.

Do you already have a level term life policy that would replace your income for several years if you were to die tomorrow?

LLC governance is state-dependent. You say that you would leave your 1/3 stake to your heirs which is normal, but you and your brothers should have that conversation and establish guidance in your operating agreement before it becomes an issue. What would be partner's/son's contribution to the business if you were not there? Do your brothers want to be in business with them?

I don't think you have to worry about an inheritance tax yet.
mrscatterbrain wrote: Sat Jan 30, 2021 4:00 pm If I were to name my partner as the primary beneficiary and my son as the contingent beneficiary, are there any tax/legal implications due to us not being married?
If you're an unmarried American, your child is your only heir. You can put whatever you want in your will, but an advocate for your child could likely make the argument in your state that your child is rightfully entitled to your entire estate.

Just thinking out loud, why wouldn't your child be designated as primary beneficiary?
I am not a financial professional or guru. I'm a schmuck who got lucky 10 times. Such is the life of the trader.
Topic Author
mrscatterbrain
Posts: 51
Joined: Tue Nov 03, 2020 2:05 pm

Re: What should I know about estate planning?

Post by mrscatterbrain »

neverpanic wrote: Sat Jan 30, 2021 4:07 pm You don't sound "scattered" at all.

Do you already have a level term life policy that would replace your income for several years if you were to die tomorrow?

LLC governance is state-dependent. You say that you would leave your 1/3 stake to your heirs which is normal, but you and your brothers should have that conversation and establish guidance in your operating agreement before it becomes an issue. What would be partner's/son's contribution to the business if you were not there? Do your brothers want to be in business with them?

I don't think you have to worry about an inheritance tax yet.
mrscatterbrain wrote: Sat Jan 30, 2021 4:00 pm If I were to name my partner as the primary beneficiary and my son as the contingent beneficiary, are there any tax/legal implications due to us not being married?
If you're an unmarried American, your child is your only heir. You can put whatever you want in your will, but an advocate for your child could likely make the argument in your state that your child is rightfully entitled to your entire estate.

Just thinking out loud, why wouldn't your child be designated as primary beneficiary?
My employer provides a survivor benefit package at no cost, and I also get my life insurance through them, altogether about a one-time payment of $942k.

You’re right, I do need to have that conversation with my brothers and figure out how we would need to adapt our LLC agreement.

I’m not sure who the primary beneficiary should be. My first thought was my son, but perhaps it should be my partner with my son as contingent in case we both pass away.
Last edited by mrscatterbrain on Sat Jan 30, 2021 4:27 pm, edited 1 time in total.
Seasonal
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Re: What should I know about estate planning?

Post by Seasonal »

neverpanic wrote: Sat Jan 30, 2021 4:07 pm If you're an unmarried American, your child is your only heir. You can put whatever you want in your will, but an advocate for your child could likely make the argument in your state that your child is rightfully entitled to your entire estate.

Just thinking out loud, why wouldn't your child be designated as primary beneficiary?
According to this article by a Texas law firm, in Texas your will controls regarding the child, so you could leave everything to a partner and nothing to the child. https://www.familylawyerkaty.com/blog/2 ... in-texas-/

With no will, the child would get it all if you're unmarried.
bogcir
Posts: 63
Joined: Thu Jan 21, 2021 1:38 am

Re: What should I know about estate planning?

Post by bogcir »

You do need a will. And the unmarried part does complicate it considerably, so you should speak to someone.

Regarding estate tax, however. What is your current net worth? What is the net worth of your 1/3 of the company? This is where the estate planing gets more important. Current estate limits is $11m without paying an estate tax. But could go down as low as $3-5m. If you are well below that, then it's not a pressing issue. But if you anticipate you exceeded these limits by a good amount in the future, then earlier is better to plan for that.

Inheritance tax is something else and only in some states: https://www.jrcinsurancegroup.com/state ... -tax-2021/
Last edited by bogcir on Sat Jan 30, 2021 4:31 pm, edited 2 times in total.
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Sandtrap
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Re: What should I know about estate planning?

Post by Sandtrap »

Seek legal counsel, all parties.

This is one issue that you want to get right and not have any mistakes.
j :D
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Topic Author
mrscatterbrain
Posts: 51
Joined: Tue Nov 03, 2020 2:05 pm

Re: What should I know about estate planning?

Post by mrscatterbrain »

Thank you for the advice everyone. I’ll seek council from an estate planning attorney and create a will. Hopefully they’re not too expensive!
jt90505
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Re: What should I know about estate planning?

Post by jt90505 »

Very good that you are considering estate planning. You and your partner appear to have an estate with some (good) complications that a good estate planning attorney may be best qualified to handle; the LLC, other rental property, unmarried in a committed relationship with minor children, etc. If you want to get smarter about estate planning NOLO press has good resources; the book "Estate Planning Basics" is a start.

Reading what follows keep in mind I am not an attorney or for that matter particularly knowledgeable about estate planning...beyond the fact we just went though drawing up our estate plans.

At a minimum you would want, with your partner
  • Appoint a legal guardian for your child
    Specify a trustee, and successor trustee, for any assets left to your child
    Create durable power of attorneys for finances
    Create advance health care directives. These are especially important since you are unmarried. You want a Power of Attorney for Health Care and HIPAA Authorization so your partner can obtain medical information and direct your health care in the event you are unable to (ie: accident, etc).
The joint tax filing is not the only 'benefit' of being married. The below web site highlights the importance of getting appropriate legal documents which are *especially* important in texas. https://www.avvo.com/legal-guides/ugc/a ... s-in-texas

Talk to your partner (first), and then move forward!
neverpanic
Posts: 749
Joined: Sun May 10, 2020 12:26 am

Re: What should I know about estate planning?

Post by neverpanic »

mrscatterbrain wrote: Sat Jan 30, 2021 4:22 pm My employer provides a survivor benefit package at no cost, and I also get my life insurance through them, altogether about a one-time payment of $942k.
If I had a young family and was the only earner, I'd probably want to have at least $2 million in life insurance for the next 20 years. The $942k may be enough, but you can get another $1M term life coverage for very little. You could buy a lot of peace of mind for just $50-100/month.
Seasonal wrote: Sat Jan 30, 2021 4:24 pm According to this article by a Texas law firm, in Texas your will controls regarding the child, so you could leave everything to a partner and nothing to the child. https://www.familylawyerkaty.com/blog/2 ... in-texas-/

With no will, the child would get it all if you're unmarried.
Texans are big on disinheritance!
I am not a financial professional or guru. I'm a schmuck who got lucky 10 times. Such is the life of the trader.
jackb1117
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Re: What should I know about estate planning?

Post by jackb1117 »

Deleting comment; missed some details in OP that change my response
Last edited by jackb1117 on Sat Jan 30, 2021 10:49 pm, edited 1 time in total.
Lee_WSP
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Re: What should I know about estate planning?

Post by Lee_WSP »

Unless you’re fine with the very basic third at 25, 30, & 35 testaments trust for minor children or grandchildren, you'll need assistance.
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