Advice to Avoid/Minimize MA Estate Tax

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ipdiddly
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Advice to Avoid/Minimize MA Estate Tax

Post by ipdiddly »

MA has a punitive estate tax that kicks in on any estate over $1MM. If the deceased has an estate valued at $5MM, the MA estate tax is about $400K. That's a hefty levy against someone who paid taxes to the state his/her whole life.

I am looking for advice from those who have seriously considered the topic about the best way to avoid or minimize the MA estate tax bite.

To simplify matters, let's assume the deceased is single with one adult child (married with children) and has an estate of $5MM on death. Assets comprise a home, a modest bank account, a taxable brokerage account and an IRA, with most of the assets in the brokerage and IRA accounts (e.g. 50/50). I am doubtful that the breakdown of assets is relevant, but I specify it in case someone thinks it matters. Obviously, the Fed estate tax is exempted at this point and should not enter the equation - again, let's keep it simple.

Question to be answered. Be specific.

What constructs should the above individual have in place to avoid/minimize MA estate tax.
Are there particular types of trusts that will get there? How do the funds flow? Title assets a certain way? You name it, I want to hear it. Again, be specific. (For example, should I buy a llama farm? Ok, just being funny there.)

The following matters should NOT be included in your advice:

1) Consult a good estate tax attorney. Duh!!! That's the plan. I plan to meet with our attorney to update our current estate plan. I want to be sure I have a variety of ideas to explore with him. In other words, maybe he doesn't know everything.

2) Give everything to charity or a donor advised fund (DAF). Again, duh! Obvious and not helpful.

3) Move to a state with no estate tax. Again, duh! Obvious and not helpful.

As a matter of courtesy:

If in your response you wish to quote me or some other responder, PLEASE kindly limit the quote to the precise sentence relevant to your response. There is nothing more annoying than seeing a response that quotes a long thread chain, only to provide a one sentence response. When you hit the quote button, you can actually delete portions of the quote and save only the small portion you are responding to.
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anon_investor
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Re: Advice to Avoid/Minimize MA Estate Tax

Post by anon_investor »

OP, what are your current tax brackets? The math probably would not work since you would have to pay Federal taxes, but if there are pre-tax funds, a Roth conversion would reduce the $ amount within the estate and lessen the future tax burden for heirs. But it would be a math problem based on your tax bracket, the estate tax rate and the heir's tax rate.
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Re: Advice to Avoid/Minimize MA Estate Tax

Post by ipdiddly »

anon_investor wrote: Mon Jan 18, 2021 2:31 pm ... if there are pre-tax funds, a Roth conversion would reduce the $ amount within the estate and lessen the future tax burden for heirs.
Good point. Unfortunately, we are in a very high tax bracket. However, that being said, I've already bitten the bullet over the last several years converting some IRA funds to Roth. One could argue that it probably didn't make sense financially, but I feel better having some tax free funds not subject to RMD's. The problem (I suppose a good one to have) is that our accounts have grown stupendously during the decade long bull market. Compounding really works.

I've been gifting funds to son/daughter-in-law and now grandchild yearly, but that barely makes a dent.

I should have mentioned that one can reduce MA estate tax by gifting funds out of the estate. Apparently, as best I've been able to determine, MA does not apply estate tax to funds gifted away. They may count it toward the $1MM exemption, but not tax it. Of course, the problem is that the Feds will include those gifts as part of the estate exemption. And more importantly, if you gift appreciated shares, the recipient gets your cost basis and not stepped up basis. Nonetheless, I decided to gift some appreciated shares to my son last year.
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TomatoTomahto
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Re: Advice to Avoid/Minimize MA Estate Tax

Post by TomatoTomahto »

1. We max out our gift tax exclusion every year. From the two of us to 4 beneficiaries, this is $120k per year of “early inheritance.” In a booming market, it slows the growth but doesn’t kill it.

2. There is a complicated waterfall of trusts, further family trusts, etc that are triggered upon the first death and subsequent death. A lot of the complexity stems from us being a couple, and it should be much simplified if we didn’t have to allow for funding the continued life of one of us. It did not cost us a zillion dollars, nor was re-titling our accounts onerous. Some of it awaits our COVID vaccinations, as we won’t go to a notary office for some of the documents without having been vaccinated.
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Re: Advice to Avoid/Minimize MA Estate Tax

Post by cowbman »

Is moving to New Hampshire not an option?
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Re: Advice to Avoid/Minimize MA Estate Tax

Post by ipdiddly »

TomatoTomahto wrote: Mon Jan 18, 2021 2:46 pm
There is a complicated waterfall of trusts, further family trusts, etc that are triggered upon the first death and subsequent death. A lot of the complexity stems from us being a couple, and it should be much simplified if we didn’t have to allow for funding the continued life of one of us.
I would much prefer simple to complicated, but I am afraid that complicated may not be avoided. While my premise was for a single deceased, that was to keep the example simple. We are, in fact, a couple. But there is no issue of the survivor having sufficient funds.

I actually created a simple trust for a good friend so that I could manage her care, pay her expenses, and distribute anything leftover to her beneficiaries. No probate was needed other than getting a simple appointment so I could pay her income taxes. But her estate was tiny and her needs straightforward. It worked out well. Estate taxes were not a consideration.
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Re: Advice to Avoid/Minimize MA Estate Tax

Post by catdoctor »

I am interested in the answers, as I am in a similar situation in WA.
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Re: Advice to Avoid/Minimize MA Estate Tax

Post by ipdiddly »

cowbman wrote: Mon Jan 18, 2021 2:49 pm Is moving to New Hampshire not an option?
We are considering that as an option. However, we have lived in our home over 40 years. We like our home, our neighborhood and our location. Hard to pick up and leave.
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Re: Advice to Avoid/Minimize MA Estate Tax

Post by TomatoTomahto »

ipdiddly wrote: Mon Jan 18, 2021 2:59 pm
cowbman wrote: Mon Jan 18, 2021 2:49 pm Is moving to New Hampshire not an option?
We are considering that as an option. However, we have lived in our home over 40 years. We like our home, our neighborhood and our location. Hard to pick up and leave.
We have only been in our MA hone for 3 years, but the pull to remain is strong, especially while DW works in MA. We are also considering NH. MA is a great place to live but an expensive place to die.
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Re: Advice to Avoid/Minimize MA Estate Tax

Post by Pandemic Bangs »

ipdiddly wrote: Mon Jan 18, 2021 2:26 pm
If in your response you wish to quote me or some other responder, PLEASE kindly limit the quote to the precise sentence relevant to your response.
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Re: Advice to Avoid/Minimize MA Estate Tax

Post by Jack FFR1846 »

There are a number of things that are not glaringly obvious.

If you move to NH or Florida, for example and become residents of that state with all the moving of drivers license, car registration, sell all property in Mass, etc, Mass still has a 5 year look back. My mom is in this quandry, about to move to florida (again) and will make it her official residence.

So if you are sticking with staying in Mass, maybe that'll make you feel better.

If you had $1.25M, you could whittle down your estate with $15k gifts to heirs now and also ask for their medical bills and college tuition bills and pay those as they don't count towards your gift limit.

I assume you're making $15k gifts to all heirs already. If you're not, why not?

Are trusts a consideration?
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jucor
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Re: Advice to Avoid/Minimize MA Estate Tax

Post by jucor »

ipdiddly wrote: Mon Jan 18, 2021 2:45 pm
anon_investor wrote: Mon Jan 18, 2021 2:31 pm ... if there are pre-tax funds, a Roth conversion would reduce the $ amount within the estate and lessen the future tax burden for heirs.
Good point. Unfortunately, we are in a very high tax bracket.
OP, you have an interesting definition of unfortunate. :sharebeer
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Re: Advice to Avoid/Minimize MA Estate Tax

Post by bengal22 »

ipdiddly wrote: Mon Jan 18, 2021 2:26 pm MA has a punitive estate tax that kicks in on any estate over $1MM. If the deceased has an estate valued at $5MM, the MA estate tax is about $400K. That's a hefty levy against someone who paid taxes to the state his/her whole life.

I am looking for advice from those who have seriously considered the topic about the best way to avoid or minimize the MA estate tax bite.

To simplify matters, let's assume the deceased is single with one adult child (married with children) and has an estate of $5MM on death. Assets comprise a home, a modest bank account, a taxable brokerage account and an IRA, with most of the assets in the brokerage and IRA accounts (e.g. 50/50). I am doubtful that the breakdown of assets is relevant, but I specify it in case someone thinks it matters. Obviously, the Fed estate tax is exempted at this point and should not enter the equation - again, let's keep it simple.

Question to be answered. Be specific.

What constructs should the above individual have in place to avoid/minimize MA estate tax.
Are there particular types of trusts that will get there? How do the funds flow? Title assets a certain way? You name it, I want to hear it. Again, be specific. (For example, should I buy a llama farm? Ok, just being funny there.)

The following matters should NOT be included in your advice:

1) Consult a good estate tax attorney. Duh!!! That's the plan. I plan to meet with our attorney to update our current estate plan. I want to be sure I have a variety of ideas to explore with him. In other words, maybe he doesn't know everything.

2) Give everything to charity or a donor advised fund (DAF). Again, duh! Obvious and not helpful.

3) Move to a state with no estate tax. Again, duh! Obvious and not helpful.

As a matter of courtesy:

If in your response you wish to quote me or some other responder, PLEASE kindly limit the quote to the precise sentence relevant to your response. There is nothing more annoying than seeing a response that quotes a long thread chain, only to provide a one sentence response. When you hit the quote button, you can actually delete portions of the quote and save only the small portion you are responding to.
Oops. Move to Illinois.
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Re: Advice to Avoid/Minimize MA Estate Tax

Post by robphoto »

Here are my two suggestions; you can look up the details.

1. Credit shelter trust: "A credit shelter trust (CST) is a trust created after the death of the first spouse in a married couple. Assets placed in the trust are generally held apart from the estate of the surviving spouse, so they may pass tax-free to the remaining beneficiaries at the death of the surviving spouse" (quote from fidelity.com) This is what we set up, working with the estate planning attorney.

2. Irrevocable Life Insurance Trust: a trust that owns the policy, with the beneficiaries you've specified. Has some complexity with gift taxes, etc.
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Re: Advice to Avoid/Minimize MA Estate Tax

Post by ipdiddly »

robphoto wrote: Mon Jan 18, 2021 3:42 pm
1. Credit shelter trust
2. Irrevocable Life Insurance Trust
Thank you robphoto for your specific suggestion. Much appreciated.
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Re: Advice to Avoid/Minimize MA Estate Tax

Post by TomatoTomahto »

I’m not going to suggest moving to NH, nor suggest hiring an estate attorney, both things you can think of yourself, but will say that we found that using a NH attorney who also practices in MA to be a frugal way to set up our trusts. 😁

I would elaborate more on our specifics, but a good bit of the trust complexity was for making sure that, whichever of us died first, the parental wishes of the deceased spouse would survive given our blended family. I don’t think that yours is a blended family, which makes life death much simpler.
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Re: Advice to Avoid/Minimize MA Estate Tax

Post by chw »

My DW and I just went thru Estate planning last year. Our circumstances are somewhat similar, except you are single, which may be significant.

Basically, DW and I set up a Revocable Living Trust, into which all non-retirement assets are now titled to. In addition our Retirement accounts now have the Rev. Living Trust as the Beneficiary. Upon either my death or DW's death, 2 new Trusts are created- 1 Trust with 1MM in assets (for the estate tax exclusion spouse 1), with the surviving spouse, and descendants as beneficiary. The 2nd Trust will have the remaining assets in it (beneficiary is only the surviving spouse)- this Trust will have an additional 1MM estate tax exclusion. This structure allows our estate to get up to a total 2MM exclusion, instead of 1MM. This one structure was the main savings vehicle in saving on the estate tax (without moving to another state!). It should be also added that upon the death of the second spouse, Irrevocable Trusts for our children are then funded with the remaining assets from the 2 previous trusts mentioned (after estate taxes are paid, and Will instructions are executed).

Since you are single, this setup may not really benefit you (because in our situation, the second spouse is getting the 2nd 1MM estate tax exclusion), and you may not really need to consider setting up a Trust (however, confirm that with a qualified attorney), though you may need other aspects of the Estate Plan updated, such as Will, Health Care Proxies, Durable POA, HIPAA, etc. If you do still go with a Trust- it may provide some protections that aren't available to you now, but an attorney can discuss that with you.

The attorney we met with does mainly Estate planning as a law practice, and we felt the plan was pretty straightforward for what we needed. MA is an expensive state to die in, but we enjoy living in the community we are in, and don't wish to move at this time to avoid $$$ which we won't miss because we'll be on another journey!
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Re: Advice to Avoid/Minimize MA Estate Tax

Post by ipdiddly »

bengal22 wrote: Mon Jan 18, 2021 3:39 pm
ipdiddly wrote: Mon Jan 18, 2021 2:26 pm
3) Move to a state with no estate tax. Again, duh! Obvious and not helpful.

PLEASE kindly limit the quote to the precise sentence relevant to your response. There is nothing more annoying than seeing a response that quotes a long thread chain, only to provide a one sentence response.
Oops. Move to Illinois.
bengal22: Thank you for ignoring point 3 and the suggestion to limit what you quote only to give a one sentence response. :confused :oops: I assume you were being intentionally sarcastic. :beer
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Re: Advice to Avoid/Minimize MA Estate Tax

Post by ipdiddly »

chw wrote: Mon Jan 18, 2021 5:09 pm My DW and I just went thru Estate planning last year. Our circumstances are somewhat similar, except you are single, which may be significant.

Basically, DW and I set up a Revocable Living Trust, into which all non-retirement assets are now titled to. In addition our Retirement accounts now have the Rev. Living Trust as the Beneficiary.
Thank you chw for your input. Actually, I am married, but only specified a "single" example to keep the discussion simple. I understand that if married, you can use a trust to place the first $1MM exemption, then the surviving spouse will also have her $1MM exemption. In fact, I'm not sure you need a trust to do that. I assume I could simply leave $1MM to my son to use up the first exemption.

Out of curiosity, do you have two trusts - one for each spouse - or one trust that covers both. If you have two separate trusts, then it seems that you would need to split your joint assets so that each trust is filled with one-half the assets. Would appreciate hearing further details.
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Re: Advice to Avoid/Minimize MA Estate Tax

Post by wrongfunds »

Would somebody comment on how the split between not_yet-taxed/brokerage/never_to_be_taxed/primary_home_value affects the total MA Estate tax or is that irrelevant to the MA Estate Tax calculations?

For sake of example, let us say the $5MM comprises of $1MM primary home equity, $2MM(IRA, 401K), $1MM(Roth) $1MM(brokerage).

I understand everybody (including myself) wants to pay the least amount of taxes that one can get way legally but at the end of the day, how much do I need to worry if my heirs will get *only* $4.6MM vs the *deserved* $5.0MM when I croak?

I will take this one step further. Suppose if I were to give my lawyer and tax attorney $250K to eliminate this $400K tax bill, so that my heirs will have extra $150K. May be I would rather have State of MA get the whole $400K instead of making my lawyer and tax attorney richer? At least the $400k will be used for public good. Here too if that split happens to be say $15K / 385K, I would then change my mind.

I understand that for some people, minimizing paying the least amount of taxes while alive and after being dead is a game in itself and I have no objection to it.
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Re: Advice to Avoid/Minimize MA Estate Tax

Post by ipdiddly »

wrongfunds wrote: Mon Jan 18, 2021 5:33 pm Would somebody comment on how the split between not_yet-taxed/brokerage/never_to_be_taxed/primary_home_value affects the total MA Estate tax or is that irrelevant to the MA Estate Tax calculations?

I understand everybody (including myself) wants to pay the least amount of taxes that one can get way legally but at the end of the day, how much do I need to worry if my heirs will get *only* $4.6MM vs the *deserved* $5.0MM when I croak?
It is my understanding (but others can chime in) that your estate includes all your assets, however they may be segregated. So I don't think it matters if you have a $5MM house or a $5MM Roth account, at least for estate tax purposes.

If you don't mind your estate paying $400K in taxes because the state considers death as a taxable event, that's great! For my money, I would rather a system that, upon death, permits the local townsfolk to simply march over to my house and grab $400K to spend as they choose :beer than to line the pockets of bureaucrats :moneybag that I paid my whole lifetime. At least the local townsfolk could probably use the money. OK, line up, who wants the grandfather clock? :annoyed
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Re: Advice to Avoid/Minimize MA Estate Tax

Post by bengal22 »

ipdiddly wrote: Mon Jan 18, 2021 5:12 pm
bengal22 wrote: Mon Jan 18, 2021 3:39 pm
ipdiddly wrote: Mon Jan 18, 2021 2:26 pm
3) Move to a state with no estate tax. Again, duh! Obvious and not helpful.

PLEASE kindly limit the quote to the precise sentence relevant to your response. There is nothing more annoying than seeing a response that quotes a long thread chain, only to provide a one sentence response.
Oops. Move to Illinois.
bengal22: Thank you for ignoring point 3 and the suggestion to limit what you quote only to give a one sentence response. :confused :oops: I assume you were being intentionally sarcastic. :beer
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Re: Advice to Avoid/Minimize MA Estate Tax

Post by PinotGris »

wrongfunds wrote: Mon Jan 18, 2021 5:33 pm Would somebody comment on how the split between not_yet-taxed/brokerage/never_to_be_taxed/primary_home_value affects the total MA Estate tax or is that irrelevant to the MA Estate Tax calculations?

For sake of example, let us say the $5MM comprises of $1MM primary home equity, $2MM(IRA, 401K), $1MM(Roth) $1MM(brokerage).

I understand everybody (including myself) wants to pay the least amount of taxes that one can get way legally but at the end of the day, how much do I need to worry if my heirs will get *only* $4.6MM vs the *deserved* $5.0MM when I croak?

I will take this one step further. Suppose if I were to give my lawyer and tax attorney $250K to eliminate this $400K tax bill, so that my heirs will have extra $150K. May be I would rather have State of MA get the whole $400K instead of making my lawyer and tax attorney richer? At least the $400k will be used for public good. Here too if that split happens to be say $15K / 385K, I would then change my mind.

I understand that for some people, minimizing paying the least amount of taxes while alive and after being dead is a game in itself and I have no objection to it.
I am totally with you on this. I have friends who were left with some very complicated trusts when the husband died. She spent a lot of money and time to resolve it, which i don't think it ever did. We will be leaving a nice amount for our children.We gift them yearly nice sums of money. I don't plan to manage my estate after my death and I don't want to deal with trusts when alive. We did our own estate plan with bought software.
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Re: Advice to Avoid/Minimize MA Estate Tax

Post by Tingting1013 »

ipdiddly wrote: Mon Jan 18, 2021 2:26 pm MA has a punitive estate tax that kicks in on any estate over $1MM. If the deceased has an estate valued at $5MM, the MA estate tax is about $400K. That's a hefty levy against someone who paid taxes to the state his/her whole life.

I am looking for advice from those who have seriously considered the topic about the best way to avoid or minimize the MA estate tax bite.

To simplify matters, let's assume the deceased is single with one adult child (married with children) and has an estate of $5MM on death. Assets comprise a home, a modest bank account, a taxable brokerage account and an IRA, with most of the assets in the brokerage and IRA accounts (e.g. 50/50). I am doubtful that the breakdown of assets is relevant, but I specify it in case someone thinks it matters. Obviously, the Fed estate tax is exempted at this point and should not enter the equation - again, let's keep it simple.

Question to be answered. Be specific.

What constructs should the above individual have in place to avoid/minimize MA estate tax.
Are there particular types of trusts that will get there? How do the funds flow? Title assets a certain way? You name it, I want to hear it. Again, be specific. (For example, should I buy a llama farm? Ok, just being funny there.)

The following matters should NOT be included in your advice:

1) Consult a good estate tax attorney. Duh!!! That's the plan. I plan to meet with our attorney to update our current estate plan. I want to be sure I have a variety of ideas to explore with him. In other words, maybe he doesn't know everything.

2) Give everything to charity or a donor advised fund (DAF). Again, duh! Obvious and not helpful.

3) Move to a state with no estate tax. Again, duh! Obvious and not helpful.

As a matter of courtesy:

If in your response you wish to quote me or some other responder, PLEASE kindly limit the quote to the precise sentence relevant to your response. There is nothing more annoying than seeing a response that quotes a long thread chain, only to provide a one sentence response. When you hit the quote button, you can actually delete portions of the quote and save only the small portion you are responding to.
chw
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Re: Advice to Avoid/Minimize MA Estate Tax

Post by chw »

ipdiddly wrote: Mon Jan 18, 2021 5:22 pm
chw wrote: Mon Jan 18, 2021 5:09 pm My DW and I just went thru Estate planning last year. Our circumstances are somewhat similar, except you are single, which may be significant.

Basically, DW and I set up a Revocable Living Trust, into which all non-retirement assets are now titled to. In addition our Retirement accounts now have the Rev. Living Trust as the Beneficiary.
Thank you chw for your input. Actually, I am married, but only specified a "single" example to keep the discussion simple. I understand that if married, you can use a trust to place the first $1MM exemption, then the surviving spouse will also have her $1MM exemption. In fact, I'm not sure you need a trust to do that. I assume I could simply leave $1MM to my son to use up the first exemption.

Out of curiosity, do you have two trusts - one for each spouse - or one trust that covers both. If you have two separate trusts, then it seems that you would need to split your joint assets so that each trust is filled with one-half the assets. Would appreciate hearing further details.
As of now we have one Trust, which splits into 2 trusts (as described in my previous post) upon the first death of either my wife or me. I don’t think both spouses can each get the 1MM exclusion without a trust, but perhaps the scenario you describe might work, but i would consult an attorney.
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Re: Advice to Avoid/Minimize MA Estate Tax

Post by Lee_WSP »

Reducing the estate tax involves taking advantage of any marital deductions, but mostly involves reducing the taxable estate amount through lifetime transfers of wealth.
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Re: Advice to Avoid/Minimize MA Estate Tax

Post by bsteiner »

chw wrote: Mon Jan 18, 2021 5:09 pm ...
Basically, DW and I set up a Revocable Living Trust, into which all non-retirement assets are now titled to. In addition our Retirement accounts now have the Rev. Living Trust as the Beneficiary. Upon either my death or DW's death, 2 new Trusts are created- 1 Trust with 1MM in assets (for the estate tax exclusion spouse 1), with the surviving spouse, and descendants as beneficiary. The 2nd Trust will have the remaining assets in it (beneficiary is only the surviving spouse)- this Trust will have an additional 1MM estate tax exclusion. This structure allows our estate to get up to a total 2MM exclusion, instead of 1MM. ...
Be careful about running your retirement benefits through a revocable trust. If you're not careful, it could make the spousal rollover more difficult, or could preclude the spousal rollover. It could also accelerate the income tax on the retirement benefits. Why not make the spouse the primary beneficiary?

Massachusetts adopted the Uniform Probate Code and the Uniform Trust Code in 2012, which simplified the procedures, so if you were doing this today you would probably no longer need revocable trusts.

In addition to moving, the original poster and his/her spouse (in a post subsequent to the original post, he/she changed the facts to say he/she was married) could:

1. Set up a $1 million state credit shelter trust so as to be able to shelter $1 million (plus the income and growth thereon during the surviving spouse's lifetime) at the first spouse's death.

2. Do some Roth conversions.

3. Make annual exclusion gifts to his/her issue and their spouses.

4. Buy real estate in another state that doesn't have a state estate tax or that has a sufficiently high exclusion amount so that it won't be subject to state estate tax.

5. Buy gold bars in a state such as Delaware that has no sales or state estate tax, and store them there.

6. The surviving spouse could at some future time move to a state with no state estate tax.

6. Pay the estate tax on the remaining assets in the surviving spouse's estate.
wrongfunds
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Re: Advice to Avoid/Minimize MA Estate Tax

Post by wrongfunds »

PinotGris wrote: Mon Jan 18, 2021 5:55 pm
wrongfunds wrote: Mon Jan 18, 2021 5:33 pm Would somebody comment on how the split between not_yet-taxed/brokerage/never_to_be_taxed/primary_home_value affects the total MA Estate tax or is that irrelevant to the MA Estate Tax calculations?

For sake of example, let us say the $5MM comprises of $1MM primary home equity, $2MM(IRA, 401K), $1MM(Roth) $1MM(brokerage).

I understand everybody (including myself) wants to pay the least amount of taxes that one can get way legally but at the end of the day, how much do I need to worry if my heirs will get *only* $4.6MM vs the *deserved* $5.0MM when I croak?

I will take this one step further. Suppose if I were to give my lawyer and tax attorney $250K to eliminate this $400K tax bill, so that my heirs will have extra $150K. May be I would rather have State of MA get the whole $400K instead of making my lawyer and tax attorney richer? At least the $400k will be used for public good. Here too if that split happens to be say $15K / 385K, I would then change my mind.

I understand that for some people, minimizing paying the least amount of taxes while alive and after being dead is a game in itself and I have no objection to it.
I am totally with you on this. I have friends who were left with some very complicated trusts when the husband died. She spent a lot of money and time to resolve it, which i don't think it ever did. We will be leaving a nice amount for our children. We gift them yearly nice sums of money. I don't plan to manage my estate after my death and I don't want to deal with trusts when alive. We did our own estate plan with bought software.
I did not quite get the OP's comment about "lining up the pockets of bureaucrats"; I just looked at our last few years tax returns. My local taxes paid to my local MA town (real estate taxes, water bill and vehicle excise taxes) and the income tax that I paid to Mass State are comparable. I really want to understand how and why OP thinks local town government officials are honest but the state employees are crooked.

To be brutally honest, $400K one time transfer tax on $5MM "windfall does not faze me at all (it should NOT because I will be dead!) Heck, it is probably percentage wise much less than what I will be paying on my next Mega Millions jackpot!
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Re: Advice to Avoid/Minimize MA Estate Tax

Post by NDAMERICA »

20% estate tax rate is high, but I would guess your child would still inherit more if you stayed the course depending on how old you are now.

Other idea: load grandkids, or anyone else for that matter, with 529 money every year from your after tax account. Can be passed to their heirs and their heirs - max value if often $400,000 - $500,000 and can be cashed out if not used for education. All tax free growth, which will make you smile from the great beyond.

Good problem to have.

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Re: Advice to Avoid/Minimize MA Estate Tax

Post by afan »

bsteiner wrote: Mon Jan 18, 2021 6:32 pm

In addition to moving, the original poster and his/her spouse (in a post subsequent to the original post, he/she changed the facts to say he/she was married) could:


4. Buy real estate in another state that doesn't have a state estate tax or that has a sufficiently high exclusion amount so that it won't be subject to state estate tax.

5. Buy gold bars in a state such as Delaware that has no sales or state estate tax, and store them there.
Does this work for any property other than real estate or gold bars? Securities held in a no tax state? One might not want an allocation that is too heavy in those specific assets but it becomes more appealing if one can be diversified and still escape state death taxes.

Does it work only if the assets are purchased in the no tax state? If one already owns real estate or physical gold, can one transfer ownerahip to a trust located in the no tax state? Or, in the case of precious metals, move them from the state of residence to a no tax state where they can be held, even without ca trust?
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Re: Advice to Avoid/Minimize MA Estate Tax

Post by JoeRetire »

ipdiddly wrote: Mon Jan 18, 2021 2:26 pmI am looking for advice from those who have seriously considered the topic about the best way to avoid or minimize the MA estate tax bite.

The following matters should NOT be included in your advice:

1) Consult a good estate tax attorney. Duh!!!
You should consult a good estate tax attorney.

Any comments you have about this answer should NOT include the word "you", should NOT contain any sentences of less than 6 words, and MUST include at least one word that rhymes with "duh". :twisted:
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Re: Advice to Avoid/Minimize MA Estate Tax

Post by bsteiner »

afan wrote: Tue Jan 19, 2021 11:21 am
bsteiner wrote: Mon Jan 18, 2021 6:32 pm

In addition to moving, the original poster and his/her spouse (in a post subsequent to the original post, he/she changed the facts to say he/she was married) could:


4. Buy real estate in another state that doesn't have a state estate tax or that has a sufficiently high exclusion amount so that it won't be subject to state estate tax.

5. Buy gold bars in a state such as Delaware that has no sales or state estate tax, and store them there.
Does this work for any property other than real estate or gold bars? Securities held in a no tax state? One might not want an allocation that is too heavy in those specific assets but it becomes more appealing if one can be diversified and still escape state death taxes.

Does it work only if the assets are purchased in the no tax state? If one already owns real estate or physical gold, can one transfer ownership to a trust located in the no tax state? Or, in the case of precious metals, move them from the state of residence to a no tax state where they can be held, even without ca trust?
The state of domicile can't tax real or tangible personal property located outside Massachusetts. The original poster could move tangibles he/she already owns such as artworks, gold bars, etc., to another state (one that doesn't have a state estate tax, or one with a sufficiently high exempt amount that there wouldn't be any tax there.
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Re: Advice to Avoid/Minimize MA Estate Tax

Post by LadyGeek »

I removed a contentious interchange conjecturing on use of state pensions, executive compensation. Please stay on-topic, which is:
ipdiddly wrote: Mon Jan 18, 2021 2:26 pm What constructs should the above individual have in place to avoid/minimize MA estate tax.
Are there particular types of trusts that will get there? How do the funds flow? Title assets a certain way? You name it, I want to hear it. Again, be specific. (For example, should I buy a llama farm? Ok, just being funny there.)
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Re: Advice to Avoid/Minimize MA Estate Tax

Post by marcopolo »

ipdiddly wrote: Mon Jan 18, 2021 2:59 pm
cowbman wrote: Mon Jan 18, 2021 2:49 pm Is moving to New Hampshire not an option?
We are considering that as an option. However, we have lived in our home over 40 years. We like our home, our neighborhood and our location. Hard to pick up and leave.
Perhaps some of the things that make the state such an appealing place to live is due to having sufficient funds to make it that way?
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Re: Advice to Avoid/Minimize MA Estate Tax

Post by BruDude »

You can buy a second-to-die universal life insurance policy that will pay the death benefit upon the death of the second spouse only. These are commonly used for estate tax purposes when there are no other legal options to reduce the estate. You either pay the tax out of pocket, or pay it from the insurance proceeds. Pricing would depend on your ages and health.
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Re: Advice to Avoid/Minimize MA Estate Tax

Post by PinotGris »

wrongfunds wrote: Mon Jan 18, 2021 6:39 pm
I did not quite get the OP's comment about "lining up the pockets of bureaucrats"; I just looked at our last few years tax returns. My local taxes paid to my local MA town (real estate taxes, water bill and vehicle excise taxes) and the income tax that I paid to Mass State are comparable. I really want to understand how and why OP thinks local town government officials are honest but the state employees are crooked.

To be brutally honest, $400K one time transfer tax on $5MM "windfall does not faze me at all (it should NOT because I will be dead!) Heck, it is probably percentage wise much less than what I will be paying on my next Mega Millions jackpot!
The first lawyer we went to for estate planning advice told us pretty much what you said. He was recommended by a friend but he was retiring and may be the reason why he was so frank with us. He told us pretty much what you are saying. He said the probate is a simple straightforward thing in our state and for our set up he said we do not need a trust. He also pointed to a pile of files on his desk that he said he has been resolving for a client whose original estate lawyer had made some mistakes that are now complicating her life.
This is not about estate lawyers and those who need complicated set up. But what he said kind of eased my mind although mu husband still thinks we should have a trust to "save taxes for the kids." He also attend the free seminars on estate planning which I refuse to go to.
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Re: Advice to Avoid/Minimize MA Estate Tax

Post by afan »

A living trust itself would not be to save estate taxes. It would not accomplish that. It could streamline dealing with your assets at death, assuming they had been titled in the name of the trust. This could save some money versus probate, at the cost of having to set it up now. I view it like cleaning up after dinner, rather than leaving the kitchen a mess on the chance I might die overnight and the task would fall on someone else

A big advantage of a living trust would be the ease of someone managing your affairs if you become incapacitated but still alive. There are endless horror stories about getting institutions to accept perfectly legal powers of attorney. I have been through it myself. None even bothered to look at it, just declared they would not honor it. Meanwhile, for everything that was in the trust, there were no problems at all.

Just as I don't seek income tax advice that says "why bother to reduce your income taxes? Don't you think the government needs money?", I would not put up with estate tax advice that said that.

Advice that said "Further reducing the estate tax would be so costly or complicated that your heirs would be better off without the solution" could be valuable. But that is entirely different than a political argument about whether estate taxes are inherently good.

From Bsteiner's comments, a MA resident could buy a nice house in NH and put a substantial amount of assets in physical property there. $400k would pay for some very high quality safes and security. The major limit would be how much one would be willing to allocate to gold and collectibles. Run the risk of the metals being a lot less precious at death than they were when you bought them. Heirs would then get a stepped down basis and would have taxable gains if the asset prices were to recover.
Real estate might not be diversified unless one bought multiple parcels in different parts of no tax states. Presumably, each property would be in its own LLC.

Not much help for a conventional portfolio of securities.

I would at least want my attorney to work through the options with me.
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Re: Advice to Avoid/Minimize MA Estate Tax

Post by bsteiner »

PinotGris wrote: Tue Jan 19, 2021 6:36 pm
The first lawyer we went to for estate planning advice told us pretty much what you said. He was recommended by a friend but he was retiring and may be the reason why he was so frank with us. He told us pretty much what you are saying. He said the probate is a simple straightforward thing in our state and for our set up he said we do not need a trust. He also pointed to a pile of files on his desk that he said he has been resolving for a client whose original estate lawyer had made some mistakes that are now complicating her life.

This is not about estate lawyers and those who need complicated set up. But what he said kind of eased my mind although mu husband still thinks we should have a trust to "save taxes for the kids." He also attend the free seminars on estate planning which I refuse to go to.
If you go to the free dinner seminar and you’re the one who buys the annuity, the living trust, the timeshare, or the bridge, you paid for the free dinners for everyone in the room.
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Re: Advice to Avoid/Minimize MA Estate Tax

Post by afan »

Sounds like a great business for the restaurant. Use a lot of tables that might be hard to fill on a weeknight. Sponsors are good for the cost, or pay up front. Introduce the restaurant to customers with enough assets to care about estate planning and who might come back on their own.

For the lawyers it seems like very expensive advertising. Do such firms run these on a regular basis, expecting to get enough business to cover the cost? Or as an occasional thing when other sources of clients are slow? How many packages do they need to sell to break even?
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Re: Advice to Avoid/Minimize MA Estate Tax

Post by Lee_WSP »

afan wrote: Tue Jan 19, 2021 9:18 pm
For the lawyers it seems like very expensive advertising. Do such firms run these on a regular basis, expecting to get enough business to cover the cost? Or as an occasional thing when other sources of clients are slow? How many packages do they need to sell to break even?
I haven't heard of any estate planning "dinners", but there are plenty of free seminars.

A dinner would need to land very high net worth clientele with today's estate tax exemption being so high.
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Re: Advice to Avoid/Minimize MA Estate Tax

Post by BruDude »

afan wrote: Tue Jan 19, 2021 9:18 pm Sounds like a great business for the restaurant. Use a lot of tables that might be hard to fill on a weeknight. Sponsors are good for the cost, or pay up front. Introduce the restaurant to customers with enough assets to care about estate planning and who might come back on their own.

For the lawyers it seems like very expensive advertising. Do such firms run these on a regular basis, expecting to get enough business to cover the cost? Or as an occasional thing when other sources of clients are slow? How many packages do they need to sell to break even?
My dad used to do these dinners selling annuities back when the cap rates were much higher and they were actually a pretty good product (12% cap back then, 4-5% now). It cost about $100 per person that showed up, average around 30 people, $3k to put on the event but that was around 10 years ago. One sale back then would generate a commission large enough to cover the event cost and a good sale would be a pretty nice profit. I would say he probably averaged one sale per event. A lawyer selling a package might do a little better than that. Overall it was profitable but a lot of hassle and follow-up to deal with for the ROI. Half of the people had no real interest and just wanted a free dinner, resulting in some awkward conversations. I wouldn't do it myself. He did 6 or 7 of them before getting tired of dealing with the "I'm just here for a free dinner" people.
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Re: Advice to Avoid/Minimize MA Estate Tax

Post by MrsBDG »

Does MA not include OOS assets in the overall estate? I am pretty sure WA asks for the value of ALL assets owned, not just the ones in WA. OOS real estate would still be included in the WA estate. I am not sure if one could set up a trust domiciled in the OOS place and own the real estate in that trust and have WA be okay with that.
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Re: Advice to Avoid/Minimize MA Estate Tax

Post by bsteiner »

MrsBDG wrote: Wed Jan 20, 2021 1:00 am Does MA not include OOS assets in the overall estate? I am pretty sure WA asks for the value of ALL assets owned, not just the ones in WA. OOS real estate would still be included in the WA estate. I am not sure if one could set up a trust domiciled in the OOS place and own the real estate in that trust and have WA be okay with that.
In most states, the estate tax on a resident estate is equal to the tax on the worldwide assets, multiplied by a fraction, the numerator of which is the worldwide assets less the out-of-state real and tangible property, and the denominator is the worldwide assets. So the out-of-state property is taken into account in determining the brackets. In New York, the out-of-state property is disregarded, except you can't claim deductions allocable to the out-of-state property.
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Re: Advice to Avoid/Minimize MA Estate Tax

Post by Jack FFR1846 »

bsteiner wrote: Wed Jan 20, 2021 11:05 am
MrsBDG wrote: Wed Jan 20, 2021 1:00 am Does MA not include OOS assets in the overall estate? I am pretty sure WA asks for the value of ALL assets owned, not just the ones in WA. OOS real estate would still be included in the WA estate. I am not sure if one could set up a trust domiciled in the OOS place and own the real estate in that trust and have WA be okay with that.
In most states, the estate tax on a resident estate is equal to the tax on the worldwide assets, multiplied by a fraction, the numerator of which is the worldwide assets less the out-of-state real and tangible property, and the denominator is the worldwide assets. So the out-of-state property is taken into account in determining the brackets. In New York, the out-of-state property is disregarded, except you can't claim deductions allocable to the out-of-state property.
So for the OP in Massachusetts, buying a $4.5M house in Tampa wouldn't help?
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Re: Advice to Avoid/Minimize MA Estate Tax

Post by bsteiner »

Jack FFR1846 wrote: Wed Jan 20, 2021 11:17 am
bsteiner wrote: Wed Jan 20, 2021 11:05 am
MrsBDG wrote: Wed Jan 20, 2021 1:00 am Does MA not include OOS assets in the overall estate? I am pretty sure WA asks for the value of ALL assets owned, not just the ones in WA. OOS real estate would still be included in the WA estate. I am not sure if one could set up a trust domiciled in the OOS place and own the real estate in that trust and have WA be okay with that.
In most states, the estate tax on a resident estate is equal to the tax on the worldwide assets, multiplied by a fraction, the numerator of which is the worldwide assets less the out-of-state real and tangible property, and the denominator is the worldwide assets. So the out-of-state property is taken into account in determining the brackets. In New York, the out-of-state property is disregarded, except you can't claim deductions allocable to the out-of-state property.
So for the OP in Massachusetts, buying a $4.5M house in Tampa wouldn't help?
I was surprised to see from Part 2 at the bottom of page 2 of the return, https://www.mass.gov/doc/form-m-706-mas ... s/download, that it wouldn't help. It appears that the credit with respect to out-of-state property is limited to the tax paid to other states, and Florida doesn't have a state estate tax.

I wonder whether a taxpayer could challenge that on constitutional grounds.

Of course, if he were to buy a $4.5 million house in Tampa with a $5 million estate, he might be able to establish domicile in Florida.
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Re: Advice to Avoid/Minimize MA Estate Tax

Post by afan »

Wouldn't the legal fees be astronomical? If it has not been established already, then winning a first challenge to this on constitutional grounds sounds like it could easily cost more than the total tax this estate would pay. Maybe something that would interest Elon Musk's heirs?

Getting out of the high tax state sounds far cheaper. Buy a house in NH for a current MA resident. Live there enough to qualify as a NH resident. Keep the MA home as a pied-a-terre or sell it an rent a place in MA when they are in the state. Renting would mean owning no real property in MA, one less thing to tax.
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Re: Advice to Avoid/Minimize MA Estate Tax

Post by bsteiner »

bsteiner wrote: Wed Jan 20, 2021 11:28 am
Jack FFR1846 wrote: Wed Jan 20, 2021 11:17 am
bsteiner wrote: Wed Jan 20, 2021 11:05 am
MrsBDG wrote: Wed Jan 20, 2021 1:00 am Does MA not include OOS assets in the overall estate? I am pretty sure WA asks for the value of ALL assets owned, not just the ones in WA. OOS real estate would still be included in the WA estate. I am not sure if one could set up a trust domiciled in the OOS place and own the real estate in that trust and have WA be okay with that.
In most states, the estate tax on a resident estate is equal to the tax on the worldwide assets, multiplied by a fraction, the numerator of which is the worldwide assets less the out-of-state real and tangible property, and the denominator is the worldwide assets. So the out-of-state property is taken into account in determining the brackets. In New York, the out-of-state property is disregarded, except you can't claim deductions allocable to the out-of-state property.
So for the OP in Massachusetts, buying a $4.5M house in Tampa wouldn't help?
I was surprised to see from Part 2 at the bottom of page 2 of the return, https://www.mass.gov/doc/form-m-706-mas ... s/download, that it wouldn't help. It appears that the credit with respect to out-of-state property is limited to the tax paid to other states, and Florida doesn't have a state estate tax.

I wonder whether a taxpayer could challenge that on constitutional grounds.

Of course, if he were to buy a $4.5 million house in Tampa with a $5 million estate, he might be able to establish domicile in Florida.
afan wrote: Wed Jan 20, 2021 2:46 pm Wouldn't the legal fees be astronomical? If it has not been established already, then winning a first challenge to this on constitutional grounds sounds like it could easily cost more than the total tax this estate would pay. Maybe something that would interest Elon Musk's heirs?

Getting out of the high tax state sounds far cheaper. Buy a house in NH for a current MA resident. Live there enough to qualify as a NH resident. Keep the MA home as a pied-a-terre or sell it an rent a place in MA when they are in the state. Renting would mean owning no real property in MA, one less thing to tax.
A lawyer in Massachusetts told me about a case where the estate indeed brought such a challenge, and prevailed. She said that they now report the out-of-state property at zero value. Here are a couple of articles about the case: https://hembar.com/uploads/1280/doc/MLW ... _FINAL.pdf. https://www.wealthmanagement.com/estate ... onal-issue.

The case involved real estate in a French SCI. It's not clear whether the court understood what an SCI was.
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Re: Advice to Avoid/Minimize MA Estate Tax

Post by PinotGris »

[/quote]

If you go to the free dinner seminar and you’re the one who buys the annuity, the living trust, the timeshare, or the bridge, you paid for the free dinners for everyone in the room.
[/quote]
:sharebeer It is quite amazing how many people sign up for the "free" consultation.
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Re: Advice to Avoid/Minimize MA Estate Tax

Post by PinotGris »

afan wrote: Tue Jan 19, 2021 9:18 pm Sounds like a great business for the restaurant. Use a lot of tables that might be hard to fill on a weeknight. Sponsors are good for the cost, or pay up front. Introduce the restaurant to customers with enough assets to care about estate planning and who might come back on their own.

For the lawyers it seems like very expensive advertising. Do such firms run these on a regular basis, expecting to get enough business to cover the cost? Or as an occasional thing when other sources of clients are slow? How many packages do they need to sell to break even?
We get invitations from the same company at least once a year.
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Re: Advice to Avoid/Minimize MA Estate Tax

Post by bsteiner »

bsteiner wrote: Tue Jan 19, 2021 8:39 pm
PinotGris wrote: Tue Jan 19, 2021 6:36 pm
The first lawyer we went to for estate planning advice told us pretty much what you said. He was recommended by a friend but he was retiring and may be the reason why he was so frank with us. He told us pretty much what you are saying. He said the probate is a simple straightforward thing in our state and for our set up he said we do not need a trust. He also pointed to a pile of files on his desk that he said he has been resolving for a client whose original estate lawyer had made some mistakes that are now complicating her life.

This is not about estate lawyers and those who need complicated set up. But what he said kind of eased my mind although mu husband still thinks we should have a trust to "save taxes for the kids." He also attend the free seminars on estate planning which I refuse to go to.
If you go to the free dinner seminar and you’re the one who buys the annuity, the living trust, the timeshare, or the bridge, you paid for the free dinners for everyone in the room.
Lee_WSP wrote: Tue Jan 19, 2021 10:49 pm
afan wrote: Tue Jan 19, 2021 9:18 pm
For the lawyers it seems like very expensive advertising. Do such firms run these on a regular basis, expecting to get enough business to cover the cost? Or as an occasional thing when other sources of clients are slow? How many packages do they need to sell to break even?
I haven't heard of any estate planning "dinners", but there are plenty of free seminars.

A dinner would need to land very high net worth clientele with today's estate tax exemption being so high.
PinotGris wrote: Wed Jan 20, 2021 4:41 pm ...
It is quite amazing how many people sign up for the "free" consultation.
You need to sell something expensive such as annuities or asset management to be able to give free lunch or free dinner seminars. Lawyers sometimes speak at those, since the sponsor sometimes thinks that will help them attract a larger audience.

Lawyers who sell living trusts sometimes put on seminars without lunch or dinner. They're still expensive to put on, but they think they'll make a few sales which will cover the cost. For them, the "free consultation" is more of a sales pitch. They'll sometimes offer a discount to people who sign up at the "consultation." We get more fees than usual when we have estates where the decedent bought these trusts.

If a conventional trusts and estates lawyer has to give a "free consultation" to speak at a seminar put on by an insurance agent, it won't be worth it. A lawyer I know did that a few times and found that almost none of the people who wanted the "free consultation" had any intention of becoming clients. The initial meeting is a significant percentage of the total work in most estate planning matters.

High net worth clients tend not to go to these seminars.
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