Case Study: Estate Planning

Estate planning can be complicated, especially when it involves divorce or blended families. This was the case for Mr. Johnson*. He was a business owner with more than $7 million in assets, who came to us with a relatively complex situation due to his previous marriage, alimony obligations, and his own biological children as well as stepchildren. In addition, he felt a moral obligation to take care of his ex-wife, but needed to do so without dramatically impacting his current wife and her feelings about the assets.

How We Helped

We sat down with Mr. Johnson to think through all the issues and possibilities; then we met with an attorney to draft the necessary documents:


Mr. Johnson wanted to ensure his wife was taken care of if he passed away; however, he also wanted the bulk of his assets to pass to his biological kids. We recommended a will with a marital trust, in which a pre-determined amount of money (adjusted for inflation) would go into the marital trust; the balance would go to the biological kids and stepkids. Mr. Johnson wanted 75% of the money to go to his kids and 25% to the stepkids. We arranged for this by creating a family trust. At the time of death, separate trusts would be created so each child would have their own independent trust, to reduce any chance of the kids bickering.

Gifting Trust

Because Mr. Johnson was in a litigious line of work and getting close to the estate tax exemption (around $11 million in 2017), we recommended a gifting trust. By creating one, he could gift $14,000 in each trust for the five children each year. The money would be shielded from his business liability and accessible for the kids’ benefit whenever needed. It also helped solve the issue of Mr. Johnson’s estate getting closer to the estate exemption.

Life Insurance Trust

To further reduce the possibility of an estate tax exemption, we moved Mr. Johnson and his wife’s life insurance into a trust. The benefit would still go to the kids, but it would be outside of their taxable estate; doing so would prevent it from being subject to estate taxes.

Life Insurance Policy

Because Mr. Johnson wanted to take care of his ex-wife and also protect the alimony payments he had agreed to make for 10 years, we helped him shop for a term-life policy. The policy would pay his ex-wife a lump sum that would be enough to take care of the alimony payments and give her a nice nest egg. This was relatively inexpensive and his wife was okay with it because the current assets wouldn’t go to his ex-wife.

Reverse Gifting

In Mr. Johnson’s case, his parents are upper-middle class and he is an only child. He had his parent’s set up an account under their names, with a transfer on death designation back to him. Each year, he would gift the maximum amount in this account, and when his parents died, the money would come back to Mr. Johnson, but with a step up in basis, so all the gains in the investments would disappear. Thus he would essentially inherit that money tax-free.

Power of Attorney for Financial Affairs

If at any point Mr. Johnson or his wife couldn’t make financial decisions for themselves, this document allows a designated person to step into their shoes and ensure their bills continue to be paid. We suggested immediate powers of attorney for both of them as well as springing, which means the document will only take effect if there’s a triggering event, such as mental incapacitation.

Health Care Advanced Directive

This type of legal document addresses important issues such as: who makes medical decisions for each other, whether or not to end life support, and if and how long to continue any aggressive treatment. Though most states recognize the rights of a spouse to make these choices, it’s best to have it in writing so the surviving spouse and family members don’t have regrets about a decision or if there are disagreements on how to handle a particular situation.

Post-estate Planning Draft Process

Updating beneficiaries and other key details in each legal document is an important (but often missed) step. Therefore, once the estate plan and trusts were drafted and signed, we created a detailed flow chart of the entire plan, and updated the titles of every account so they reflected what was in the will.

Needless to say, estate planning can be complex and sometimes stressful. We work diligently to identify the optimal solutions and lessen that burden, so you can walk away with a plan that gives you more control over your future.

* fictional name, but actual client, specific financial advice references provided herein are for illustrative purposes only and are not representative of decisions that have been made since the case study was published nor of decisions that would be made in the future

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