Case Studies

Case 1:

Married, 3 young children, $400,000 estate, $30,000 in tax-deferred retirement assets




Dave and Carol are in their late 30s and have three children ranging in age from 1-6. Their estate is approximately $400,000, including $150,000 in life insurance on Dave, a home with $75,000 equity, and one IRA and a 401k with a total value of $30,000 (all tax-deferred). The rest of their assets are in various financial investments and personal property.

 

Their primary concerns were to name a guardian to raise their children if Dave and Carol should die prematurely and to make the entire estate available to their children through a trust as they were being raised. Once the children were grown, they wanted to ultimately divide the estate equally among the children and their ministry interests, but nothing was to go to charity as long as the children were young enough to need the Children’s Trust.

Dave and Carol created Wills along with Durable General Powers of Attorney, Health Care Powers of Attorney, and Living Wills/Directives to Physicians. For more, (click here).

In their Wills, the full estate goes to the surviving spouse at the death of the first spouse. Then, at the death of the surviving spouse, the entire estate flows into a Children’s Trust, to be administered by a trustee for the children’s benefit. Because children are often not financially mature when they become 18, the trust will be continued into their twenties, with the trustee authorized to meet such needs as paying for higher education costs, helping the children settle into their first home, etc. Once the children are responsible adults—either through Dave and Carol living to a ripe old age, or, if they have died early, through the support of the Children’s Trust during their growing years—whatever remains of the estate at that time will ultimately be divided among the children and ministry interests.

Dave and Carol’s tax-deferred retirement assets will be included in the Children’s Trust if Dave and Carol die early, even though some income taxes will be due on those assets. However, if their deaths occur after the children are grown, their retirement assets will be structured as part of the gift to charity to eliminate the income taxes that would otherwise be due.

Dave and Carol were encouraged to consider increasing their life insurance coverage with the help of a local insurance agent.

Married, 3 young children, $800,000 estate, $75,000 in tax-deferred retirement assets



 

 Harvey and Ronda are in their 30s and have three children ranging in age from 7-12. Their estate is approximately $800,000, including $350,000 in life insurance, a home with $275,000 equity, and one IRA and a 401k with a total value of $75,000 (all tax-deferred). The rest of their assets are in various financial investments and personal property.

Their primary concerns were to name a guardian to raise their children if Harvey and Ronda should die prematurely and to make the entire estate available to their children through a trust as they were being raised. Once the children were grown, they wanted to ultimately divide the estate equally among their children and their ministry interests, but nothing was to go to charity as long as the children were young enough to need the Children’s Trust.

Harvey and Ronda created Wills along with Durable General Powers of Attorney, Health Care Powers of Attorney, and Living Wills/Directives to Physicians. For more, (click here).

In their Wills, the full estate goes to the surviving spouse at the death of the first spouse. Then, at the death of the surviving spouse, the entire estate except for their tax-deferred retirement assets will flow into a Children’s Trust, to be administered by a trustee for the children’s benefit. Because children are often not financially mature when they turn 18, the trust will be continued into their twenties, with the trustee authorized to meet such needs as paying for higher education costs, helping the children settle into their first home, etc. Once the children are responsible adults - either through Harvey and Ronda living to a ripe old age, or, if they have died early, through the support of the Children’s Trust during their growing years - whatever remains of the estate at that point will ultimately be divided among the children and ministry interests.

Harvey and Ronda’s tax-deferred retirement assets would generate significant income taxes if they were left directly to the Children’s Trust, but they wanted the children to benefit from these funds along with the rest of their estate. To solve this, a tax-exempt TCRT (Testamentary Charitable Remainder Trust) was written into their Wills solely for the purpose of receiving their tax-deferred retirement assets when both Harvey and Ronda have died. This TCRT will pay to the Children’s Trust 7% of the trust amount each year for 15 years; over this 15-year period, more than 100% of the original value will be distributed to their children through the supervision of the trustee of the Children’s Trust. At the termination of this trust, its remaining principal will go to charity as part of the gift they wished to make to charity anyway.

Harvey and Ronda were encouraged to consider increasing their life insurance coverage as they are able, with the help of a local insurance agent.

Married, 3 adult children, $2.4 million estate, $750,000 in tax-deferred retirement assets



 

Bob and Martha are in their late 40s and have three children ranging in age from 22-27. Their estate is approximately $2.4 million, including $500,000 in life insurance, a home with $325,000 equity, and several IRAs and a 401k with a total value of $750,000 (all tax-deferred), accumulated over the course of Bob’s career with a major corporation. The rest of their assets are in various financial investments, personal property, and an inheritance coming from Bob’s deceased grandmother’s estate.

They wanted to ultimately divide the estate among their three children and their ministry interests, treating the ministries, collectively, as one additional child. Thus, each of the children is to receive 25% of the estate, and 25% will be allocated among their organizations. Because their children are no longer dependents, Bob and Martha were comfortable making an outright gift to charity if they were to die soon, but they wanted to preserve benefits for the children from their retirement assets on the assumption that those investments could grow substantially in future years.

Bob and Martha created a Revocable Living Trust to ease the administration of their estate and to avoid probate. Their documents included Pour-over Wills designed to coordinate with the trust, along with Durable General Powers of Attorney, Health Care Powers of Attorney, and Living Wills/Directives to Physicians. For more, (click here).

Within their Revocable Living Trust, the full estate will flow to the surviving spouse at the death of the first spouse, using a Bypass Trust structure to shelter the maximum amount allowed from estate taxes at the death of the surviving spouse.

Then, at the death of the surviving spouse, 25% of the estate will be an outright gift to charity, to be paid first from any remaining value in their tax-deferred retirement assets, thus eliminating all the income taxes that would otherwise have to be paid after their deaths.

Finally, any tax-deferred retirement assets exceeding the 25% of the estate intended for charity would go into a tax-exempt TCRT (Testamentary Charitable Remainder Trust) in order to eliminate the balance of income taxes associated with these assets. This TCRT would pay the children 7% of the trust amount each year for 15 years; over this 15-year period, more than 100% of the original value will have been distributed to their children. At the termination of this trust, its remaining principal will go to charity. Finally, the balance of the estate (all the non-retirement assets) will go outright to the three children in equal shares.

Married, 3 responsible adult children, several grandchildren, $2 million estate, $750,000 in tax-deferred retirement assets


 

Howard and Esther are in their 60s and have three grown children who have homes, families, and careers of their own. Their estate is approximately $2 million, including $500,000 in life insurance, a home with no mortgage, and several IRAs and a 401k with a total value of $750,000 (all tax-deferred), accumulated over the course of Howard’s career with a major corporation. The rest of their assets are in various financial investments and personal property.

They wanted to ultimately divide the estate among their three children and their ministry interests. Earlier in life, when their children were younger, the larger share of the estate would have gone to the children, but now, realizing that the children were doing well, they decided to cap the children’s inheritance at $250,000 each (with this number tied to a “cost of living allowance” so as to maintain its purchasing power in the face of future inflation).

They considered creating an Education Trust for their grandchildren, but decided instead that since their children were responsible parents, they would leave token gifts to each grandchild, and trust that their children would be the best judges of how and when to make funds available to the grandchildren.

Howard and Esther created a Revocable Living Trust to ease the administration of their estate and to avoid probate. Their documents included Pour-over Wills designed to coordinate with the trust, along with Durable General Powers of Attorney, Health Care Powers of Attorney, and Living Wills/Directives to Physicians. For more, (click here).

Within their Revocable Living Trust, the full estate flows to the surviving spouse at the death of the first spouse, using a Bypass Trust structure to shelter the maximum amount allowed from estate taxes at the death of the surviving spouse.

Then, at the death of the surviving spouse, specific gifts will be made to their grandchildren and each of their children will receive $250,000 increased by an inflation factor; the balance of their estate will go to ministries that have been important to Howard and Esther. Language was included in the trust to require that the charitable gift include any value remaining in their tax-deferred retirement assets so as to eliminate the income taxes that would otherwise be due if those assets passed to the children.

Married, no children, estate includes life insurance, real estate, tax-deferred retirement assets, other investments, and personal property
 

 

Wayne and Sara never had children. They have several siblings they wanted to leave something to, and also wanted to provide for elderly parents in the event that any of the parents outlived Wayne and Sara. They wanted the bulk of their estate to support various ministries that have been important to them.

Because they live in a state where probate costs would be a concern, Wayne and Sara created a Revocable Living Trust to ease the administration of their estate and to avoid probate. Their documents included Pour-over Wills designed to coordinate with the trust, along with Durable General Powers of Attorney, Health Care Powers of Attorney, and Living Wills/Directives to Physicians. For more, (click here).

Within their trust, the full estate goes to the surviving spouse at the death of the first spouse. Then, at the death of the surviving spouse, they arranged to leave to family members items of personal property that they felt would be meaningful. They also decided to leave a “token” cash gift of $10,000 to each of their siblings who might survive them, but they wanted to ultimately be able to leave the bulk of their estate to ministries that had been important to them.

They arranged through their trust to leave 50% of their estate outright to their favorite ministries.

The remaining 50% of the estate was left in a tax-exempt TCRT (Testamentary Charitable Remainder Trust) in order to provide lifetime income to their parents and siblings. At the termination of this trust, its remaining principal goes to the ministries designated by Wayne and Sara.

Married, 3 adult children (one of whom has not shown great responsibility), several grandchildren, $2 million estate, $450,000 in tax-deferred retirement assets


 

Darrel and Sharon are in their 60s and have three grown children, two of whom have homes, families, and careers of their own. Their third child has made poor lifestyle decisions, giving Darrel and Sharon much heartache about how to most wisely benefit that child. This has also caused them to feel that they should do something to give this child’s offspring a more sure start in life. Their estate is approximately $2 million, including several IRAs and a 401k with a total value of $450,000 (all tax-deferred), accumulated over the course of Darrel’s career with a major corporation. The rest of their assets are in real estate, insurance, financial investments, and personal property.

They decided to ultimately divide the estate into four equal parts, treating their group of charities as “one additional child." They arranged for their two responsible children and for the ministries they supported to receive their shares outright. The portion gifted to ministry would be funded first through the deferred retirement assets, in order to eliminate any income taxes that would otherwise be due on these assets. The quarter of the estate designated for the irresponsible child was divided into two parts: 50% went into a trust that would pay income to the child for life, with the trustee given discretion to invade the principal for the child’s benefit if appropriate. At the death of the child, any assets remaining in this trust would pass to the child’s offspring. The other 50% of this child’s share went directly into an Education Trust designed to enable the trustee to help the grandchildren with their schooling and later needs in life. This trust was structured to terminate and distribute its assets to the grandchildren after they were past college age.

One of the aspects of this plan that Darrel and Sharon especially liked was that as long as they live, they can change their plans. If they see the kind of increased maturity in their child that they have prayed for, they can always change the plan in the future to treat all three children the same.

Darrel and Sharon created a Revocable Living Trust to ease the administration of their estate and to avoid probate. Their documents included Pour-over Wills designed to coordinate with the trust, along with Durable General Powers of Attorney, Health Care Powers of Attorney, and Living Wills/Directives to Physicians. For more, (click here).

Within the Revocable Living Trust, the full estate flows to the surviving spouse at the death of the first spouse, using a Bypass Trust structure to shelter the maximum amount allowed from estate taxes at the death of the surviving spouse. Then, at the death of the surviving spouse, assets are distributed as described above.

Single, 2 responsible adult children, one deceased child, several grandchildren, $1 million estate, $150,000 in tax-deferred retirement assets


 

Barbara is in her 50s and has two grown children who have homes, families, and careers of their own. A third child died as a teenager, leaving no heirs.

Her estate is approximately $1 million, including an IRA with a total value of $150,000 (all tax-deferred). The rest of her assets are in various financial investments and personal property.

She would have planned to divide the estate into four equal shares among her three children and her ministry interests, but the death of her youngest son changed that. She decided to stick with her original plan of giving each of her remaining children 25% of the estate. The remaining 50% of the estate went to ministry as a memorial gift to her deceased child.

She considered creating an Education Trust for her grandchildren, but decided instead that since her children were responsible parents, she would leave token gifts to each grandchild and trust that her children would be the best judges of how and when to make funds available to the grandchildren.

Because Barbara lives in a state where probate is not a concern, she created a Will along with a Durable General Power of Attorney, a Health Care Power of Attorney, and a Living Will/Directive to Physicians. For more, (click here).

Within the Will, at Barbara’s death, specific gifts will be made to her grandchildren. Then, each of her surviving children will receive 25% of the estate, and charities will receive 50% of the estate. Barbara has now begun working with two of her key ministries to set up the parameters of the scholarship funds that she wants to establish in the memory of her deceased son.

Language was included in the Will to require that the charitable gift include any value remaining in her tax-deferred retirement assets so as to eliminate the income taxes that would otherwise be due if those assets passed to the children.