With our third (and more likely than not) our last child about weeks away, we’ve kicked up our estate planning. I thought I would chronicle some of the conversations we’ve had along the way.
Our primary objective is to maximize our post-tax estate to our children. Going into this process, things on our radar include:
-Should children own shares directly or through a family trust?
-Permanent life insurance vs. investing
-Updating wills and power of attorneys
Our current thought on corporate structure is to have our children directly own shares of our corporations. The benefit of this structure is that our death would not trigger a taxable event on their allocation, thus maximizing our post-tax estate. The drawbacks are if the children run into matrimonial/credit issues as adults and the kiddie tax. However, on the latter point, we have no intention of flowing dividends to the kids while they are minors.
In furtherance of our primary objective, estate freezing allows our children to participate directly in the growth of our corporations. We’ll do this by converting our common shares into preferred shares and re-issuing common shares to the whole family. We envision a 20% allocation of common shares to the two of us and our three children.
We are strongly considering permanent both-to-die life insurance, but as a blue/red, I need to create my own models to determine the point of life expectancy indifference to justify this route. The tough part has been getting input assumptions from insurance sales people in their projections. I’ll get into this a bit later.
This the boring stuff. But one thing that we recently learned is that the residence of the executor must be considered as there are tax consequences to this. This eliminates the option to use my wife’s brother (who lives in Boston) as an executor.
On Friday, we had separate sessions with MD Management and Unbiased Financial Services, a fee-only wealth manager. We outlined our balance sheet and discussed our objectives. We had a good experience with MDM and have a follow-up with an estate advisor in a week.
What I wanted from UFS was to establish a front-loaded ‘project’ to ensure we set up our estate correctly from the start. However, they seemed to be more interested in an ongoing relationship where they would charge 0.4-1% per annum of their clients’ net worth. I asked what ongoing services they would provide and they responded by ensuring we stay in line with our investment policy. I think we’re fairly disciplined investors so I don’t see the value of paying their fees for this service. Both parties left the meeting tasked to think about potential value in a future relationship.
This week I’m meeting with Investors Group to talk about permanent life insurance. I already had a brief meeting with them on this, but I wanted to speak with an insurance expert to walk me through their assumptions and how they flow into the death benefit calculations. I’ll add another post as a follow-up to that session.