FOs are only for nine figures and up, ime |
Most with that wealth start giving when alive simply to minimize taxes. Might as well start saving in 529 for future grandkids once the kids are married/planning to have grands. Just keep the kid's 529 open and invest yearly even before the grands arrive. We would much rather our kids receive some money (after college is fully paid for) in their 20s/30s when it matters much more than at 50/60 when we die. Fully funding retirement in the 20s and 30s will set them up well. Also having a decent downpayemtn for a home will allow them to choose jobs they like/offer more flexibility to enjoy their family/have a shorter comment and helping with education so they can do private schools and live wherever they desire (closer to job so more family time) |
Yup---we dropped our life insurance when we hit $10M and kids were in college/out of college. At that point they are set and no need to pay for it. |
Op here. We have a variety of assets. Currently we could each leave up to roughly $12M to the kids. We have roughly $38M so $16M would be subject to tax, which starts at 45% and goes up from there. With some advance planning we could drastically minimize the tax. One of our assets is a strip mall worth maybe $3M. We could transfer the strip mall to our kids and use up $3M of our $24M limit. But we could more intelligently sell them the strip mall for $3M and carry back a mortgage for the $3M. The IRS puts out minimum interest rates on a monthly basis. During the pandemic this rate was below 1%. Currently it is 3.72% on long term interest rates. In other words we could sell them the property at market value and lend to the them to purchase it at effectively below market value. We’d lock in the purchase price and they’d keep the cash flow. We’d still get the mortgage payments. But this strategy can be maximized if we don’t sell them the whole property. The property is owned by an llc. We could structure the operating agreement such that a minority member has basically no rights. Because it has no right it is worth less than its corresponding percentage. For example we transfer them a 49% minority interest, which in paper should be worth just under $1.5M but because it had no rights we could get a legit appraisal likely appraising it for a discounted value, say $1.1M. We can still lend them in the $1.1M at 3.72%. We’ve actually moved $400K of extra value plus given them a no brainer loan that for all intents and purposes over 15 to 20 years becomes a gift of half a property using none of our exemption. We can repeat this exercise for any company we own, albeit a company that owns property or another business. For a business the discount can likely be greater. We own some minority interests in businesses and some illiquid stocks. I expect that these are probably worth $5M today but unsellable today. The discount would be significant. Probably at least 50%. We could make a loan to them non recourse with a balloon payment meaning that they would only have to pay it back if the investment turned out good. Related strategies can be used for grantor trusts that effectively allow us to transfer assets to the kids and a discount to actual value today. The only catch is that we need to have time for them to truly maximize. We are in our 40s. We have the time. |
Op here. Good question. I contemplated letting the policies lapse this year. I really don’t need it but it buys me some peace of mind. I have about $20M in commercial real estate debt. The properties all cash flow with DSCRs in the 2s and 3s so it is very unlikely that my death would be declared an event of default but I wouldn’t want DH stressed by it. If some lender sent an acceleration letter he could just pay them off. Also I took out the policies very young and in great health. The premiums are very low (maybe $5-6K collectively). |
NP - not high net worth but on board with this sentiment. My parents became very well off post-retirement and I'd be happy if they would pass their wealth on to my kids, since I'm old enough to be comfortable and don't really need a windfall now. It's too early for you, OP, but I would say the real goal should be setting your kids up to be debt-free in their 20s and their kids to be well looked after. |
OP, first off start by gifting them $17,000 each in stocks or cash each year as the IRS allows this as non taxable.
Our family typically does this in December. |
Yes, definitely ask the 14 year olds on dcum what to do with your money. |
Biglaw partners these days have this kind of money. Ask me how I know. Then ask me who I don’t ask for advice on how to spend it. |
And you’re not on DCUM asking how to divvy it up. See the difference? |
Remember that your kids will likely be in their 50s or 60s when they inherit so their life trajectories will be set by that point. I encourage you to teach your kids throughout their teen years how to save and invest. I would encourage them to work for money and monitor them saving 20% of their gross income. Help them set up a Roth IRA once they have W-2 wages and fund their Roth IRA with a match of their earnings. Obviously make sure they have enough for college, too.
Once they graduate, consider giving annual gifts under the Federal maximum (currently $17k/year) if they have jobs or are otherwise being responsible. Keep things equal between your children once they hit adulthood unless there are special needs involved. At this point with minor children, your trust should be structured to have a trustee you and your spouse agree to. While it is very unlikely to happen, would you really want your kids to not have the money if they are not adults when you pass away? If so, you could structure the trust to pay for all their expenses through college, pay for a reasonable car, then distribute, say $100k at age 25, $350k at age 30, and $550k at age 35. If it were me, I'd probably delay any of these partial decisions until my kids were older and I had a sense for where things were heading. You can change your documents at any time. |
You have serious issues sharing this on the internet with a bunch of anonymous people. Are you getting off on this? Just a little bit? C’mon, OP, be honest. |
Quite the opposite. It used to be a much better gig. |
You're weird. OP is being very open, which is nice, for once. OP, you should really talk to a financial estate planner. These are complex issues and most of us are not qualified to opine. I would encourage you to teach your children to manage what is coming their way, be just as open with them as you are with us, and give to the tax limit every year as long as you see that they're investing and managing well. |
DP. The issue we struggle with is if you gives kids too much money when they're young (20s), you can have a failure to launch. I had a friend like that. Trust funder, and every year he came up with some new wacky idea for a business that of course failed because you don't hustle when you don't need to. I just Googled him -- looks like his latest venture is some organic healing patch or some nonsense. The best we came up with on advice from our financial planner is their college + expenses are fully paid for, then they get lump sums every 5-10 years, but I'm still not happy with that. Will they become lazy if they know the next tranche is 3 years away so why work towards anything in the meantime? Our kids are young enough where I can't really predict personality-wise how it will shake out. |