Estate Equalization : Monk Financial Strategies Group, Houston, TX

Estate Equalization

The Situation:

Our clients Mr. and Mrs. J have enjoyed financial success. For years they have worked diligently and carefully saved. They own nearly $5 million in ranchland, a $1,500,000 farm house, a commercial building in the city worth $3 million, along with $3,500,000 of cash, securities, and other property. Their eldest son, Nate, has assumed the day-to-day operation of the ranch which still provides income for the parents, while their other children (adult twins) pursue careers on separate coasts.

After multiple discussions with our team they saw the potential conflict and developed a legitimate concern about providing for equal distribution of their estate to their heirs. When it came to the ranch and farm house, they understood that Nate would want to retain control of his livelihood. The commercial property produces passive income, but Nate’s inheritance would require him to work for the income. Should the other children receive free income? They quickly realized that if we didn’t plan carefully that their children would run into conflicts about property, their estate, and what is fair division when they are gone.

The Solution:

Mr. & Mrs. J implemented a multi-faceted plan. Given the fact that Nate would remain operating the farm and that the property itself was necessary for him to derive income it only made sense that it be left to him in whole part. In order to off set the value of the ranch property a trust was established and funded through life insurance that would ensure the proportional value of $2.5m be left to each of the other two siblings. Nate has also established an agreement with his parents to purchase their home for $500,000 and allow them to remain until their deaths. As a part of this agreement Nate purchased $1M of Survivorship insurance to pay out to his siblings up to the parent’s death.

Since the commercial property generates passive income, the property itself was placed in a trust, and upon death of both parents the rental income will be distributed equally each year. It was then decided that in the event of any sibling’s death that the commercial property be sold for fair market value by the corporate trustee and the proceeds be divested equally amongst the siblings including the decedent’s estate, therefore ending the income stream. Mr. & Mrs. J’s remaining assets were accounted for in their will which is reviewed annually to ensure it is in accordance with current tax laws.

Will Your Estate Cause Undesired and Unexpected Family Conflicts?

Certain elements of this case study have been amended and are provided for general informational purposes only. These specific examples will not be suitable for everyone. Together we can ensure that any course of action is based on your financial needs, objective, time horizon, risk tolerance and individual situation. Neither New York Life Insurance Company, nor its agents, provides tax, legal, or accounting advice. Please consult your own tax, legal, or accounting professional before making any decisions.