Estate Planning Case Study

Summary: This presentation is a hypothetical view of financial planning items a client might see in the course of an advisory review. This is for informational purposes only and should not be construed as an investment recommendation or solicitation. Please consult a financial professional to discuss your individual situation prior to making any investment decision.

This is a hypothetical example and not actual clients and their outcomes.

Congratulations, Fran and Ami Adams, for your marriage of over 40 years; two great kids; and two grandchildren, ages 3 and 11. You have built a substantial nest egg that you would like to [1] start sharing with your kids and grandkids and [2] pass on to them after you have both passed away. (This is a hypothetical example and not actual clients and their outcomes)


I appreciate that you value your privacy. Any solutions toward these noble goals must value that privacy even after you are gone.

Debt & Assets

You are in an ideal position. You have paid off most of your home, and you are still saving half of your income in retirement.

Current assets

  • $500,000 home with a $100,000, 6% fixed-rate mortgage that will be paid off in eight years
  • $2,000,000 in AA-rated long-term municipal bonds (with an average bond maturity of 14 years and a 4.8% coupon rate)
  • $1,000,000 million in blue-chip stocks owned for 20 years
  • $500,000 in three large-cap global stock funds, purchased a year ago

Total = $3,900,000

Quick Thoughts

The interest rate on your mortgage is higher than the munis’ yield. Moreover, the 2017 Tax Cuts and Jobs Act dramatically increased the standard deduction; for the tax year 2021, it will be $24,800. The law also limits the amount you can deduct for state and local income (SALT) to $10,000. Many people are using the larger standard deduction instead of itemizing their deductions. Thus, they are no longer writing off the interest on their mortgage.

If this is your situation, you might want to pay off that mortgage by selling some municipal bonds or using the interest they generate. Because of the drop in interest rates, munis, like most other bonds, have appreciated in value. However, this increase is probably not enough to generate a significant capital gain tax when sold.

Also, any new municipal bonds purchased are probably paying a lower interest rate. And in terms of diversification, you already own a lot of them.

Moreover, you may open up a 529 plan naming one of the grandkids as a beneficiary. (You can always change the program recipient to the other grandchild.) You can invest $75,000 without triggering any gift tax issues, sell some of the municipal bonds, or retitle one of the global funds, especially if it has not gone up in value.

If you do sell some of the municipal bonds, make sure you allocate the 529 more aggressively, maybe in line with the time horizon of the three-year-old.

As long as the money gets used for education, 529 plans grow tax-free. The recent passing of the Secure Act allows these plans to pay for noncollege education (up to \$10,000 a year), apprenticeships, and student loans.


Your holdings in munis are generating around $100,000 in tax-free interest. Instead of reinvesting all of it, perhaps reinvest half and gift the rest each year to your two kids.

Each of you can gift $15,000 per year, per kid. So that is $60,000, or a little over half of the interest the munis are generating. (The grandkids are too young to gift to.)

If you put $75,000 into a 529, that equals five years of gifting ($15,000 * 5 = $75,000), so the spouse who makes the 529 investment would need to wait five years to make another gift without having to file a tax form.

For gifting purposes, the municipal bonds are your best option. Unlike your other three significant assets, your home, the blue-chip stocks, and the global funds’ munis are designed for income. The kids are better off inheriting growing assets as they get a new tax basis.

For example, suppose you invested $200,000 for your now-$1,000,000 stock portfolio. If your kids inherit it, their basis becomes $1,000,000, so $800,000 of gain gets removed from any capital gains tax calculation.

So, continue to reinvest into them and the global funds.

Estate Taxes

After a 2011 tax law change, the estate tax exemption is big and portable, so fewer people will pay it. For 2020, the exemption is $11,580,000. Plus, if you are married, you can pass all assets to a spouse without triggering an estate tax.

For example, for a couple with a net worth of $20,000,000, when one passes away, the other can receive all those assets without triggering any estate taxes. Also, the second spouse can add their spouse’s unused $11,580,000 exemption to theirs, making theirs $23,160,000.

With a net worth of \$3,900,000 and a current exemption of \$23,160,000, which goes up with inflation, there is no need for any strategies for reducing federal estate taxes, so we can focus on who gets what and when. (Your state may have a lower threshold.)

Estate Planning

One of the primary goals of estate planning is avoiding probate. Probate is public, time-consuming, and costly. One of the best methods of avoiding it is a revocable living trust or, in your case, a joint revocable living trust. Both of you retain control over the assets, and if one of you becomes incapacitated, the other spouse can continue controlling it.

You can retitle your home, municipal bond portfolio, blue-chip stocks, and global funds to the new trust (assuming the latter two are not in a retirement account). You can also add personal items to the trust using a schedule listing who owns what items and naming who gets them.

There are no additional tax forms needed. The only real change would be signing in the name of the trust in some documents.

Trusts work better than other probate-avoiding tools, such as transfer-on-death accounts or joint tenancy. You can name alternative beneficiaries and put conditions on the funds’ dispersion.

After the death of one of you, the trust stays operational. The surviving spouse keeps complete control and can continue gifting assets. If Fran passes away first, Ami can quickly change from reinvesting the portfolio to drawing income, making up for the loss of $8,000 a month from Fran’s GE pension.

Someone other than one of the two kids can be named a successor trustee and be responsible for the funds’ dispersion. The trust can stipulate when money is distributed to which beneficiaries. No public filings are needed, except for the real estate’s changes in ownership, which always require a public filing.

Trust for the Grandkids

Besides or in place of the 529 plans, you can set up trusts for the grandkids, so you can control who gets what and when even after both of you have passed away. Because of the eight-year age difference, individual trusts might make more sense than a pooled trust for both.

If they are still minors, you can provide for them in your trust and employ a property guardian or custodian by taking advantage of the Uniform Gift to Minors Act.

A Will

Even though privacy is paramount, you will still need a will for any property that does not fit or will not do well in a trust. For example, in some cases, insurance companies do not like to insure automobiles that are part of a trust.

It would be best if you also have a healthcare declaration and a durable power of attorney for health care. This way, you control what level of care you receive if you become incapacitated.

Unaddressed Risk

One significant risk you have not addressed is if one or both of you ever need to go into a nursing home. Some people can reduce this risk with long-term care insurance. However, these policies have become expensive, and many insurance companies have left the marketplace because not as many people as was hoped were buying the policies. Those people who have bought policies are able to keep them.

This presentation is a hypothetical view of financial planning items a client might see in the course of an advisory review. This is for informational purposes only and should not be construed as an investment recommendation or solicitation. Please consult a financial professional to discuss your individual situation prior to making any investment decision.

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Financial Advisor Tim Hayes

I’ve held an industry securities registration for 30+ years and am subject to SEC and FINRA oversight.

Most clients pay fee-only or an hourly rate. The size and complexity of the client’s wealth management and financial and retirement planning determine that fee.

Some clients pay a commission, mainly those with smaller accounts, i.e., Roth IRAs, some public-school teachers with 403b retirement accounts, or parents or grandparents who set up a 529 college savings plan.

The first introductory and fact-finding appointment can be in-person or by phone. The next meeting where I provide my recommendations should be in-person. (For the time being, telephone, Zoom, and email are replacing some in-person meetings.)

Subsequent meetings during which we monitor your progress and investments can be done in-person or by phone, email, Zoom, or Skype – or, more likely, a combination of these meeting types.

Contact Tim

Tim has offices in Boston and South Dartmouth, Massachusetts. He’s licensed to handle securities in 8 states: Massachusetts, Rhode Island, New Hampshire, New York, New Jersey, Connecticut, Maine, and Florida.

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