A Tale of Two Families

Mar 8, 2017

A Tale of Two Families


It’s difficult to understand the concept of estate planning in the abstract. Which is why, at our seminars, we use a family, the Jones, to put estate planning into some context. In this article we will follow two families, the Smiths and the Johnsons, to see how estate planning, or a lack thereof, can affect families in the real world.

Let’s pretend that the Smiths and the Johnsons are very similar families: husband and wife, married for many years, in their sixties, with three grown children. Both Mr. & Mrs. Smith and Mr. & Mrs. Johnson have done well for themselves, now owning homes with little to no debt and having significant financial assets in the form of bank accounts, investment accounts, IRAs, and some life insurance. All told, each family has an estate in the neighborhood of $1.5 million, including real estate, financial assets, and life insurance. The major difference between the two families, however, is that the Smiths have done estate planning and the Johnsons “never got around to it”.

Image result for FamilyThe Smiths and the Johnsons stay well and live into their eighties but, as happens, they pass away, leaving their children to handle things. The Smiths’ children, knowing that they had done estate planning but not knowing all the particulars, visit their estate planning attorney. The children are happy to learn a few things. First, because assets were put in trust, there is no need for any probate. Instead, the person named in the trust as successor to Mr. & Mrs. Smith will be able to sign a simple form and use that form to sell the real estate, if desired, and access the bank accounts or other financial assets. Second, the children are happy to learn that there is no estate tax due because of assets being held in trust. The children leave the meeting happy that there will be very limited time and expense related to settling their parents’ estate.

Things do not go so well, however, when the Johnson children meet with the attorney. Instead of having assets in trust, the Johnsons, like many married couples, held everything jointly. As a result, there is now no living owner of the real estate or other financial assets. This means that these assets will have to be probated. The cost to probate these assets, between filing fees, attorneys’ fees, and publication fees will be many thousands of dollars. It will also take many months, if not longer, to complete the probate. This doesn’t sound so bad, think the children, but then the attorney delivers the really bad news. In Massachusetts, estates valued at more than $1 million are subject to estate tax. The Johnsons passed away with an estate of around $1.5 million, which equates to a roughly $65,000.00 tax. This tax is due within nine months of the last of Mr. & Mrs. Johnson to pass, so if the probate isn’t complete by then, the children will have to come up with funds to pay the tax on their own. The Johnson children leave the meeting decidedly less happy than the Smith children, knowing they have an expensive and time-consuming process ahead of them. They wonder why their parents didn’t do some planning and vow not to leave their own children with a similar mess.

Let’s recap: while living, the Smiths established a trust to hold title to their real estate and financial assets. The attorney who did this was also aware of the Massachusetts estate tax and therefore included provisions in the Smiths’ trust to help minimize their estate tax liability. This planning accomplished two things: it prevented the time and expense connected to probate and it saved $65,000.00 for the children. The Johnsons, on the other hand, did no planning, thereby subjecting all of their joint assets to probate and exposing their estate to a large tax burden.

We hope that this illustrates the importance of estate planning. Even estates that do not have estate tax exposure can benefit from a trust or other estate planning strategies. Regardless of the size of your family or your assets, the most important step is meeting with an attorney to understand where you stand and how you can most easily pass on your assets.

Attorney Michael Coleman is a member of the American Academy of Estate Planning Attorneys. Lantz Law, Inc. has served the communities of Southcoast, South Shore, Cape Cod and the Islands since 1969.

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