How one couple prioritized conflicting estate planning goals

By Harry S. Margolis

My new clients were an older couple, the wife healthy and the husband, unfortunately, suffering from a progressive neurological disease which confined him to a wheelchair. He needed physical help at the start and end of each day and the level of help, and its cost, was likely to grow as his disease progressed. The couple had their main home in Massachusetts, plus a vacation home in New Hampshire. They had sufficient income and savings to cover their current living expenses, but they could be depleted if the husband needed extensive care over a long period of time. Much of their savings was in tax-deferred retirement accounts.

The couple had four adult children, one of whom used the vacation home more than the others.

Goals

They had a number of goals, including:

• Providing the best possible care for the husband.
• Making sure the wife had sufficient resources for her needs for the rest of her life.
• Treating their children equally.
• Preserving the vacation home for the child who cares most about it.
• Avoiding probate, especially a second probate administration in the state where the vacation house is located.
• Avoiding estate taxes. (In Massachusetts, threshold is $1 million. Their total estate was then $1.5 million, but spending on the husband’s care could have quickly depleted this.)
• Staying in their home.
• Reducing income taxes.

Some of these goals were at cross purposes. Steps to preserve their home and vacation property could make the equity unavailable to pay for the husband’s care or the wife’s support. Making sure that the vacation house goes to the one child who currently uses it, could mean that he gets a bigger share of the estate than his siblings. As we talked it became apparent that the couple probably could not achieve all of their goals.

 Prioritizing

So, how did we help the couple decide among their competing priorities? The process became difficult when it turned out the couple’s priorities were not the same and the wife had difficulty recognizing that she could not necessarily have everything that she wanted. So we started by clarifying priorities and asked the spouse to separately rank his and goals. Here were the results:

 Wife

• Providing the best possible care for the husband.
• Preserving the vacation home for the child who cares most about it.
• Making sure she has sufficient resources for her needs for the rest of her life.
• Staying in their home.
• Reducing income taxes.
• Treating their children equally.
• Avoiding probate, especially a second probate administration in the state where the vacation house is located.
• Avoiding estate taxes.

Husband

• Providing the best possible care for himself.
• Staying in their home.
• Making sure the wife has sufficient resources for her needs for the rest of her life.
• Treating their children equally.
• Reduce income taxes.
• Preserving the vacation home for the child who cares most about it.
• Avoiding probate, especially a second probate administration in the state where the vacation house is located.
• Avoiding estate taxes.

Merging Goals

As you can see, while the couple had the same primary goal – taking care of the husband – and the same disregard for probate and estate tax returns, their other goals were inconsistent, the wife prioritizing preservation of the vacation home for her son, a goal which fell to sixth place for the husband. We thought it might help to give the priorities points based on how each spouse ranked them. Here are the results:

• Providing the best possible care for himself. (16)
• Staying in their home. (12)
• Making sure the wife has sufficient resources for her needs for the rest of her life. (12)
• Preserving the vacation home for the child who cares most about it. (10)
• Treating their children equally. (9)
• Reduce income taxes. (8)
• Avoiding probate, especially a second probate administration in the state where the  vacation house is located. (4)
• Avoiding estate taxes. (2)

The Results

This ranking helped us make a plan with the following elements:

1. The couple would spend down their assets in the following order: first, their savings and retirement plans; second, they would sell their vacation home if necessary; and, third, the equity in their home.
2. They would divide their estate equally among their children, except that if they still owned the vacation home, it would  go to the son who favored it as his share of the estate. This would be the case even if the vacation home exceeded his equal one fourth share of their ultimate estate.
3. While avoiding probate was a low priority, we also prepared revocable trusts for their property in order to avoid this future cost and to provide for management of the couple’s property should they become incompetent.

Finally, we recommended that we review this plan in a few years to see if their goals change in the light of their changing physical and financial situations.