Advisor Newsletter
Next in Line
A weekly newsletter for advisors, covering the practical yet consequential interaction between estate planning and family dynamics.
Most recent issues:
The family business with no successor
Richard has spent 35 years building a regional distribution company now worth $30 million. His daughter Caroline works in the business and wants to lead it. His son William is a doctor who has never had any interest in joining the company.
Richard wants to treat his children fairly. But leaving each child half the business could give Caroline responsibility without control, while leaving William with an illiquid investment he never wanted. Selling the company would solve the ownership problem, but Richard isn’t ready to give up what he has built.
For advisors, this is a distinct succession challenge: how to transition control, allocate economic value and preserve family wealth when the next generation does not share the same ambitions.
Ownership vs. Management
The first question is: what does the family want the business to become?
If Caroline is the intended successor, Richard could transfer control to her while providing William with other assets.
Alternatively, William could retain a non-controlling economic interest, with Caroline managing the company. That structure, however, requires careful attention to distributions, governance, transfer restrictions and exit rights.
If neither child wants to operate the business, Richard must consider a different set of options:
He could recruit professional management, pursue a buyout or sell to a strategic buyer or private equity firm.
Each path has implications for valuation, transaction timing, employee continuity and the family’s exposure to future business risk.
The right structure depends on the company’s governance, the successor’s capabilities, the family’s liquidity needs and, ultimately, Richard’s willingness to relinquish control.
How do you equalize each child’s inheritance?
Suppose Caroline receives the company, while William receives other assets. If the business represents most of Richard’s $40 million estate, there may not be enough liquid wealth to balance the inheritances.
Several strategies may help bridge the gap:
Life insurance. Liquidity can help offset the value of the business passing to the active child.
Lifetime transfers. Richard could transfer some business interests to Caroline during life, potentially using gift and estate tax exemption.
Installment arrangements or a partial sale. The company or successor may be able to fund a buyout over time.
Trust planning. A trust may separate voting control from beneficial interests or provide for different economic interests among descendants.
Meanwhile, equal value on paper does not necessarily mean equal economic outcomes. One child may receive a concentrated, illiquid business interest with substantial upside and downside; the other may receive diversified, marketable assets. Ultimately, the family must decide whether it wants to equalize current value, provide comparable long-term opportunities or prioritize the continued success of the business.
Planning for the future
An estate plan reflecting the intended ownership transition requires a lot of advanced coordination:
This may include: the will and revocable trust, shareholder agreements, buy-sell provisions, voting arrangements and any existing restrictions on transfers.
The documents may address incapacity as well as death, and anticipate what happens if the intended successor changes their mind, becomes unable to serve or later wants to sell.
The tax analysis is part of the equation as well:
A lifetime gift may remove future appreciation from the founder’s taxable estate, but gifted assets generally carry over a transferred basis, while inherited assets may qualify for a step-up in basis.
A sale may trigger capital gains, and certain transactions may offer installment-sale treatment or other planning opportunities depending on the structure.
If no family member wants the business, the planning horizon becomes equally important. A founder who prepares the company for a third-party sale while still active may have substantially more flexibility than one whose heirs must sell under pressure.
For advisors, a central question is more than simply who will inherit the business: it’s whether the family has a credible plan for who will control it, how the other beneficiaries will receive value and how the transition will be funded. Those decisions should be made now, while the founder still has the time and leverage to make them.
Forwarded this email?
Interested in partnering with Herbie on estate planning for your clients?
Next in Line is a weekly newsletter for advisors, brought to you by Herbie, covering the practical yet consequential interaction between estate planning and family dynamics.
About Herbie: Herbie is an AI-native estate planning law firm and technology company built by veterans of the nation’s most prestigious law firms. Herbie functions as an estate planning team for RIAs and other financial professionals, and provides legal services to advisors’ clients nationally through its own estate planning law firm, Herbie Legal. Learn more at herbieplan.com.
About the Author: Michael Moritz is the co-founder of Herbie and Managing Partner of Herbie Legal. A veteran of some of the nation’s most prestigious law firms (Skadden, McDermott and Paul Weiss), Michael continues to practice as an estate planning attorney through Herbie Legal, Herbie’s dedicated law firm. Michael’s career has included crafting estate plans for billionaires, representing public companies and even a sovereign nation in high-stakes federal lawsuits, and personally arguing and winning a case before New York’s highest court. A seasoned genealogist, Michael has lectured and written extensively about family history research and related familial dynamics. Michael otherwise loves exploring the world (been to 40+ countries), eating at whatever restaurant his wife discovers next, and contemplating whether to make his son a Mets fan or spare him the suffering.
Read the full article
Should your client’s kids ever get their inheritance outright?
David and Sarah have three children: Emily, 34; Daniel, 31; and Sophie, 27.
Their revocable trust leaves everything to their children in separate trusts designed to last for each child's lifetime.
David understands the rationale. A trust can protect an inheritance from creditors, divorce, poor financial decisions and other risks.
But Emily is a successful physician. Daniel has a young family and manages his finances responsibly. Sophie owns a growing business.
David's question is simple:
If they're responsible adults at 40, why shouldn't they just get the money?
It is a fundamental estate-planning choice: Should a child's inheritance remain in trust for life, or should the trust eventually end and distribute the assets outright?
The Case for Letting Go
An age-based trust recognizes that, at some point, the inheritance belongs to the child.
A client may feel that a responsible 35- or 40-year-old should have complete control over their inheritance. Distributing assets outright eliminates trustee involvement and ongoing trust administration.
A common structure is to distribute portions at ages ranging from between 25 and 40.
The problem is that age is an imperfect proxy for judgment.
A 40-year-old can still face creditors, divorce, a lawsuit, financial problems or other circumstances the parents could not have anticipated.
Once the assets are distributed outright, the trust's protections generally disappear.
The tradeoff is straightforward: simplicity and autonomy in exchange for continuing protection.
Why Keep the Trust for Life?
A lifetime trust takes the opposite approach: the inheritance remains protected for as long as the child lives.
The child can still have substantial control. Depending on the trust's design, the beneficiary may eventually become trustee or otherwise have significant authority over the assets. But the assets remain in trust rather than becoming the beneficiary's outright property.
That can preserve protection against certain creditors and divorce claims, maintain separation between inherited assets and the beneficiary's own property, and potentially allow wealth to remain protected for future generations.
One downside is complexity. Lifetime trusts require continuing administration and can involve trustee fees, accounting, tax filings, and more family involvement.
There is also a philosophical question: does a client really want to tell a 55-year-old child that they cannot own their inheritance outright because of a decision made when that client was 10?
What Is the Client Actually Trying to Protect?
The most useful question for an advisor should be:
Why do we want the trust to exist in the first place?
If the concern is simply that a 22-year-old might spend a large inheritance too quickly, an age-based trust may accomplish the client's goal.
If the concern is creditors, divorce, financial vulnerability, estate taxes or preserving wealth for grandchildren, the rationale for a lifetime trust may extend much further.
Ultimately, the choices aren't binary. A distribution at 35 is a decision to trade continuing protection for outright ownership. Meanwhile, a lifetime trust makes the opposite tradeoff.
A plan can distribute some assets outright at a certain age while keeping the balance in a lifetime trust.
It can also give a beneficiary increasing control without giving them outright ownership.
For advisors, there’s a practical takeaway: When reviewing a client's trust, don't just ask where the assets go; ask when does the trust end, and why.
Once you understand what problem the client is trying to solve for, the answer becomes more clear.
Forwarded this email?
Interested in partnering with Herbie on estate planning for your clients?
Next in Line is a weekly newsletter for advisors, brought to you by Herbie, covering the practical yet consequential interaction between estate planning and family dynamics.
About Herbie: Herbie is an estate planning platform built by veterans of the nation’s most prestigious law firms that functions as financial professionals’ estate planning legal team. Herbie services clients nationally through its own estate planning law firm, while providing consulting, lead generation and value-added services to professional advisors. Learn more about Herbie at herbieplan.com.
About the Author: Michael Moritz is the co-founder of Herbie. A veteran of some of the nation’s most prestigious law firms (Skadden, McDermott and Paul Weiss), Michael continues to practice as an estate planning attorney through Herbie Legal, Herbie’s dedicated law firm. Michael’s career has included crafting estate plans for billionaires, representing public companies and even a sovereign nation in high-stakes federal lawsuits, and personally arguing and winning a case before New York’s highest court. A seasoned genealogist, Michael has lectured and written extensively about family history research and related familial dynamics. Michael otherwise loves exploring the world (been to 40+ countries), eating at whatever restaurant his wife discovers next, and contemplating whether to make his son a Mets fan or spare him the suffering.
Read the full article
The problem with "everything is jointly owned"
Tim and Janice were married for 30 years. Like many couples, they always kept things simple: their brokerage account was joint, their bank accounts were joint, their home was jointly owned, and their investment accounts named the survivor as beneficiary.
They had accumulated substantial wealth, and their estate plan relied on a credit shelter trust to protect assets from estate tax.
Then Tim passed away, and Janice and her advisor learned that the estate plan could not be funded as expected. Why?
Because the assets were not owned in a way that allowed the credit shelter trust to be funded.
Two trusts, two approaches
Older folks will sometimes refer to a “bypass trust” or “A/B trust.” Those terms are still familiar, but they don't really capture the planning issue.
The more useful distinction is between a credit shelter trust (CST) and a disclaimer trust—and, especially, how each one gets funded:
Credit Shelter Trust:
Designed to use the first spouse's estate tax exemption at death.
When Tim dies, assets included in his estate and passing under his estate plan can pass into a trust for Janice and, ultimately, their descendants, up to the amount specified by the trust's funding formula.
Disclaimer Trust:
Gives the surviving spouse a post-death choice.
Tim's assets initially pass to Janice, but Janice can disclaim some or all of what she receives, causing the disclaimed property to pass into a trust instead, assuming the requirements for a qualified disclaimer are satisfied.
The key differences:
A CST is designed to be funded under the estate plan.
A disclaimer trust gives the surviving spouse a choice after the first death.
A CST requires the decedent to own assets that can actually pass into the trust.
A disclaimer trust can provide more flexibility when assets would otherwise pass to the surviving spouse.
The funding problem that often gets missed
Here's the issue with Tim and Janice's perfectly ordinary ownership structure:
If everything is jointly owned with rights of survivorship, much of the property may pass automatically to Janice when Tim dies.
Likewise, assets with a TOD designation naming Janice generally pass according to that designation rather than through Tim's probate estate.
That can leave Tim's estate with very little property available to fund a CST.
Said differently, the trust agreement can say “fund the credit shelter trust,” but someone still needs to own an interest that can actually pass into the trust.
For a couple who wants a CST to be funded at the first death, that often means deliberately segregating assets between spouses during life—separate investment accounts, appropriate beneficiary designations and other ownership changes.
Meanwhile, a disclaimer trust can be easier to reconcile with an “everything is joint” household. After Tim's death, Janice can decide whether to disclaim assets into the trust, assuming the technical requirements for a qualified disclaimer are satisfied.
That flexibility can be valuable, but it also means the planning decision happens after the first death and must be executed correctly—at a time when the surviving spouse may be grieving, and potentially unable to make the decision herself.
What should the advisor ask?
Neither structure is universally better, but there are fundamental concepts to understand:
A CST provides certainty: the first spouse's exemption can be used without requiring the survivor to make a decision later. It can also preserve control over the ultimate beneficiaries and keep future appreciation in the trust outside the survivor's estate.
A disclaimer trust provides flexibility: the surviving spouse can make the decision based on the family's circumstances, wealth and tax exposure at the time of the first death.
But the advisor should ask one question before assuming either plan works:
“What assets are actually going to fund the trust?”
For couples who have spent decades making everything joint, that question can be more important than the trust provisions themselves.
Because if everything is still owned jointly at the death of the first spouse, and the property passes by operation of the form of ownership or by beneficiary designation to the surviving spouse, it generally isn't available to fund the CST. (In that case, we may use a disclaimer trust as a backup option to catch property that otherwise passes to the survivor.)
Ultimately, the estate plan is a combination of (a) the documents and (b) the way the assets are owned and titled.
We need an understanding of both to make sure the plan actually works.
And if the plan calls for a CST, those pieces need to be coordinated now.
Forwarded this email?
Interested in partnering with Herbie on estate planning for your clients?
Next in Line is a weekly newsletter for advisors, brought to you by Herbie, covering the practical yet consequential interaction between estate planning and family dynamics.
About Herbie: Herbie is an AI-native estate planning law firm and technology company built by veterans of the nation’s most prestigious law firms. Herbie functions as an estate planning team for RIAs and other financial professionals, and provides legal services to advisors’ clients nationally through its own estate planning law firm, Herbie Legal. Learn more at herbieplan.com.
About the Author: Michael Moritz is the co-founder of Herbie and Managing Partner of Herbie Legal. A veteran of some of the nation’s most prestigious law firms (Skadden, McDermott and Paul Weiss), Michael continues to practice as an estate planning attorney through Herbie Legal, Herbie’s dedicated law firm. Michael’s career has included crafting estate plans for billionaires, representing public companies and even a sovereign nation in high-stakes federal lawsuits, and personally arguing and winning a case before New York’s highest court. A seasoned genealogist, Michael has lectured and written extensively about family history research and related familial dynamics. Michael otherwise loves exploring the world (been to 40+ countries), eating at whatever restaurant his wife discovers next, and contemplating whether to make his son a Mets fan or spare him the suffering.
Read the full article
The vacation home that nobody wants to inherit
Daniel and Susan had owned their house on Cape Cod for nearly 30 years. They bought it when their children, Emma and Jack, were young. Summers there were filled with lobster dinners, beach days, birthday parties and enough family photographs to fill several albums.
Now Daniel and Susan are in their late seventies. The house is worth about $2.5 million, with no mortgage.
They have one goal: keep the house in the family.
Their children have a different goal: not to own the house.
Emma lives in South Carolina. Jack lives in Denver. They chose different paths from their parents. Neither particularly wants a second home. More importantly, neither wants the taxes, insurance, maintenance, repairs and logistical headaches that come with one.
But neither child wants to tell their parents.
What does “keep it in the family” mean?
Daniel and Susan's instinct was straightforward: leave the house equally to Emma and Jack. That solved the inheritance question, but it didn’t solve the logistical question:
Who gets July 4th?
Who pays for the new roof?
What happens when one sibling wants to sell and the other refuses?
Can one sibling rent the property?
Who decides whether to renovate the kitchen?
And there is a more fundamental question: what happens if one child wants out?
A common estate planning response is to put the home into a trust or LLC and establish rules for its future use. That can be useful, but it can also formalize a problem that the family has not actually resolved: who wants the house?
Before recommending a structure, the advisor should encourage the parents to have the uncomfortable conversation: Do the children actually want this asset? The answer may be no—and that does not mean they do not love their parents or value what the house represents.
Parents often use “keep it in the family” as shorthand for something more specific. Maybe Daniel and Susan want their grandchildren to have the same summers their children had. Maybe they want the house to remain a gathering place. Maybe selling it feels like selling part of the family's history.
There are several ways to accomplish these goals:
Leave the house to the children, with an agreement governing use, expenses and a potential buyout.
Establish a trust with detailed provisions addressing occupancy, expenses, maintenance and sale rights.
Create an LLC, which can provide a more familiar framework for shared ownership and governance.
But sometimes the best answer is not to transfer the house at all.
Daniel and Susan could retain ownership during their lifetimes and establish a plan for its eventual sale, while using some of the proceeds to benefit their children and grandchildren.
Or they could give the children a defined option to purchase the property at death.
The tax consequences matter, too. The income-tax basis of the property, estate-tax exposure, gift-tax consequences, property-tax rules and state-specific considerations can all affect whether transferring the property during life actually makes sense.
Thus, the first question is not “what’s the structure?” but rather, what outcome does everyone really want?
Don't turn a family memory into a family obligation
If the children genuinely want the house, the family can build a structure that makes ownership workable. But if the children do not want it, Daniel and Susan should know that before the property becomes an inheritance.
And if the parents' true goal is preserving the family tradition rather than preserving the actual real estate, there may be other ways to accomplish that:
Sell the house and establish a family vacation fund.
Reserve funds for future generations to rent a similar property.
Create a trust designed to fund family gatherings rather than requiring the family to own the underlying asset.
The best estate plan may ultimately preserve the experience, not the house.
For advisors, that distinction is important. When a client says, “I want my children to have this forever,” the next question may reasonably be: Have your children told you they want it?
That conversation may be uncomfortable, but it is considerably easier than leaving two siblings a $2.5 million house and asking them to figure it out themselves.
Forwarded this email?
Interested in partnering with Herbie on estate planning for your clients?
Next in Line is a weekly newsletter for advisors, brought to you by Herbie, covering the practical yet consequential interaction between estate planning and family dynamics.
About Herbie: Herbie is an estate planning platform built by veterans of the nation’s most prestigious law firms that functions as financial professionals’ estate planning legal team. Herbie services clients nationally through its own estate planning law firm, while providing consulting, lead generation and value-added services to professional advisors. Learn more about Herbie at herbieplan.com.
About the Author: Michael Moritz is the co-founder of Herbie. A veteran of some of the nation’s most prestigious law firms (Skadden, McDermott and Paul Weiss), Michael continues to practice as an estate planning attorney through Herbie Legal, Herbie’s dedicated law firm. Michael’s career has included crafting estate plans for billionaires, representing public companies and even a sovereign nation in high-stakes federal lawsuits, and personally arguing and winning a case before New York’s highest court. A seasoned genealogist, Michael has lectured and written extensively about family history research and related familial dynamics. Michael otherwise loves exploring the world (been to 40+ countries), eating at whatever restaurant his wife discovers next, and contemplating whether to make his son a Mets fan or spare him the suffering.
Read the full article
The family business with no successor
Richard has spent 35 years building a regional distribution company now worth $30 million. His daughter Caroline works in the business and wants to lead it. His son William is a doctor who has never had any interest in joining the company.
Richard wants to treat his children fairly. But leaving each child half the business could give Caroline responsibility without control, while leaving William with an illiquid investment he never wanted. Selling the company would solve the ownership problem, but Richard isn’t ready to give up what he has built.
For advisors, this is a distinct succession challenge: how to transition control, allocate economic value and preserve family wealth when the next generation does not share the same ambitions.
Ownership vs. Management
The first question is: what does the family want the business to become?
If Caroline is the intended successor, Richard could transfer control to her while providing William with other assets.
Alternatively, William could retain a non-controlling economic interest, with Caroline managing the company. That structure, however, requires careful attention to distributions, governance, transfer restrictions and exit rights.
If neither child wants to operate the business, Richard must consider a different set of options:
He could recruit professional management, pursue a buyout or sell to a strategic buyer or private equity firm.
Each path has implications for valuation, transaction timing, employee continuity and the family’s exposure to future business risk.
The right structure depends on the company’s governance, the successor’s capabilities, the family’s liquidity needs and, ultimately, Richard’s willingness to relinquish control.
How do you equalize each child’s inheritance?
Suppose Caroline receives the company, while William receives other assets. If the business represents most of Richard’s $40 million estate, there may not be enough liquid wealth to balance the inheritances.
Several strategies may help bridge the gap:
Life insurance. Liquidity can help offset the value of the business passing to the active child.
Lifetime transfers. Richard could transfer some business interests to Caroline during life, potentially using gift and estate tax exemption.
Installment arrangements or a partial sale. The company or successor may be able to fund a buyout over time.
Trust planning. A trust may separate voting control from beneficial interests or provide for different economic interests among descendants.
Meanwhile, equal value on paper does not necessarily mean equal economic outcomes. One child may receive a concentrated, illiquid business interest with substantial upside and downside; the other may receive diversified, marketable assets. Ultimately, the family must decide whether it wants to equalize current value, provide comparable long-term opportunities or prioritize the continued success of the business.
Planning for the future
An estate plan reflecting the intended ownership transition requires a lot of advanced coordination:
This may include: the will and revocable trust, shareholder agreements, buy-sell provisions, voting arrangements and any existing restrictions on transfers.
The documents may address incapacity as well as death, and anticipate what happens if the intended successor changes their mind, becomes unable to serve or later wants to sell.
The tax analysis is part of the equation as well:
A lifetime gift may remove future appreciation from the founder’s taxable estate, but gifted assets generally carry over a transferred basis, while inherited assets may qualify for a step-up in basis.
A sale may trigger capital gains, and certain transactions may offer installment-sale treatment or other planning opportunities depending on the structure.
If no family member wants the business, the planning horizon becomes equally important. A founder who prepares the company for a third-party sale while still active may have substantially more flexibility than one whose heirs must sell under pressure.
For advisors, a central question is more than simply who will inherit the business: it’s whether the family has a credible plan for who will control it, how the other beneficiaries will receive value and how the transition will be funded. Those decisions should be made now, while the founder still has the time and leverage to make them.
Forwarded this email?
Interested in partnering with Herbie on estate planning for your clients?
Next in Line is a weekly newsletter for advisors, brought to you by Herbie, covering the practical yet consequential interaction between estate planning and family dynamics.
About Herbie: Herbie is an AI-native estate planning law firm and technology company built by veterans of the nation’s most prestigious law firms. Herbie functions as an estate planning team for RIAs and other financial professionals, and provides legal services to advisors’ clients nationally through its own estate planning law firm, Herbie Legal. Learn more at herbieplan.com.
About the Author: Michael Moritz is the co-founder of Herbie and Managing Partner of Herbie Legal. A veteran of some of the nation’s most prestigious law firms (Skadden, McDermott and Paul Weiss), Michael continues to practice as an estate planning attorney through Herbie Legal, Herbie’s dedicated law firm. Michael’s career has included crafting estate plans for billionaires, representing public companies and even a sovereign nation in high-stakes federal lawsuits, and personally arguing and winning a case before New York’s highest court. A seasoned genealogist, Michael has lectured and written extensively about family history research and related familial dynamics. Michael otherwise loves exploring the world (been to 40+ countries), eating at whatever restaurant his wife discovers next, and contemplating whether to make his son a Mets fan or spare him the suffering.
Read the full article
The problem with "everything is jointly owned"
Tim and Janice were married for 30 years. Like many couples, they always kept things simple: their brokerage account was joint, their bank accounts were joint, their home was jointly owned, and their investment accounts named the survivor as beneficiary.
They had accumulated substantial wealth, and their estate plan relied on a credit shelter trust to protect assets from estate tax.
Then Tim passed away, and Janice and her advisor learned that the estate plan could not be funded as expected. Why?
Because the assets were not owned in a way that allowed the credit shelter trust to be funded.
Two trusts, two approaches
Older folks will sometimes refer to a “bypass trust” or “A/B trust.” Those terms are still familiar, but they don't really capture the planning issue.
The more useful distinction is between a credit shelter trust (CST) and a disclaimer trust—and, especially, how each one gets funded:
Credit Shelter Trust:
Designed to use the first spouse's estate tax exemption at death.
When Tim dies, assets included in his estate and passing under his estate plan can pass into a trust for Janice and, ultimately, their descendants, up to the amount specified by the trust's funding formula.
Disclaimer Trust:
Gives the surviving spouse a post-death choice.
Tim's assets initially pass to Janice, but Janice can disclaim some or all of what she receives, causing the disclaimed property to pass into a trust instead, assuming the requirements for a qualified disclaimer are satisfied.
The key differences:
A CST is designed to be funded under the estate plan.
A disclaimer trust gives the surviving spouse a choice after the first death.
A CST requires the decedent to own assets that can actually pass into the trust.
A disclaimer trust can provide more flexibility when assets would otherwise pass to the surviving spouse.
The funding problem that often gets missed
Here's the issue with Tim and Janice's perfectly ordinary ownership structure:
If everything is jointly owned with rights of survivorship, much of the property may pass automatically to Janice when Tim dies.
Likewise, assets with a TOD designation naming Janice generally pass according to that designation rather than through Tim's probate estate.
That can leave Tim's estate with very little property available to fund a CST.
Said differently, the trust agreement can say “fund the credit shelter trust,” but someone still needs to own an interest that can actually pass into the trust.
For a couple who wants a CST to be funded at the first death, that often means deliberately segregating assets between spouses during life—separate investment accounts, appropriate beneficiary designations and other ownership changes.
Meanwhile, a disclaimer trust can be easier to reconcile with an “everything is joint” household. After Tim's death, Janice can decide whether to disclaim assets into the trust, assuming the technical requirements for a qualified disclaimer are satisfied.
That flexibility can be valuable, but it also means the planning decision happens after the first death and must be executed correctly—at a time when the surviving spouse may be grieving, and potentially unable to make the decision herself.
What should the advisor ask?
Neither structure is universally better, but there are fundamental concepts to understand:
A CST provides certainty: the first spouse's exemption can be used without requiring the survivor to make a decision later. It can also preserve control over the ultimate beneficiaries and keep future appreciation in the trust outside the survivor's estate.
A disclaimer trust provides flexibility: the surviving spouse can make the decision based on the family's circumstances, wealth and tax exposure at the time of the first death.
But the advisor should ask one question before assuming either plan works:
“What assets are actually going to fund the trust?”
For couples who have spent decades making everything joint, that question can be more important than the trust provisions themselves.
Because if everything is still owned jointly at the death of the first spouse, and the property passes by operation of the form of ownership or by beneficiary designation to the surviving spouse, it generally isn't available to fund the CST. (In that case, we may use a disclaimer trust as a backup option to catch property that otherwise passes to the survivor.)
Ultimately, the estate plan is a combination of (a) the documents and (b) the way the assets are owned and titled.
We need an understanding of both to make sure the plan actually works.
And if the plan calls for a CST, those pieces need to be coordinated now.
Forwarded this email?
Interested in partnering with Herbie on estate planning for your clients?
Next in Line is a weekly newsletter for advisors, brought to you by Herbie, covering the practical yet consequential interaction between estate planning and family dynamics.
About Herbie: Herbie is an AI-native estate planning law firm and technology company built by veterans of the nation’s most prestigious law firms. Herbie functions as an estate planning team for RIAs and other financial professionals, and provides legal services to advisors’ clients nationally through its own estate planning law firm, Herbie Legal. Learn more at herbieplan.com.
About the Author: Michael Moritz is the co-founder of Herbie and Managing Partner of Herbie Legal. A veteran of some of the nation’s most prestigious law firms (Skadden, McDermott and Paul Weiss), Michael continues to practice as an estate planning attorney through Herbie Legal, Herbie’s dedicated law firm. Michael’s career has included crafting estate plans for billionaires, representing public companies and even a sovereign nation in high-stakes federal lawsuits, and personally arguing and winning a case before New York’s highest court. A seasoned genealogist, Michael has lectured and written extensively about family history research and related familial dynamics. Michael otherwise loves exploring the world (been to 40+ countries), eating at whatever restaurant his wife discovers next, and contemplating whether to make his son a Mets fan or spare him the suffering.
Read the full article
Should your client’s kids ever get their inheritance outright?
David and Sarah have three children: Emily, 34; Daniel, 31; and Sophie, 27.
Their revocable trust leaves everything to their children in separate trusts designed to last for each child's lifetime.
David understands the rationale. A trust can protect an inheritance from creditors, divorce, poor financial decisions and other risks.
But Emily is a successful physician. Daniel has a young family and manages his finances responsibly. Sophie owns a growing business.
David's question is simple:
If they're responsible adults at 40, why shouldn't they just get the money?
It is a fundamental estate-planning choice: Should a child's inheritance remain in trust for life, or should the trust eventually end and distribute the assets outright?
The Case for Letting Go
An age-based trust recognizes that, at some point, the inheritance belongs to the child.
A client may feel that a responsible 35- or 40-year-old should have complete control over their inheritance. Distributing assets outright eliminates trustee involvement and ongoing trust administration.
A common structure is to distribute portions at ages ranging from between 25 and 40.
The problem is that age is an imperfect proxy for judgment.
A 40-year-old can still face creditors, divorce, a lawsuit, financial problems or other circumstances the parents could not have anticipated.
Once the assets are distributed outright, the trust's protections generally disappear.
The tradeoff is straightforward: simplicity and autonomy in exchange for continuing protection.
Why Keep the Trust for Life?
A lifetime trust takes the opposite approach: the inheritance remains protected for as long as the child lives.
The child can still have substantial control. Depending on the trust's design, the beneficiary may eventually become trustee or otherwise have significant authority over the assets. But the assets remain in trust rather than becoming the beneficiary's outright property.
That can preserve protection against certain creditors and divorce claims, maintain separation between inherited assets and the beneficiary's own property, and potentially allow wealth to remain protected for future generations.
One downside is complexity. Lifetime trusts require continuing administration and can involve trustee fees, accounting, tax filings, and more family involvement.
There is also a philosophical question: does a client really want to tell a 55-year-old child that they cannot own their inheritance outright because of a decision made when that client was 10?
What Is the Client Actually Trying to Protect?
The most useful question for an advisor should be:
Why do we want the trust to exist in the first place?
If the concern is simply that a 22-year-old might spend a large inheritance too quickly, an age-based trust may accomplish the client's goal.
If the concern is creditors, divorce, financial vulnerability, estate taxes or preserving wealth for grandchildren, the rationale for a lifetime trust may extend much further.
Ultimately, the choices aren't binary. A distribution at 35 is a decision to trade continuing protection for outright ownership. Meanwhile, a lifetime trust makes the opposite tradeoff.
A plan can distribute some assets outright at a certain age while keeping the balance in a lifetime trust.
It can also give a beneficiary increasing control without giving them outright ownership.
For advisors, there’s a practical takeaway: When reviewing a client's trust, don't just ask where the assets go; ask when does the trust end, and why.
Once you understand what problem the client is trying to solve for, the answer becomes more clear.
Forwarded this email?
Interested in partnering with Herbie on estate planning for your clients?
Next in Line is a weekly newsletter for advisors, brought to you by Herbie, covering the practical yet consequential interaction between estate planning and family dynamics.
About Herbie: Herbie is an estate planning platform built by veterans of the nation’s most prestigious law firms that functions as financial professionals’ estate planning legal team. Herbie services clients nationally through its own estate planning law firm, while providing consulting, lead generation and value-added services to professional advisors. Learn more about Herbie at herbieplan.com.
About the Author: Michael Moritz is the co-founder of Herbie. A veteran of some of the nation’s most prestigious law firms (Skadden, McDermott and Paul Weiss), Michael continues to practice as an estate planning attorney through Herbie Legal, Herbie’s dedicated law firm. Michael’s career has included crafting estate plans for billionaires, representing public companies and even a sovereign nation in high-stakes federal lawsuits, and personally arguing and winning a case before New York’s highest court. A seasoned genealogist, Michael has lectured and written extensively about family history research and related familial dynamics. Michael otherwise loves exploring the world (been to 40+ countries), eating at whatever restaurant his wife discovers next, and contemplating whether to make his son a Mets fan or spare him the suffering.
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The vacation home that nobody wants to inherit
Daniel and Susan had owned their house on Cape Cod for nearly 30 years. They bought it when their children, Emma and Jack, were young. Summers there were filled with lobster dinners, beach days, birthday parties and enough family photographs to fill several albums.
Now Daniel and Susan are in their late seventies. The house is worth about $2.5 million, with no mortgage.
They have one goal: keep the house in the family.
Their children have a different goal: not to own the house.
Emma lives in South Carolina. Jack lives in Denver. They chose different paths from their parents. Neither particularly wants a second home. More importantly, neither wants the taxes, insurance, maintenance, repairs and logistical headaches that come with one.
But neither child wants to tell their parents.
What does “keep it in the family” mean?
Daniel and Susan's instinct was straightforward: leave the house equally to Emma and Jack. That solved the inheritance question, but it didn’t solve the logistical question:
Who gets July 4th?
Who pays for the new roof?
What happens when one sibling wants to sell and the other refuses?
Can one sibling rent the property?
Who decides whether to renovate the kitchen?
And there is a more fundamental question: what happens if one child wants out?
A common estate planning response is to put the home into a trust or LLC and establish rules for its future use. That can be useful, but it can also formalize a problem that the family has not actually resolved: who wants the house?
Before recommending a structure, the advisor should encourage the parents to have the uncomfortable conversation: Do the children actually want this asset? The answer may be no—and that does not mean they do not love their parents or value what the house represents.
Parents often use “keep it in the family” as shorthand for something more specific. Maybe Daniel and Susan want their grandchildren to have the same summers their children had. Maybe they want the house to remain a gathering place. Maybe selling it feels like selling part of the family's history.
There are several ways to accomplish these goals:
Leave the house to the children, with an agreement governing use, expenses and a potential buyout.
Establish a trust with detailed provisions addressing occupancy, expenses, maintenance and sale rights.
Create an LLC, which can provide a more familiar framework for shared ownership and governance.
But sometimes the best answer is not to transfer the house at all.
Daniel and Susan could retain ownership during their lifetimes and establish a plan for its eventual sale, while using some of the proceeds to benefit their children and grandchildren.
Or they could give the children a defined option to purchase the property at death.
The tax consequences matter, too. The income-tax basis of the property, estate-tax exposure, gift-tax consequences, property-tax rules and state-specific considerations can all affect whether transferring the property during life actually makes sense.
Thus, the first question is not “what’s the structure?” but rather, what outcome does everyone really want?
Don't turn a family memory into a family obligation
If the children genuinely want the house, the family can build a structure that makes ownership workable. But if the children do not want it, Daniel and Susan should know that before the property becomes an inheritance.
And if the parents' true goal is preserving the family tradition rather than preserving the actual real estate, there may be other ways to accomplish that:
Sell the house and establish a family vacation fund.
Reserve funds for future generations to rent a similar property.
Create a trust designed to fund family gatherings rather than requiring the family to own the underlying asset.
The best estate plan may ultimately preserve the experience, not the house.
For advisors, that distinction is important. When a client says, “I want my children to have this forever,” the next question may reasonably be: Have your children told you they want it?
That conversation may be uncomfortable, but it is considerably easier than leaving two siblings a $2.5 million house and asking them to figure it out themselves.
Forwarded this email?
Interested in partnering with Herbie on estate planning for your clients?
Next in Line is a weekly newsletter for advisors, brought to you by Herbie, covering the practical yet consequential interaction between estate planning and family dynamics.
About Herbie: Herbie is an estate planning platform built by veterans of the nation’s most prestigious law firms that functions as financial professionals’ estate planning legal team. Herbie services clients nationally through its own estate planning law firm, while providing consulting, lead generation and value-added services to professional advisors. Learn more about Herbie at herbieplan.com.
About the Author: Michael Moritz is the co-founder of Herbie. A veteran of some of the nation’s most prestigious law firms (Skadden, McDermott and Paul Weiss), Michael continues to practice as an estate planning attorney through Herbie Legal, Herbie’s dedicated law firm. Michael’s career has included crafting estate plans for billionaires, representing public companies and even a sovereign nation in high-stakes federal lawsuits, and personally arguing and winning a case before New York’s highest court. A seasoned genealogist, Michael has lectured and written extensively about family history research and related familial dynamics. Michael otherwise loves exploring the world (been to 40+ countries), eating at whatever restaurant his wife discovers next, and contemplating whether to make his son a Mets fan or spare him the suffering.
Read the full article
The family business with no successor
Richard has spent 35 years building a regional distribution company now worth $30 million. His daughter Caroline works in the business and wants to lead it. His son William is a doctor who has never had any interest in joining the company.
Richard wants to treat his children fairly. But leaving each child half the business could give Caroline responsibility without control, while leaving William with an illiquid investment he never wanted. Selling the company would solve the ownership problem, but Richard isn’t ready to give up what he has built.
For advisors, this is a distinct succession challenge: how to transition control, allocate economic value and preserve family wealth when the next generation does not share the same ambitions.
Ownership vs. Management
The first question is: what does the family want the business to become?
If Caroline is the intended successor, Richard could transfer control to her while providing William with other assets.
Alternatively, William could retain a non-controlling economic interest, with Caroline managing the company. That structure, however, requires careful attention to distributions, governance, transfer restrictions and exit rights.
If neither child wants to operate the business, Richard must consider a different set of options:
He could recruit professional management, pursue a buyout or sell to a strategic buyer or private equity firm.
Each path has implications for valuation, transaction timing, employee continuity and the family’s exposure to future business risk.
The right structure depends on the company’s governance, the successor’s capabilities, the family’s liquidity needs and, ultimately, Richard’s willingness to relinquish control.
How do you equalize each child’s inheritance?
Suppose Caroline receives the company, while William receives other assets. If the business represents most of Richard’s $40 million estate, there may not be enough liquid wealth to balance the inheritances.
Several strategies may help bridge the gap:
Life insurance. Liquidity can help offset the value of the business passing to the active child.
Lifetime transfers. Richard could transfer some business interests to Caroline during life, potentially using gift and estate tax exemption.
Installment arrangements or a partial sale. The company or successor may be able to fund a buyout over time.
Trust planning. A trust may separate voting control from beneficial interests or provide for different economic interests among descendants.
Meanwhile, equal value on paper does not necessarily mean equal economic outcomes. One child may receive a concentrated, illiquid business interest with substantial upside and downside; the other may receive diversified, marketable assets. Ultimately, the family must decide whether it wants to equalize current value, provide comparable long-term opportunities or prioritize the continued success of the business.
Planning for the future
An estate plan reflecting the intended ownership transition requires a lot of advanced coordination:
This may include: the will and revocable trust, shareholder agreements, buy-sell provisions, voting arrangements and any existing restrictions on transfers.
The documents may address incapacity as well as death, and anticipate what happens if the intended successor changes their mind, becomes unable to serve or later wants to sell.
The tax analysis is part of the equation as well:
A lifetime gift may remove future appreciation from the founder’s taxable estate, but gifted assets generally carry over a transferred basis, while inherited assets may qualify for a step-up in basis.
A sale may trigger capital gains, and certain transactions may offer installment-sale treatment or other planning opportunities depending on the structure.
If no family member wants the business, the planning horizon becomes equally important. A founder who prepares the company for a third-party sale while still active may have substantially more flexibility than one whose heirs must sell under pressure.
For advisors, a central question is more than simply who will inherit the business: it’s whether the family has a credible plan for who will control it, how the other beneficiaries will receive value and how the transition will be funded. Those decisions should be made now, while the founder still has the time and leverage to make them.
Forwarded this email?
Interested in partnering with Herbie on estate planning for your clients?
Next in Line is a weekly newsletter for advisors, brought to you by Herbie, covering the practical yet consequential interaction between estate planning and family dynamics.
About Herbie: Herbie is an AI-native estate planning law firm and technology company built by veterans of the nation’s most prestigious law firms. Herbie functions as an estate planning team for RIAs and other financial professionals, and provides legal services to advisors’ clients nationally through its own estate planning law firm, Herbie Legal. Learn more at herbieplan.com.
About the Author: Michael Moritz is the co-founder of Herbie and Managing Partner of Herbie Legal. A veteran of some of the nation’s most prestigious law firms (Skadden, McDermott and Paul Weiss), Michael continues to practice as an estate planning attorney through Herbie Legal, Herbie’s dedicated law firm. Michael’s career has included crafting estate plans for billionaires, representing public companies and even a sovereign nation in high-stakes federal lawsuits, and personally arguing and winning a case before New York’s highest court. A seasoned genealogist, Michael has lectured and written extensively about family history research and related familial dynamics. Michael otherwise loves exploring the world (been to 40+ countries), eating at whatever restaurant his wife discovers next, and contemplating whether to make his son a Mets fan or spare him the suffering.
Read the full article
Should your client’s kids ever get their inheritance outright?
David and Sarah have three children: Emily, 34; Daniel, 31; and Sophie, 27.
Their revocable trust leaves everything to their children in separate trusts designed to last for each child's lifetime.
David understands the rationale. A trust can protect an inheritance from creditors, divorce, poor financial decisions and other risks.
But Emily is a successful physician. Daniel has a young family and manages his finances responsibly. Sophie owns a growing business.
David's question is simple:
If they're responsible adults at 40, why shouldn't they just get the money?
It is a fundamental estate-planning choice: Should a child's inheritance remain in trust for life, or should the trust eventually end and distribute the assets outright?
The Case for Letting Go
An age-based trust recognizes that, at some point, the inheritance belongs to the child.
A client may feel that a responsible 35- or 40-year-old should have complete control over their inheritance. Distributing assets outright eliminates trustee involvement and ongoing trust administration.
A common structure is to distribute portions at ages ranging from between 25 and 40.
The problem is that age is an imperfect proxy for judgment.
A 40-year-old can still face creditors, divorce, a lawsuit, financial problems or other circumstances the parents could not have anticipated.
Once the assets are distributed outright, the trust's protections generally disappear.
The tradeoff is straightforward: simplicity and autonomy in exchange for continuing protection.
Why Keep the Trust for Life?
A lifetime trust takes the opposite approach: the inheritance remains protected for as long as the child lives.
The child can still have substantial control. Depending on the trust's design, the beneficiary may eventually become trustee or otherwise have significant authority over the assets. But the assets remain in trust rather than becoming the beneficiary's outright property.
That can preserve protection against certain creditors and divorce claims, maintain separation between inherited assets and the beneficiary's own property, and potentially allow wealth to remain protected for future generations.
One downside is complexity. Lifetime trusts require continuing administration and can involve trustee fees, accounting, tax filings, and more family involvement.
There is also a philosophical question: does a client really want to tell a 55-year-old child that they cannot own their inheritance outright because of a decision made when that client was 10?
What Is the Client Actually Trying to Protect?
The most useful question for an advisor should be:
Why do we want the trust to exist in the first place?
If the concern is simply that a 22-year-old might spend a large inheritance too quickly, an age-based trust may accomplish the client's goal.
If the concern is creditors, divorce, financial vulnerability, estate taxes or preserving wealth for grandchildren, the rationale for a lifetime trust may extend much further.
Ultimately, the choices aren't binary. A distribution at 35 is a decision to trade continuing protection for outright ownership. Meanwhile, a lifetime trust makes the opposite tradeoff.
A plan can distribute some assets outright at a certain age while keeping the balance in a lifetime trust.
It can also give a beneficiary increasing control without giving them outright ownership.
For advisors, there’s a practical takeaway: When reviewing a client's trust, don't just ask where the assets go; ask when does the trust end, and why.
Once you understand what problem the client is trying to solve for, the answer becomes more clear.
Forwarded this email?
Interested in partnering with Herbie on estate planning for your clients?
Next in Line is a weekly newsletter for advisors, brought to you by Herbie, covering the practical yet consequential interaction between estate planning and family dynamics.
About Herbie: Herbie is an estate planning platform built by veterans of the nation’s most prestigious law firms that functions as financial professionals’ estate planning legal team. Herbie services clients nationally through its own estate planning law firm, while providing consulting, lead generation and value-added services to professional advisors. Learn more about Herbie at herbieplan.com.
About the Author: Michael Moritz is the co-founder of Herbie. A veteran of some of the nation’s most prestigious law firms (Skadden, McDermott and Paul Weiss), Michael continues to practice as an estate planning attorney through Herbie Legal, Herbie’s dedicated law firm. Michael’s career has included crafting estate plans for billionaires, representing public companies and even a sovereign nation in high-stakes federal lawsuits, and personally arguing and winning a case before New York’s highest court. A seasoned genealogist, Michael has lectured and written extensively about family history research and related familial dynamics. Michael otherwise loves exploring the world (been to 40+ countries), eating at whatever restaurant his wife discovers next, and contemplating whether to make his son a Mets fan or spare him the suffering.
Read the full article
The problem with "everything is jointly owned"
Tim and Janice were married for 30 years. Like many couples, they always kept things simple: their brokerage account was joint, their bank accounts were joint, their home was jointly owned, and their investment accounts named the survivor as beneficiary.
They had accumulated substantial wealth, and their estate plan relied on a credit shelter trust to protect assets from estate tax.
Then Tim passed away, and Janice and her advisor learned that the estate plan could not be funded as expected. Why?
Because the assets were not owned in a way that allowed the credit shelter trust to be funded.
Two trusts, two approaches
Older folks will sometimes refer to a “bypass trust” or “A/B trust.” Those terms are still familiar, but they don't really capture the planning issue.
The more useful distinction is between a credit shelter trust (CST) and a disclaimer trust—and, especially, how each one gets funded:
Credit Shelter Trust:
Designed to use the first spouse's estate tax exemption at death.
When Tim dies, assets included in his estate and passing under his estate plan can pass into a trust for Janice and, ultimately, their descendants, up to the amount specified by the trust's funding formula.
Disclaimer Trust:
Gives the surviving spouse a post-death choice.
Tim's assets initially pass to Janice, but Janice can disclaim some or all of what she receives, causing the disclaimed property to pass into a trust instead, assuming the requirements for a qualified disclaimer are satisfied.
The key differences:
A CST is designed to be funded under the estate plan.
A disclaimer trust gives the surviving spouse a choice after the first death.
A CST requires the decedent to own assets that can actually pass into the trust.
A disclaimer trust can provide more flexibility when assets would otherwise pass to the surviving spouse.
The funding problem that often gets missed
Here's the issue with Tim and Janice's perfectly ordinary ownership structure:
If everything is jointly owned with rights of survivorship, much of the property may pass automatically to Janice when Tim dies.
Likewise, assets with a TOD designation naming Janice generally pass according to that designation rather than through Tim's probate estate.
That can leave Tim's estate with very little property available to fund a CST.
Said differently, the trust agreement can say “fund the credit shelter trust,” but someone still needs to own an interest that can actually pass into the trust.
For a couple who wants a CST to be funded at the first death, that often means deliberately segregating assets between spouses during life—separate investment accounts, appropriate beneficiary designations and other ownership changes.
Meanwhile, a disclaimer trust can be easier to reconcile with an “everything is joint” household. After Tim's death, Janice can decide whether to disclaim assets into the trust, assuming the technical requirements for a qualified disclaimer are satisfied.
That flexibility can be valuable, but it also means the planning decision happens after the first death and must be executed correctly—at a time when the surviving spouse may be grieving, and potentially unable to make the decision herself.
What should the advisor ask?
Neither structure is universally better, but there are fundamental concepts to understand:
A CST provides certainty: the first spouse's exemption can be used without requiring the survivor to make a decision later. It can also preserve control over the ultimate beneficiaries and keep future appreciation in the trust outside the survivor's estate.
A disclaimer trust provides flexibility: the surviving spouse can make the decision based on the family's circumstances, wealth and tax exposure at the time of the first death.
But the advisor should ask one question before assuming either plan works:
“What assets are actually going to fund the trust?”
For couples who have spent decades making everything joint, that question can be more important than the trust provisions themselves.
Because if everything is still owned jointly at the death of the first spouse, and the property passes by operation of the form of ownership or by beneficiary designation to the surviving spouse, it generally isn't available to fund the CST. (In that case, we may use a disclaimer trust as a backup option to catch property that otherwise passes to the survivor.)
Ultimately, the estate plan is a combination of (a) the documents and (b) the way the assets are owned and titled.
We need an understanding of both to make sure the plan actually works.
And if the plan calls for a CST, those pieces need to be coordinated now.
Forwarded this email?
Interested in partnering with Herbie on estate planning for your clients?
Next in Line is a weekly newsletter for advisors, brought to you by Herbie, covering the practical yet consequential interaction between estate planning and family dynamics.
About Herbie: Herbie is an AI-native estate planning law firm and technology company built by veterans of the nation’s most prestigious law firms. Herbie functions as an estate planning team for RIAs and other financial professionals, and provides legal services to advisors’ clients nationally through its own estate planning law firm, Herbie Legal. Learn more at herbieplan.com.
About the Author: Michael Moritz is the co-founder of Herbie and Managing Partner of Herbie Legal. A veteran of some of the nation’s most prestigious law firms (Skadden, McDermott and Paul Weiss), Michael continues to practice as an estate planning attorney through Herbie Legal, Herbie’s dedicated law firm. Michael’s career has included crafting estate plans for billionaires, representing public companies and even a sovereign nation in high-stakes federal lawsuits, and personally arguing and winning a case before New York’s highest court. A seasoned genealogist, Michael has lectured and written extensively about family history research and related familial dynamics. Michael otherwise loves exploring the world (been to 40+ countries), eating at whatever restaurant his wife discovers next, and contemplating whether to make his son a Mets fan or spare him the suffering.
Read the full article
The vacation home that nobody wants to inherit
Daniel and Susan had owned their house on Cape Cod for nearly 30 years. They bought it when their children, Emma and Jack, were young. Summers there were filled with lobster dinners, beach days, birthday parties and enough family photographs to fill several albums.
Now Daniel and Susan are in their late seventies. The house is worth about $2.5 million, with no mortgage.
They have one goal: keep the house in the family.
Their children have a different goal: not to own the house.
Emma lives in South Carolina. Jack lives in Denver. They chose different paths from their parents. Neither particularly wants a second home. More importantly, neither wants the taxes, insurance, maintenance, repairs and logistical headaches that come with one.
But neither child wants to tell their parents.
What does “keep it in the family” mean?
Daniel and Susan's instinct was straightforward: leave the house equally to Emma and Jack. That solved the inheritance question, but it didn’t solve the logistical question:
Who gets July 4th?
Who pays for the new roof?
What happens when one sibling wants to sell and the other refuses?
Can one sibling rent the property?
Who decides whether to renovate the kitchen?
And there is a more fundamental question: what happens if one child wants out?
A common estate planning response is to put the home into a trust or LLC and establish rules for its future use. That can be useful, but it can also formalize a problem that the family has not actually resolved: who wants the house?
Before recommending a structure, the advisor should encourage the parents to have the uncomfortable conversation: Do the children actually want this asset? The answer may be no—and that does not mean they do not love their parents or value what the house represents.
Parents often use “keep it in the family” as shorthand for something more specific. Maybe Daniel and Susan want their grandchildren to have the same summers their children had. Maybe they want the house to remain a gathering place. Maybe selling it feels like selling part of the family's history.
There are several ways to accomplish these goals:
Leave the house to the children, with an agreement governing use, expenses and a potential buyout.
Establish a trust with detailed provisions addressing occupancy, expenses, maintenance and sale rights.
Create an LLC, which can provide a more familiar framework for shared ownership and governance.
But sometimes the best answer is not to transfer the house at all.
Daniel and Susan could retain ownership during their lifetimes and establish a plan for its eventual sale, while using some of the proceeds to benefit their children and grandchildren.
Or they could give the children a defined option to purchase the property at death.
The tax consequences matter, too. The income-tax basis of the property, estate-tax exposure, gift-tax consequences, property-tax rules and state-specific considerations can all affect whether transferring the property during life actually makes sense.
Thus, the first question is not “what’s the structure?” but rather, what outcome does everyone really want?
Don't turn a family memory into a family obligation
If the children genuinely want the house, the family can build a structure that makes ownership workable. But if the children do not want it, Daniel and Susan should know that before the property becomes an inheritance.
And if the parents' true goal is preserving the family tradition rather than preserving the actual real estate, there may be other ways to accomplish that:
Sell the house and establish a family vacation fund.
Reserve funds for future generations to rent a similar property.
Create a trust designed to fund family gatherings rather than requiring the family to own the underlying asset.
The best estate plan may ultimately preserve the experience, not the house.
For advisors, that distinction is important. When a client says, “I want my children to have this forever,” the next question may reasonably be: Have your children told you they want it?
That conversation may be uncomfortable, but it is considerably easier than leaving two siblings a $2.5 million house and asking them to figure it out themselves.
Forwarded this email?
Interested in partnering with Herbie on estate planning for your clients?
Next in Line is a weekly newsletter for advisors, brought to you by Herbie, covering the practical yet consequential interaction between estate planning and family dynamics.
About Herbie: Herbie is an estate planning platform built by veterans of the nation’s most prestigious law firms that functions as financial professionals’ estate planning legal team. Herbie services clients nationally through its own estate planning law firm, while providing consulting, lead generation and value-added services to professional advisors. Learn more about Herbie at herbieplan.com.
About the Author: Michael Moritz is the co-founder of Herbie. A veteran of some of the nation’s most prestigious law firms (Skadden, McDermott and Paul Weiss), Michael continues to practice as an estate planning attorney through Herbie Legal, Herbie’s dedicated law firm. Michael’s career has included crafting estate plans for billionaires, representing public companies and even a sovereign nation in high-stakes federal lawsuits, and personally arguing and winning a case before New York’s highest court. A seasoned genealogist, Michael has lectured and written extensively about family history research and related familial dynamics. Michael otherwise loves exploring the world (been to 40+ countries), eating at whatever restaurant his wife discovers next, and contemplating whether to make his son a Mets fan or spare him the suffering.
Read the full article
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