OP in your situation it is logical to divide the responsibilities for your family in advance. As previously mentioned working with a estate planning attorney will help you craft a trust reflecting your wishes detailed with clear instructions. Do not underestimate how powerful a tool and resource this legal document is for you. The majority of your final financial and health concerns can be addressed with a trust. For example, whom do you want to make medical decisions on your behalf if you are incapacitated? And to what extent do you want to receive medical treatment if doctors deem your condition fatal? An advanced medical directive in a trust will address this. Do you to prevent fiscally irresponsible individuals from managing or stealing assets that you want to go to your beneficiaries? A trust will handle it. Do you want to shield the public from knowing your assets? A trust will do this. Also a trust can do so much more. A trust enables you to control the timing and conditions whereby money to your beneficiaries is distributed. For example, if paying for your children's full education is important to you, you do not need to specify the amount reserved for education costs; however, you can stress the primary purpose for distribution to children is to first cover all expenses related to education. Distributing funds to cover living expenses is standard and typically includes shelter, food and clothing. Also you can specify how much money for your children's non-education is distributed to each and the timing. As an example, you may wish to establish milestones or markers for specific distributions; so when a beneficiary gets married, makes their first home purchase, or has a child. You can even correlate the distributions to specific ages, such as at age 30 $250k goes to a beneficiary for their first home purchase, etc. Keep in mind, how, when and under what conditions (if desired) is something you can specify in the trust. You can customize your trust to be as restricting or minimal as you see fit; discuss the pros and cons for different ideas with your estate planning attorney.
Furthermore as previously mentioned, you can further protect your beneficiaries and others from directly handling or mismanaging your assets by using a 'private fiduciary (PR)'. A PR will not be able to use the funds that is not in accordance with your wishes. The PR is responsible to paying specific taxes required. As such, you do not need to worry about greedy spendypants relatives accessing the monies because a PR is only allowed to distribute to your designated beneficiaries. For greater details about PRs and the benefits for retaining one, ask your estate planning attorney. PM if you need referrals in CA. Also to clarify, in my opinion regarding creating the trust, you do not need to consult with your beneficiaries prior to the creation or finalized version. The trust is ultimately your final wishes. Also considering your wife is extremely conservative with finances (likes cash portfolios) and prefers a less active role, retaining a PR will greatly help her and your children. If you consider a PR, ask them what their services cover, how they are compensated, their tax background, and to explain their role limitations. For a PR it is prudent to retain someone who is younger than you and your wife. Ultimately, you want the PR to outlive you and your wife, so the PR can manage the trust under worst case scenarios for your children until you designate they receive the remaining assets.
Your high savings rate is important, however, it is completely moot if you prematurely expire. That is why it is essential to establish strategies addressing how your final medical and legal wishes can be fulfilled. As previously mentioned, sure you wife can sell one or both of the rental properties. But in doing so, the trade offs include the passive income generated (might help fund your children's education) and associated tax benefits are eliminated. Beyond these concerns, wouldn't you want to keep the two rental properties you worked so hard to obtain in the family, so that one day the properties can be given to your children? Imagine the big picture and what you want to happen 20, 30 and 40 years from now. Sometimes simplifying things for your beneficiaries is good, but sometimes is also prudent to consider dynasty planning when your beneficiaries are unwilling or incapable of doing so themselves.
Establishing suitable legal guardian(s) is something you and your wife need to agree upon. I feel selecting a legal guardian is far more difficult than selecting an estate planning attorney. Selecting legal guardians is an emotionally charged decision and is particularly challenging because you need to select people you feel are responsible to protect and teach your children good values that are most aligned with your own. If you both feel your sister might be suitable, consider asking her about it privately to see if she is willing to help. But, this does not mean you need to allow her or any guardian to control the financial side. You can also select other guardians in the future, if you feel differently or if you find someone whom you trust more. It is essential to keep your trust updated and properly fund it. So if circumstances change, remember to update the trust accordingly.
I feel your real estate attorney is grossly overlooking protecting you from risk exposures, specifically litigation. You are the owner of three properties in CA and two of your properties are rentals. You do not indicate if these are rent controlled but suffice to say, all it takes is one accident on or around your properties and you are exposing your entire assets to litigation. I have worked with families owning rental property who were dragged by tenants into litigation and the owners lost millions and some, even lost the property itself. The main reason is during litigation it involves jurors, and many are extremely biased and award asinine damage amounts that typically favor renters and punish owners. So, as a property owner possessing higher umbrella coverage is prudent to help protect you and your beneficiaries. A 1 million umbrella is far too low for you. Lets do a simple breakdown of your net worth. Your three property values currently total over 2 million. Add your cash reserves plus your various retirement accounts, and you are at 2.4 million. Note your active income is not even included and it can be factored against you by jurors. Bear in mind, when jurors award damages it often is not logical or reasonable. Are you willing to expose your net worth during litigation to the standards of others? Do you still feel you are sufficiently covered? Mitigating your risk exposure takes a comprehensive financial outlook. In my experience liability protection and risk reduction are very different perspectives that many real estate attorneys do not consider primarily because they do not possess Certified Financial Planning (CFP) and more importantly litigation backgrounds.
