Designing an estate plan that cares for your loved ones and makes a positive impact on the world isn’t as simple as deciding who gets how much of what. Your answers to these four questions will help you weigh your family’s unique dynamics and your values as you lay the foundation for a generational legacy.
1. How do I want to divide my assets between my heirs and my favorite charities?
Many people leave everything to their heirs despite having been faithful donors to
charities that are important to them. And some specific assets are ideal to leave for charities such as traditional IRA balances. When these accounts are left to non-charitable heirs, all future distributions are taxable income to the beneficiaries, whereas IRA funds left to non-profits are generally available tax-free.
It is important to think deeply about how to split your estate and to also communicate your wishes to your heirs in a clear and specific manner while you’re still of sound body and mind. Rather than burden your heirs with a decision about how much of their inheritance should go to a favored cause, make the decision for them. A dedicated giving strategy can also save your heirs some headaches come tax time as well as provide a charitable example that your family might feel inspired to follow.
2. Do my heirs have a healthy relationship with money?
Many parents and grandparents worry that leaving too much money to the kids will harm them, while leaving too little will create unnecessary struggles and rob them of enriching experiences.
One way to approach this problem is to think about how your heirs currently manage the money that they have. Money means very different things to different people. One of your children might look at a generous inheritance and see the foundation of a nest egg that they will continue to grow as they work. Another child might look at that same amount of money and see an exotic vacation or sports car that they’ll be bored with six months after they buy it.
You have every right to decide what “fair” means based on what your heirs need, the timing of their needs and what they hope to achieve in their lives and careers, their willingness to pay your generosity forward, and their level of responsibility. Explaining the thinking that went into your decisions once you’ve signed your estate plan might make for difficult conversations, but it can also minimize family tension and relationship damage after you’re gone.
3. What is our family’s mission?
As important as it is to protect your assets, the best estate plans are about something more. They’re a message to your heirs that says, “This is who we are as a family, and these are the things that are important to us.”
Some folks memorialize that mission by using their estate plans to create charitable organizations or trusts that they ask their heirs to manage. Others include letters or video testimonials so that they can explain their most cherished values in their own words. Families that really want to achieve alignment might even work together on a family mission statement that will guide everyone toward positive, impactful decisions as one generation gives way to the next. The more aligned your estate plan is to that established mission, the more empowered everyone will feel to carry on your legacy.
4. Should we start our wealth transition while we are still here?
Rick Warren has advised to “do your giving while you’re living so you’re knowing where it’s going,” but some don’t feel comfortable following this advice for a very important reason—they are not convinced they can afford to. This is not a particularly difficult financial planning challenge, and any highly competent CFP® can help you determine your capacity to make financial gifts during your life that will not threaten your own financial security. Some examples of popular living gifts include educational funding for grandchildren and helping your children buy their first car and/or house.
We help families navigate these difficult decisions and would be happy to discuss your situation and opportunities to see if we might be a good resource for you. Call me at 303.500.1931 or schedule a virtual meeting at go.oncehub.com/StewardshipColorado. We are able to provide all your planning needs remotely, although our office is also open for in-person meetings.