Legacy Planning: Passing Your Wealth to the Next Generations

For years, the Family Living Trust was an important tool used in legacy planning by your financial team.  One of the purposes of this Family Living Trust was to help you transfer as much of your wealth to your heirs by saving on estate taxes (a.k.a. transfer tax—transferring your wealth to the government).

However, when the estate tax law changed it became less of an issue for estates valued below $10.6 million for a couple or $5.3 million for an individual because there was no estate tax.  So, do you still need a financial team in legacy planning?

Absolutely.

There are areas that are often missed and can cause issues for many families if not addressed.  This article will shed light on a few of those areas, and I recommend you reach out to your trusted advisor and advisory team for more details on what to do and how to protect your family and your legacy.

Let’s start with why you need legacy planning.  Legacy planning is used to pass as much of your wealth as possible to your heirs and to continue to create financial security for your spouse and your family (heirs) after you die. I have found that often only one person in a family will handle the financial affairs and planning.  If he/she is the first to die, then any planning that may have be done over the years usually goes awry.  Why?

A recent article in Investment News by Liz Skinner states that statistics show that 70% of family wealth disappears by the end of the second generation and 90% by the end of the third generation.

The article went on to highlight one of the reasons for this, and the example made me smile: A financial advisor had helped his client with legacy planning because the client wanted to make sure his son was financially secure.  He never had any discussion about his planning with his son.  Then, the week that the client passed away, the advisor got a call from the son wanting to know how soon he could have the money.  He was building a pool and the contractor needed to be paid.  So much for dynasty planning.

Not surprising, as many of us don’t include our grown kids in these discussions. And often it isn't a two sided conversation.  It seems that talking about money has always been such a difficult conversation.

Many of us will say that we never had these conversations with our parents when we were younger.  However, we don’t have to make this the norm.  I encourage clients to begin talking to their kids and teaching them what they know about money, as well as learning what their kids already know about money—and then planning as a family.

I have a client who inherited money, along with his 3 adult children, when the last of his parents passed away.  But his parents’ planning and what they had hoped for their heirs wasn’t clear.  While they wanted to honor the parent/grandparent, they didn’t know what that meant.

Proper contingency planning is often overlooked and can cause havoc with your estate.  Retirement accounts should have a designated beneficiary but often don’t.  Many clients don’t realize that naming their trust to be the beneficiary of their retirement plan isn’t a good idea, as it will cause a distribution from the IRA, and then taxes will be due immediately, eroding the value of the account.

A retirement account must name your spouse as your beneficiary.  However, the spouse is allowed to sign and acknowledge you are naming someone else as beneficiary (such as your child or grandchild).

Name a contingent beneficiary(s) in the event a primary beneficiary has passed.  Review the beneficiary information regularly, as death or divorce may change what is best in the legacy plan.  The paperwork should be as complete as possible, so you usually need their name, date of birth, relationship to you, and social security number.

When a spouse dies, it isn’t unusual for the other to remarry.  In fact, 61% of male widowers are in a new romantic relationship within 25 months of a wife's death. These new relationships can create issues later for the combined families.  One area of trouble can be spousal sharing rules and homestead rights, which in some states can trump wills. You definitely want to have a discussion with the estate attorney and your financial advisor about this.

Planning involves discussing the pros and cons to determine the right decision for your family. Talk to your team of financial experts, the estate attorney, CPA, and your financial advisor to decide what’s best for you.

I hope this stirs some thoughts and discussions to aid you and your loved ones.  Your financial team of experts working with your trusted advisor at Berson Money Management would be happy to discuss this or any other financial matters with you.

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