Leaving a lasting legacy is more than just a matter of passing on material wealth – it’s about ensuring a secure and harmonious future for your family.
Without a plan in place, the transfer of wealth from one generation to the next can become a breeding ground of conflict and discord. Family dynamics, differing perspectives, and legal intricacies all converge to create a landscape where missteps can have far-reaching consequences.
It’s about more than just drafting a will – it’s about crafting a comprehensive strategy that safeguards your assets and preserves familial harmony for generations to come!
By addressing the legal, financial, and emotional aspects of estate planning, you can mitigate potential pitfalls. So, let’s get into it! It’s time to discuss the six documents that you should have in order to preserve your family’s legacy.
1. An Updated Estate Plan
It may astound you just how many people do not have an updated estate plan – one that reflects their most current desires. Indeed, studies show that up to 68% of Americans may have no estate plan at all!
It is equally disturbing that even if these estate plans are updated to reflect the desires of the benefactors, many are inadequate when it comes to addressing federal and state inheritance or estate taxes.
Your estate plan should be reviewed (and possibly updated) at least every three years. In addition, an estate plan should be updated if there is any change of circumstances in the family, such as a birth, death, marriage or divorce. Also, the estate plan should be updated if there is a relocation to a different state, because varying state laws do have an impact on probate and taxes.
And, to be clear, a comprehensive estate plan should include a:
- Will,
- Durable Power of Attorney, and
- Living Will/Health Care Power of Attorney.
Related: 5 Things You May Not Know About Estate Planning
2. Various Trusts, Where Appropriate
For high-net-worth individuals, trusts can be a very important tool in the estate planning process. Particularly with the expiration of the Tax Cut and Jobs Act looming right around the corner (sunsetting in 2025), trusts may be coming back in vogue to address a potentially decreased lifetime exclusion.
Trusts can come in all shapes and sizes, and can accomplish much, but they also have their limitations. Truly understanding your situation, including your finances, your concerns, and your goals is a necessary prerequisite to creating the appropriate trusts.
Related: The Power of a Trust
3. Personal Property Memorandum
In most instances, it makes sense to draft a separate personal property memorandum. This often-overlooked document holds significant weight in determining the fate of cherished possessions – be it heirloom jewelry, automobiles, prized collectibles, and so on.
You may be wondering: Why separate personal property from the broader estate plan? The answer lies in practicality and flexibility. While a will or trust may outline the distribution of major assets and financial accounts, personal belongings often carry sentimental value that have no price tag. By drafting a separate memorandum, you can articulate specific wishes regarding the disposition of these items (whether it be to heirs, charity, or otherwise).
However, because estate plans are governed by state law, some states do not recognize a personal property memorandum. For example, they aren’t legally binding in the state of New York, although personal property memoranda are legally binding here in New Jersey.
4. A Legacy Letter
This is not necessarily legally-binding, as this document focuses more on the emotional aspects of the relationship outside of the will and trusts. Having said that, a legacy letter can be very helpful in explaining certain bequests, and communicating wishes to the heirs once you have passed.
The legacy letter can be particularly helpful if there is an unequal distribution of assets or wealth at the parent’s death. It is also a great way to communicate your last hopes and wishes.
A legacy letter may include:
- Expressions of love and gratitude.
- Life lessons and wisdom.
- Last wishes and desires.
- Forgiveness and reconciliation.
- Hopes and dreams for the future.
In essence, a legacy letter is an intimate expression of the love, wisdom, and values that define us as individuals and bind us together as a family.
5. Family Governance Plan
As with all the documents discussed above, a family governance plan should be in place before you need it. This document can also be thought of as a conflict management policy, where roles and responsibilities are outlined in the event of an emergency.
It can also address how to resolve conflicts within your family. These conflicts can arise over money, family investments, the family vacation home, or any other item that could trigger dissension. You would be surprised!
In addition, you may also want to address the “family mission,” and any philanthropic efforts that should be continued.
You want to outline the “next steps” so that everybody understands their role if the founders are incapacitated or otherwise compromised or unavailable. Some call this a “just in case” plan or a “person in charge” (PIC) plan. Whatever you call it, there should be some type of contingency plan in place. This way, we don’t have jockeying for position, power grabs, infighting and coalitions being formed or hard feelings during a crisis.
6. Succession Plan for the Family Business
If there is a family business, then there should also be some type of succession plan in place, particularly if several members of the family are working in the business. Too often, we see that everything is handled very informally for decades, and misunderstandings can occur that create significant issues between the adult children.
It is important to address some of these issues and formalize as much as possible while everybody is healthy, willing to work together, and the lines of communication are still open. This way everybody understands how their future will be impacted and what is expected of them when the inevitable succession takes place.
As you navigate the process of legacy planning, remember that Bautis Financial is here to support you every step of the way. Together, we can create a comprehensive financial strategy that protects your estate, spans generations and ensures a legacy of financial prosperity for you and your loved ones. We invite you to schedule a complimentary consultation with our team of financial advisors using the link below.
Debra Taylor, CPA/PFS, JD, CDFA, writes on tax and retirement planning for Horsesmouth.
Bautis Financial LLC is a registered investment advisor. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial advisor and/or tax professional before implementing any strategy discussed herein. Past performance is not indicative of future performance.
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