Planning Your Legacy and Estate

by Kent E. Irwin

The concept of legacy planning has evolved into an exciting new holistic form. Up until now it might have been referred to as estate planning, wealth transfer planning or estate tax planning. Let’s explore the evolution of legacy planning and how you can use this information to incorporate legacy planning into your overall financial plan.

This is the first in a series of four articles on legacy planning, please read all of them.

Planning Your Legacy and Estate                                         Philanthropic Charitable Legacy Planning

Legacy and Estate Planning with a High Net Worth        Preparing for Meeting with an Attorney

Legacy Planning Defined

Legacy planning is the process of arranging your financial affairs in a way that reflects your main priorities and values. Legacy planning today is much more holistic than ever before because it is incorporated into people’s overall financial planning: For example, people are concerned about:

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Providing for many aspects of the financial, emotional, professional, and legal needs of surviving spouses and children

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Maximizing and controlling their wealth for themselves for long life spans

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Gifting to family members while they are alive, so that they can transfer wealth in a way that helps rather than hinders the individual

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Transferring their business (possibly to a family member) in a cost-effective way, taking into account all possible tax concerns

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Charitable concerns for which they have a passion

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Transferring their important values and beliefs to the next generation

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Providing enough assets for their minor children and surviving spouse if they die, but also arranging it in such a way that maintains privacy, protects assets from creditors, and provides ongoing professional management

Planning Devices

Wills

A will provides for the distribution of property you owned at the time of your death in any manner you choose, subject to state limitations. Your will cannot, however, govern the disposition of assets that pass outside of probate, such as retirement plans, life insurance, and certain joint property, unless payable to your estate.

Wills can be complex or simple. If they provide for only the disposition of assets, they are often referred to as simple wills. A will can instruct the formation of trusts (testamentary trust wills). In addition to distributing property to your spouse, children etc., there are many other objectives that may be accomplished in your will:

• Designation of guardians for your minor child or children if both spouses die

• Designation of your estate’s executor

• Distribution of assets to support charitable causes that you value

If you die without a will (intestate), your state's laws will determine who receives your property. These laws vary in each state, but usually the distribution would be to your spouse and children, or if none, to other family members. A state's plan often reflects the legislature's guess as to how most people would distribute their assets. That plan may or may not reflect your actual wishes. A will allows you to plan to suit your personal preferences.

Durable Power of Attorney

A Power of Attorney, in the context of estate planning, gives that person the power to act on your behalf when you are unable to act for yourself due to incapacity, such a disability. If you do not have a Power of Attorney and become unable to manage your personal or business affairs, it may become necessary for a court to appoint one or more people to act for you. Having a Durable Power of Attorney ensures that you can choose the individuals who will act on your behalf.

Living Wills & Health Care Power of Attorney

With medical science able to sustain people’s lives for much longer than ever before, medical decisions may need to be made as to how we wish to be treated at the end of our lives. Often, these occur when we can no longer express our preferences.

All states permit you to spell out your wishes in a legal document. This document will address your medical treatment in terminal illness or injury situations. It will also appoint someone to speak on your behalf if you can’t speak for yourself. Some states have standardized documents.

Trusts

Many people have heard of Living Trusts. You create a Living Trust during your lifetime. They are usually revocable, meaning that you can revoke them at any time. The trustee (probably you) is responsible for managing the property owned by the trust for your benefit. When you die, the trust distributes assets to your beneficiaries or continues to hold it and manage it for them. The trust may also afford privacy and creditor protection for beneficiaries.

This only provides an explanation of the most common estate planning documents that most people need. However, there are more advanced documents that provide for many other issues and concerns including taxes. If you have a more complex situation, you should discuss the alternatives with your attorney.

Organization

Organizing your financial affairs will not only help you to find things, but will help you, or family members find them when they are urgently needed. If you have organized your financial documents, then when updating your plan, or when you meet with your professional advisors, you will be better prepared and able to bring them important documents they will need so they can do the best job possible for you.

Legacy Planning Grids

Legacy Planning for People with High Net Worth

Legacy Planning Trends

Until recent times, legacy planning only served the ultra wealthy, since they were the only ones with sizable assets when they died. Since WWII, the demographics of our country have changed. Today there are more millionaires than ever before as a result of favorable stock market returns, appreciation in real estate, accumulations in IRA’s and 401(k)s, and family incomes over $100,000. In addition, the largest transfer of wealth ever seen—estimated to be in the tens of trillions of dollars—is due to occur over the next 30 years.

The emphasis used to be on death tax planning. This was because of a high Federal Estate Tax that taxed estates larger than $500,000 to $1,000,000 at a maximum rate exceeding 50%. Today’s exclusion amount is larger, and the maximum rate has come down some; however, the future is uncertain and will change depending on what happens in Washington.

Regardless of what happens, this author believes that we won’t return to planning with a main emphasis on death tax minimization. This is because ‘death and taxes’ planning is negative oriented: negatives don’t provide motivation to complete plans, or satisfaction in the results. Further, high net worth individuals are more concerned that large sums of money may hurt their children more than it would help them. Finally, the old model rarely considered plans to give money to charities during their life and afterwards.

This table is a very brief description of advanced legacy planning,

Summary

Regardless of how much money you have accumulated or your current income level, your financial plan should incorporate a plan for your legacy. The eFinplan financial plan provides you the opportunity to identify some of the gaps in your legacy plan. After acquiring an eFinplan financial plan, the next step would be to meet with a qualified estate planning attorney to put your plans into action. You will also need to ensure that your asset’s ownership types, beneficiaries, and transfer on death arrangements are organized in conjunction with these plans. Review your legacy plan every few years, or more often if you have any significant life changes.

Kent E. Irwin is CEO and founder of eFinplan, LLC. He is also a Chartered Financial Consultant (ChFC), a Chartered Advisor in Philanthropy (CAP) and a Chartered Life Underwriter (CLU). He can be reached at This e-mail address is being protected from spam bots, you need JavaScript enabled to view it . For more information about eFinplan, go to the website efinplan.com.

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