For an estate plan to be truly effective and do more than simply move money and assets from one generation to the next, it must accomplish three basic goals: 1) ensure that you are actually leaving your assets to those you designate; 2) make certain those assets are received at the right time to maximize their lifetime benefits; and 3) protect your legacy from being lost to creditors, predatory lawsuits, divorce, government claims or secondary estate tax. In addition to protecting your legacy throughout your beneficiaries' lifetimes, and perhaps for future generations as well, an effective estate plan also provides incentives to promote your family's core values and help inspire, motivate and educate your children or beneficiaries to become the people you hope them to be.
The Benefits of Developing a "Values Legacy"
Estate planning goes beyond money and even asset protection to the heart of preserving and conveying one's core values, which is also known as a "values legacy." What values or character traits do you want your kids or grandkids to know were important to you? What core principles or qualities do you want to pass on and instill in them? Through identifying the key elements of those core values and beliefs you are most passionate about and developing an estate plan that clearly reflects your "values legacy," the next generation is empowered to achieve the four Cs:
1. Character: Heirs will be encouraged to cultivate good character.
From just $107.88 $24.99 for Kiplinger Personal Finance
Be a smarter, better informed investor.
Sign up for Kiplinger’s Free Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
2. Competence: Heirs will be motivated to become competent and capable.
3. Confidence: Heirs will be inspired to succeed.
4. Core Values: Many families have unique core values that they wish to instill in future generations, such as honesty, respect and education.
Creative Strategies for Educating, Motivating and Inspiring Heirs
When approached and drafted properly, your estate plan can directly promote and reinforce your core values, thus becoming an extremely effective teaching and motivational tool benefitting the next generation. To accomplish these goals, creative planning is critical as each family's story, values and estate plan are unique. The following strategies should be considered:
Incentive Provisions or Trusts
Trusts or trust provisions can be used to help motivate the next generation to achieve their goals. The most common example of this is education. If you have children, you likely want them to graduate from college. In addition to providing that the cost of education will be paid, the use of an incentive provision provides a "performance bonus" if a degree is obtained from an accredited university before the age of 25 or another specified age.
Another example may be the desire for your children to have a full-time job. In order to avoid creating trust fund babies, many clients require that their heirs have a full-time job during certain age ranges to prevent them from simply living off of their inheritance. It is important to develop the desire and ability for heirs to be productive members of society.
Documentation of the Family Story
Every family has a unique story and history, which can easily be lost in today's world due to a variety of factors. Sharing the family history with children and grandchildren can be a very powerful as well as personally meaningful tool. A business owner or patriarch or matriarch may have struggled to succeed and overcome many barriers or challenges, and this story should be communicated in a way that educates, inspires, connects, and motivates the next generation. A family meeting and maybe even a legacy video may prevent a family's unique story from being forgotten or fading away over time.
Family Retreat
An annual family trip or retreat can be combined with an educational speaker, event or discussion to create a very effective educational and personally memorable experience. This retreat can educate future generations on how to become productive, competent and confident people of good character. Also, it need not be overly expensive and can be extremely valuable and may even become an ongoing family tradition.
Personal Directions Letter
We advise clients to provide their successor trustee with a personal directions letter. This letter is not part of the trust, but provides guidance to the successor trustee on how issues should be handled. Also, it may identify the "values legacy" that is hoped to be instilled in future generations. This letter may or may not be shown to the heirs.
An effective estate plan not only serves as an insurance policy to protect assets from costly bumps in the road such as divorce, lawsuits, creditors, bankruptcy and estate tax. It also provides a unique opportunity to preserve an individual's or family's core values for future generations. And the ability to pass on a "values legacy" inspires, motivates and educates heirs to be people of good character, competency and confidence, which ultimately creates happier, more productive and more successful members of society.
John M. Goralka is the founder of The Goralka Law Firm, an estate planning, trust administration, business and tax firm.
-
Use the 'Newton Rule' to Grow Your 401(k) Retirement SavingsHarnessing Sir Isaac Newton's rule of retirement can boost your 401(k) savings while you chill.
-
Are You a Small Business Owner Buckling Under Economic Pressure? Here's How You Can CopeSignificant emotional and financial challenges, including tariff worries, are piling up on small business leaders. Here's how leaders can develop more healthy coping strategies and systems of support.
-
Five Retirement Planning Traps You Can't Afford to Fall Into, From a Wealth AdviserTo help ensure you reach your savings goals and enjoy financial security in your golden years, be aware of these common pitfalls. The key is to be proactive, informed and flexible.
-
Your 401(k) Can Now Include Alternative Assets, But Should It? A Financial Adviser Weighs InMany employer-sponsored plans offer limited investment options, which can stunt growth. But participants considering alternatives might need some sound advice to get the most from their accounts.
-
Will Taxes Shred Your 401(k) or IRA During Your Retirement? It's Very LikelyConventional wisdom dictates that you save in a 401(k) now and pay taxes later, but turning that rule on its head could leave you far better off. A financial planner explains why.
-
More Retirees Are Renting: Should You? A Financial Adviser Weighs InIn some ways, renting is cheaper, more flexible and easier, but unless you understand the implications for your taxes and health costs, it might not be for you.
-
Where There's a Will, There's a Way Your Assets Will Be Distributed as You WishYour will is the backbone of a strong, adaptable estate plan that ensures what you leave behind goes to your selected beneficiaries. Without a will, state laws determine who gets your assets.
-
I'm a Financial Adviser: This Is What You're Really Losing if You Cut Back on Your 401(k) ContributionsMissing out on the benefits of the employer match and compounding growth could force you to work longer and lower your standard of living in retirement. Here are some alternative options.
-
Preferred Bank Stocks: The Investment Retirees (and Others) May Be Missing Out OnMost large banks issue preferred stocks that pay out fixed dividends, often with higher yields than bonds. Should you make room for them in your portfolio?
-
The Spendthrift Trap: Here's One Way to Protect Your Legacy From an Irresponsible HeirA spendthrift clause in an estate plan can protect an inheritance from a financially irresponsible child's debts and poor decisions.
