Is Your Estate Plan Truly Complete?

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.

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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.

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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.

Disclaimer

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

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John M. Goralka is Senior Counsel at CunninghamLegal in Sacramento, California. John joined CunninghamLegal because of the firm's high degree of professionalism, commitment to client service and creative ability to provide solutions. For decades, John has helped thousands of families and business owners protect, preserve and pass on their wealth with confidence. Through The Goralka Law Firm, founded in 1996, Mr. Goralka and his team built a reputation for designing practical, tax-efficient estate plans that truly worked when families needed them most. He is one of the few attorneys in California who is dual-certified as a Specialist in both Taxation Law and Estate Planning, Trust & Probate Law by the State Bar of California Board of Legal Specialization.