Knowing you’re able to leave behind a legacy for your loved ones is a wonderful feeling. And many people, especially those in the later stages of retirement, think about it a lot.
But that doesn’t necessarily mean they’ve taken steps to put those thoughts into action. Some of the most caring and conscientious people I know have somehow managed to avoid even starting the estate planning process.
Unfortunately, there can be serious consequences if you put off this phase of your planning for too long.
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Without a solid wealth transfer strategy, any inheritance you hoped to leave your loved ones could be tied up in probate court, eaten up by taxes or distributed in a way you never intended.
The Kiplinger Building Wealth program handpicks financial advisers and business owners from around the world to share retirement, estate planning and tax strategies to preserve and grow your wealth. These experts, who never pay for inclusion on the site, include professional wealth managers, fiduciary financial planners, CPAs and lawyers. Most of them have certifications including CFP®, ChFC®, IAR, AIF®, CDFA® and more, and their stellar records can be checked through the SEC or FINRA.
Some generational planning tools (a living will, health care proxy, durable power of attorney, etc.) can also help you protect yourself and your family should you become ill or unable to make important health and financial decisions.
What could go wrong?
Some of the most common difficulties that arise when generational planning is overlooked include:
Decision-making disputes. Without a proper plan, family members may be unclear about who has been designated to take charge and make decisions in certain situations, which could make things especially challenging during a health care emergency or when your family is grieving your loss.
Legal hassles. Without legal documentation that outlines your wishes — such as a will or a trust — your loved ones may face a lengthy, stressful and expensive probate process.
Tax issues. Failing to plan for the transfer of assets to your heirs could trigger a bevy of taxes, especially for beneficiaries who are in their highest-earning years. This could unnecessarily reduce the inheritance you hoped your loved ones would ultimately receive.
Strained relationships. A lack of clarity in designating what your care should look like as you age or who your beneficiaries will be when you die (including stepchildren or a partner who is not your spouse) can lead to lasting discord among family members.
Missed opportunities. A well-structured plan enables charitable-minded individuals and couples to support the causes they care about while also providing tax benefits.
Without forethought, however, the strategies that allow you to maximize your legacy can be missed.
Struggles for the surviving spouse. Without a coordinated plan, your surviving spouse may not be prepared to contend with short- or long-term financial instability, lifestyle changes and other challenges.
What can you do to minimize problems?
Working with your financial adviser to incorporate your values, goals and relationships into your comprehensive retirement plan can help you avoid these potential pitfalls.
Here are steps to consider as you make your way through the generational planning process:
Learn the basics. It can help to do some homework before you start building your plan. Your financial adviser may be able to provide a useful guide or checklist you can download before you meet in person. Or you may be able to attend a free estate-planning workshop in your area.
Always be sure the information you’re getting is from a trustworthy source, and don’t be afraid to get a second opinion.
Evaluate your needs. Even if you have a plan in place, it’s a good idea to review your legal and financial documentation and identify any uncertainties or gaps. Be sure to keep your beneficiary information updated at all times.
And be clear about who you’re authorizing to make decisions in different scenarios (such as medical, caregiving, business succession and estate settlement situations).
Set your goals. What do you want your family’s future to look like? Estate planning isn’t just about designating dollar amounts for beneficiaries. It should reflect your values and goals.
Prioritize your objectives based on urgency and impact and be specific about the causes and people you want to protect and support.
Get it in writing. To fully integrate family considerations into your overall retirement strategy, it’s imperative that you get your plan down on paper. An estate attorney can draft or update your legal documents.
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And both your attorney and your financial adviser can assist you in structuring asset transfers using the most tax-efficient tools, such as trusts and other gifting strategies.
Implement the plan. To avoid confusion and minimize conflict, it’s important to communicate the various aspects of your plan with your family members. Ensure your financial adviser, attorney and health care team are also looped in, so everyone knows your wishes.
Review and adjust. Once your plan is drawn up, documented, formalized and stored in a safe, accessible place, it’s likely you’ll still need to make adjustments as life evolves. Be ready to make updates as marriages, births, divorces and other events change your family dynamic.
And have a backup plan in case you need to replace those who have been given decision-making duties. Scheduling regular check-ins with your adviser can help ensure your plan continues to reflect your goals and the needs of those you care about.
The sooner you can start this critical phase of financial planning, the better. You’ll have more time to fine-tune your vision, document your wishes and ensure you and your loved ones are protected and prepared for the years ahead.
Kim Franke-Folstad contributed to this article.
The appearances in Kiplinger were obtained through a PR program. The columnist received assistance from a public relations firm in preparing this piece for submission to Kiplinger.com. Kiplinger was not compensated in any way.
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