Estate Planning to Leave a Legacy

In our past discussions of Estate Planning, I often have emphasized that estate planning is the process of building a legacy. When people think estate planning is about money, property, and death, they tend to ignore the process. When they realize it is about values and other elements of building and living a legacy, they are more interested in making a plan.

This was made clear in a survey done for Allianz Group. The survey asked Baby Boomers and their parents questions about inheritance and related issues. It found that the non-financial aspects of planning are at least as important to both groups as are the assets and finances.

What are those non-financial issues that need to be considered?

Values and life lessons are a key part of leaving a legacy. In fact, most Boomers in the survey said that this was the most important part of a legacy. (Yet, about 40% of the parents believed that leaving financial assets is important, even an obligation.) Both the Boomers and their parents believed that conveying this information occurs throughout life, not just in an estate plan.

This part of legacy building is enhanced by also leaving some kind of values statement. Sometimes this is called an ethical will, a document in which the writer expresses hopes and values and imparts words of wisdom to loved ones. This can be part of the letter of instructions we discussed last month or it can be a separate document.

Instructions and wishes also are important as we discussed last month. While it is important to leave this information in writing, it also is key to discuss it in advance with the affected people. That provides an opportunity to answer questions, respond to objections, and perhaps change the instructions. It also gives people an opportunity to get used to your plan.

Personal possessions are a prime cause of estate disputes, though few people believe that when preparing their estate plans. Items of seemingly little financial value seem to have a strong emotional value to someone, or are an excuse to air unrelated, simmering grievances.

A good estate plan provides a way to disperse the personal items without triggering a dispute. Ideally, the disposition of the personal items is made clear in advance. The decision can be made jointly by everyone affected, or the parent can decide and let people know the decision.

Communication is vital to an effective disposition of personal property. The older generation needs to communicate with the younger generation its thoughts about the property and also needs to learn which items of personal property are of intangible value to which members of the younger generation.

The financial assets are the final key to the plan. The parents need to decide how these will be divided and let the children know the general scheme.

One interesting aspect of the survey is that both Baby Boomers and their parents in general agreed that inheritances should not necessarily be equal. A majority of both groups believed in some kind of performance-based allocation, especially for a child who took care of the parent. Parents were more likely to believe that less wealth should be left to the more financially secure children or to those who share fewer of the parents’ value or who are less financially responsible.

Indeed, over a third of the seniors believe that inheritance decisions are an important source of power and control. The decisions allow the estate owner to base inheritances on the achievement of certain goals, milestones, or other behavior.

Whatever parents decide about dividing the estate, they should convey the general scheme to their children. Otherwise an unequal division, especially disinheritance, will trigger a dispute over the estate.

The survey also found that Baby Boomers aren’t likely to know the extent of their parents’ wealth. This might provide difficulty for the Boomers when the inheritance comes through. Some will end up with less than they anticipated. Most likely there are a number of Boomers who are basing their saving and investing decisions on an estimate of the wealth they will inherit. If the inheritance falls short, these Boomers will be looking to retirement with less money than they anticipated. Some Boomers will inherit more than they expected and will be unprepared to manage the sum.

A successful plan considers all the aspects of estate planning, not just the division of the dollar amount. A good plan also involves soliciting ideas from the heirs over some issues, and communicating in advance the basic plan to all involved.