Financial Advice for Retirement, Social Security, IRAs and Estate Planning

The Foundations of a Great Estate Plan [Part 2]

Published on: Jun 28 2020
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In last week’s edition of Retirement Watch Weekly, I presented the foundations of a great estate plan.

These are strategies every American should at least consider for their estate – no matter how much or little money is at stake.

There’s a lot of ground to cover, so let’s dive back into all the ways you can make the most out of your plan.

Should Heirs Get Equal Shares of the Estate?

Parents have several different reasons for considering leaving unequal shares of their estates to children.

Some parents are tempted to leave a child less money because they believe he or she will waste it.

A better approach in that case might be to leave that wealth in a trust with restrictions or with discretion by the trustee.

There should also be a contingent beneficiary in case the money is not distributed to the initial heir.

When children have unequal financial success in life, parents are tempted to factor this into their inheritances.

Unfortunately, a financially successful child is likely to consider the inheritance to be a measure of your affection or will believe he or she is being punished for success if less affluent children receive greater inheritances.

Equal inheritances can be a major problem when a family business or other asset is involved.

Many advisors believe children who aren’t involved in the business probably shouldn’t have voting ownership in it, at least not equal to that of the child actually running the business.

Regardless of how you structure things, there almost always is going to be tension between siblings who jointly inherit a business or similar property.

A good solution might be to leave the business only to children who will be active in it and use life insurance to equalize the inheritances.

Don’t forget to count lifetime gifts and assistance when dividing up the estate.

One child might have received substantial assistance over the years that the other children didn’t. If you really want things to be equal, these lifetime gifts should be subtracted from their inheritances.

An alternative to equal inheritances is a reserve trust.

Have about 80% of the estate distributed equally among the heirs. The other 20% is placed in a trust where it can be tapped for emergencies by any of the heirs at the trustee’s discretion.

This can create its own set of problems or it can provide valuable assistance to the least financially successful heirs or those who encounter unexpected problems.

What About Long-Term Estate Planning?

It is fairly common these days for families to have second spouses, stepchildren and other complications.

Additional complications might arise after your death, for example if your spouse re-marries.

Without careful planning for these situations, the final destination of your wealth will be in doubt.

Ideally, you leave wealth to the beneficiary of choice, usually your spouse.

You also agree how the wealth will be bequeathed in his or her will.

Unfortunately, things could change after your death, and the wealth could end up in the hands of a second spouse or beneficiaries other than your children.

There are a number of ways to deal with these situations, but the key is to decide what you want to do, implement a plan that will achieve the goals, and then communicate it to everyone involved.

It’s Not Just About Leaving Money

You might have valuable or sentimental assets other than money and investments, including papers, photos, collections or art you created.

These items might even have value outside the family, such as to a library or museum.

Unfortunately, it could be that no one knows these items as well as you do.

Do what you can to get the items catalogued, organized and described now.

Ask around, both inside and outside of the family, to see if anyone has an interest in them after you, then decide who will be the caretaker.

Don’t leave the items disorganized with the thought that somebody might become interested someday.

All in the Family

You might consider leaving part of the estate to a charity or other outside organization because you generally are interested in the cause and perhaps don’t want to spoil your heirs too much.

There is no reason wealth should cause individuals not to be productive members of society.

A quiet trend in the U.S. is that a growing number of people serve as the primary parents for their grandchildren.

You simply have to get them involved early doing productive things and keep them at it.

Involve the children in managing assets, running the business, or doing other productive activities.

Often, a family limited partnership is a good way to do that.

If you want to give a lot to charity, consider a family foundation and have the kids help manage that.

When a cause is important to you, the important step again is communication.

Explain to the children your interest and that the charity will get part of the estate.

Don’t let the kids think they are going to inherit something, only to have them learn after you’re gone that it never was going to happen.

Give Something of Yourself

There is an old tradition known as the ethical will.

This is a non-legal document in which the deceased makes a personal statement.

The statement can be an individual or family history, lessons learned, principles, or guidelines for living.

The ethical will is making something of a comeback and can be enhanced now with videotape and other technology.

Consider developing your own ethical will as a special gift for loved ones.

I’ll address even more important estate planning situations/strategies in detail in later issues. (Click here for Part One of The Foundations of a Great Estate Plan.)

PS: [This new law] “…Upends 20 Years of Retirement Planning and Sticks It to the Middle Class.” That’s a headline from The Wall Street Journal. Yet hardly anyone is talking about it. That’s why I put together a short video that explains everything you need to know about this damning new retirement law. Click here to watch it.

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