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.
Sign up for Kiplinger’s Free E-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.
-
Here's How To Get Organized And Work For YourselfWhether you’re looking for a side gig or planning to start your own business, it has never been easier to strike out on your own. Here is our guide to navigating working for yourself.
-
How to Manage Risk With Diversification"Don't put all your eggs in one basket" means different things to different investors. Here's how to manage your risk with portfolio diversification.
-
How Much Money Is Enough to Be Happy? Can You Have Too Much?The relationship between money and happiness is complicated, but the experts agree on these three eye-opening fundamentals.
-
Five Year-End Strategies You Can't Afford to MissInstead of making New Year's resolutions, consider making some money moves that could help save you big bucks on your taxes.
-
From Entrepreneur to Retiree: Boosting Your Business' ValueWhen business owners contemplate retirement, their first step should be maximizing the value of their biggest asset. Here are a few steps that could help.
-
You've Got a Trust: Now Who Should Be the Successor Trustee?You've set up a trust to protect your assets and your beneficiaries, but you still must choose the right person to execute your wishes. Here's how to do that.
-
Three Ways Fiduciary Financial Planners Put You FirstFiduciary financial advisers are required by law to work in your best interest. Here's how they are key to intentional and efficient financial management.
-
How Long-Term Care Insurance Has Become More FlexibleToday's long-term care insurance offers retirees more appealing options, which can preserve assets and protect the financial stability of a healthier partner.
-
Three Ways to Help Create Financial Stability for a WidowLoss of a spouse often leads to financial insecurity in retirement. These strategies can help ensure financial stability for the surviving spouse.
-
How to Embrace Personal Growth After a Gray DivorceDivorce at any age is a traumatic event, and resetting psychologically, especially after a late-in-life divorce, is more important than ever.
