What is proper estate and legacy planning? It starts with building an actual written plan. The key to building this plan is being able to dedicate a significant amount of time to sit down, write everything out, and then step away.
That’s why having a coach or a mentor can help you realize all the various aspects of your plan and how many moving parts are involved. Once you step away and come back to the plan, it becomes easier to see the things you missed the first time, make adjustments, and start to create a living, working blueprint.
A strategic plan for family estate and wealth planning focuses on protecting and growing assets, ensuring a smooth transition of wealth between generations, and minimizing tax liabilities. Here’s a breakdown of key components for a solid estate and wealth plan:
Let’s take a quick walk through a short example of a situation without an excessive number of variables and moving parts. This example is about my buddy Patrick.
Patrick is an avid outdoors man and has spent most of his life focused on everything outdoors. After working in the outdoor industry for years, Pat saw an opportunity to create his own brand of flies for fly fishing. He was already making his own flies; stonefly, mayflay, trout flys and more! All his buddies were buying his creations, and word spread throughout New England that if you wanted to land big fish, you need to use his flies!
Fast forward 15 years and Patrick’s little company became a big fishing equipment business and was purchased by a much larger retailer for a tidy sum. Over the years, Patrick acquired a fishing camp in Idaho, along with his property in Maine and a small place in Vermont near the corporate office.
Patrick created a unique legacy for him, his family, and generations to come but his complex situation had a lot of unique challenges. Hence the reason we decided to create a strategy tailored to his family and their needs. Asset management is only one part of his plan, but there were so many other important variables that we needed to address and many people overlook them.
Actually sitting down to discuss, explore and write all these variables down was seemingly daunting. It looked a little like this;
Asset Management – Assets including multiple accounts, investment accounts, bank accounts, safe deposit boxes, precious metals, retirement accounts, trust accounts, and reviewing the effectiveness of current asset allocation strategy/fee structure
Physical Assets – Homes, jewelry, boats, personal effects, art, toys, aircraft, wine, movement and location of assets, value and adequate insurance coverage for all assets, and even other investments ( restaurants, land, etc.)
Operations – Budgets, spending, credit cards, small staff, home/s maintenance, payroll, family operations (travel, vacation, college, etc.), insurance, umbrella polices, life insurance, annuity, safety/security
Planning – Contingency planning (disaster recovery) and continuity, safety and security, data security, goals and plans to achieve the goals, charitable giving plan
Health and Welfare – Family physical health and well being, diet and exercise, nutrition, alcohol or tobacco use, mental health and well being, stress, quality of life, plan for extending life to a comfortable age
Business – Ongoing operations and involvement, liquidity plan, key man insurance, exit strategy and many more
As you can see, this was just the starting point for sitting down and addressing the most obvious variables and moving parts. Putting a plan together for Patrick was a dynamic process which evolved over a period of months, and we know monitor it on a quarterly basis, making adjustments when needed.
We literally filled the white boards in the conference room, adding different pieces in various colors of dry erase marker. It was a brainstorming session which helped us visualize all the important aspects of Patrick’s life.
If you think it’s time to sit down to discuss your situation and evaluate your strategy, reach out to me!
If this intimidates you, write down this next section or print it!
1. Set Clear Goals
- Short-term and long-term objectives: Define what you want to achieve with your estate and wealth. Are you focused on preserving wealth for future generations, philanthropy, or maintaining a specific lifestyle during retirement?
- Family Communication: Ensure family members understand your goals and the estate plan to avoid conflicts. Regular family meetings can be a useful way to communicate intentions.
2. Create a Comprehensive Estate Plan
- Will: A will is the cornerstone of an estate plan. It dictates how your assets will be distributed after your death. Make sure it’s updated regularly to reflect any changes in assets, family dynamics, or wishes.
- Trusts:
- Revocable Living Trusts: These allow assets to pass directly to beneficiaries without going through probate.
- Irrevocable Trusts: These offer protection against estate taxes and lawsuits, but once assets are transferred, the trust cannot be changed.
- Power of Attorney: Designate someone you trust to handle your finances if you become incapacitated.
- Healthcare Proxy/Living Will: Designate someone to make medical decisions for you if you cannot. A living will outlines your preferences for medical care.
3. Tax Strategy
- Estate Taxes: Consider the federal estate tax exemption (which is subject to change) and any state-level estate taxes. Create strategies to minimize estate tax liabilities by gifting assets or using irrevocable trusts.
- Lifetime Gifting: Utilize the annual gift tax exclusion (currently $17,000 per recipient in 2023) to transfer assets to family members during your lifetime without incurring taxes.
- Generation-Skipping Trusts: These trusts allow you to pass wealth to grandchildren while skipping their parents, thus reducing estate taxes.
4. Asset Protection
- Diversification of Assets: Ensure that your wealth is spread across different asset classes (real estate, stocks, bonds, etc.) to reduce risk.
- LLCs or Family Limited Partnerships: These entities protect family wealth by separating personal assets from business or investment assets. They also allow for easier transfer of ownership across generations.
- Life Insurance: Use life insurance policies to provide liquidity to cover estate taxes, debts, or provide for beneficiaries.
5. Business Succession Planning
- If you own a business, plan for its future by setting up a succession plan. This includes identifying successors, creating buy-sell agreements, and preparing the business for a smooth transition of leadership.
6. Charitable Giving and Philanthropy
- Charitable Trusts: Establish a charitable remainder trust (CRT) or a charitable lead trust (CLT) to support causes you care about while also receiving tax benefits.
- Donor-Advised Funds: These funds allow you to set aside money for charitable purposes, with flexibility on when and how to distribute it to charities.
7. Regular Reviews and Adjustments
- Life changes (births, deaths, marriages, divorces) and tax law changes necessitate regular reviews and updates of your estate plan. Work with estate attorneys and financial advisors to ensure your plan remains current.
8. Financial Education for Future Generations
- Equip heirs with financial literacy to manage the wealth they inherit responsibly. Family meetings and involving children in philanthropic activities can help instill strong financial values.
9. Minimizing Probate
- Probate can be time-consuming and costly. Use strategies like joint ownership, beneficiary designations, and transfer-on-death (TOD) accounts to avoid probate.
10. Work with Professionals
- Estate Attorney: To draft legal documents, minimize taxes, and ensure compliance with state and federal laws.
- Financial Planner: To provide guidance on investment strategy, retirement planning, and income needs.
- Tax Advisor/CPA: To help with tax planning strategies and ensure that your estate is structured tax-efficiently.