You may be surprised at some of the documents we recommend when it comes to estate planning and generational wealth transfer.
Leaving a lasting legacy for your family requires smart planning now. Intergenerational wealth transfers can create havoc within the family if not handled correctly. We discuss below six documents that you should have in order to protect the wealth and the harmony of the family.
1. An updated estate plan
It may astound you just how many people do not have an updated estate plan, reflecting their most current desires. Indeed, studies show that up to 68% of Americans may have no estate plan at all. It is equally disturbing that even if these estate plans are updated to reflect the desires of the benefactors, many are woefully inadequate when it comes to addressing federal and state inheritance or estate taxes.
Your estate plan should be reviewed (and possibly updated)
at least every three years. In addition, of course, an estate plan should be
updated if there is any change of circumstances in the family, such as a birth,
death, marriage or divorce. Also, the estate plan should be updated if there is
a relocation to a different state, because varying state laws do have an impact
on probate and taxes.
And, to be clear, a comprehensive estate plan should include
a will, durable power of attorney, and a living will/health care power of
attorney.
2. Various trusts, where appropriate
Trusts can be a very important tool in the estate planning
process for the very wealthy.
Trusts can come in all shapes and sizes, and can accomplish
much, but they also have their limitations. Truly understanding your situation,
including your finances, your concerns, and your goals, is a necessary
prerequisite to creating the appropriate trusts.
3. Personal property memorandum
In most instances, it makes sense for you to draft a
separate personal property memorandum designating to whom their personal
property, such as jewelry, automobiles, and collectibles, should go. Because
estate plans are governed by state law, some states do not recognize a personal
property memorandum.
4. Legacy letter
This is not necessarily a legally binding document, as this
document focuses more on the emotional aspects of the relationship outside of
the will and trusts. Having said that, a legacy letter can be very helpful in
explaining certain bequests, and communicating wishes to the heirs once you
have passed. The legacy letter can be particularly helpful if there is an
unequal distribution of assets or wealth at the parent’s death. It is also a
great way to communicate your last hopes and wishes.
5. Family governance plan
As with all the documents discussed above, a family
governance plan should be in place before you need it. This document can also
be thought of as a conflict management policy, where roles and responsibilities
are outlined in the event of an emergency. It can also address how to resolve
conflicts within your family. These conflicts can arise over money, family
investments, the family vacation home or any other item that could trigger
dissension. You would be surprised! In addition, you may also want to address
the “family mission,” and any philanthropic efforts that should be continued.
In addition, you want to outline the “next steps” so that
everybody understands their role if the founders are incapacitated or otherwise
compromised or unavailable. Some call this a “just in case” plan or a “person
in charge” (PIC) plan, but whatever you call it, there should be some type of
contingency plan in place. This way, we don’t have jockeying for position,
power grabs, infighting and coalitions being formed or hard feelings during a
crisis.
6. Succession plan for the family business
If there is a family business, then there should also be
some type of succession plan in place, particularly if several members of the
family are working in the business. Too often, we see that everything is
handled very informally for decades, and misunderstandings can occur that
create significant issues between the adult children.
It is important to address some of these issues and
formalize as much as possible while everybody is healthy, willing to work
together, and the lines of communication are still open. This way, everybody
understands how their future will be impacted and what is expected of them when
the inevitable succession takes place.
