How an estate plan can help you secure your legacy
Many people who have created or inherited wealth see their money not as an end in itself but as a resource. They may hope to use their assets to underwrite their own next chapters and to establish a legacy for their family and their philanthropic causes that could endure for years and generations to come.
Larry Jones, senior wealth strategist at Huntington Private Bank®, has seen this play out in a family he first met through its most senior members, now in their 80s.
“The older generations are trying to help the youngest family members, now in their teens, to develop the sense that just because there’s family wealth, that doesn’t mean that when you’re 18 you get to go out and buy a fast car,” Jones says. “This family believes everybody needs to be productive, and they don’t want wealth to interfere with that productivity†.”
But intentions alone can’t ensure that you pass along your values and create a secure legacy. “There are a number of ways to transfer your wealth, and a successful transition requires thoughtful planning,” says Jill Garvey, senior wealth strategist at Huntington Private Bank‡. According to a Gallup poll, 55% of Americans surveyed reported not having a will or estate plan§, and a recent survey from Wealth Counsel found that a full 61% of those surveyed believe that a will is enough to meet their estate-related needs¶.
Putting the future at risk
Lack of planning can result in problems that range from higher-than-necessary taxes to misdirected or squandered assets. Without a will and other documents to spell out your wishes, courts or other outside entities could determine where your money goes, who will become guardians of your minor children, and what will happen if you’re incapacitated and are unable to make your own decisions.
“Everyone has an estate plan,” says Jones. “You either have the estate plan that you have crafted, or you have the estate plan that your state has crafted for you.”
A lack of timely planning could also mean that your charitable goals go unfulfilled, and assets may be lost to divorced spouses, creditors, or court judgments against your estate.
Further complicating matters, existing estate plans could be considerably outdated.
“For a lot of families, this is something they may have looked at 20 years ago, when their kids were young,” Jones says. Much may have shifted since then, Jones says, noting, “I’ve seen funds that were intended to stay in the bloodline wind up outside of it because of marriages and divorces.”
Changes in family configurations, finances, or priorities may mean that estate provisions that once were appropriate no longer make sense—and need to be changed. The federal tax laws that govern lifetime and estate gifts also change frequently. For example, the lifetime gift and estate tax exemptions for individuals and couples have risen sharply in recent years, leading to a shift in estate planning strategies and a need for updated documents.
High stakes for family and heirs
Beyond the possible financial fallout of failing to establish and update a comprehensive succession plan is the potential emotional impact on heirs. Lack of planning or communication can lead to court battles and divisions that persist for generations.
“I have seen cases where funds given with the intent of going to grandchildren go to someone else,” Jones says. “I’ve seen the money squandered. Not doing the right kind of planning can lead to unintended results.”
Heirs may also be unprepared or unable to manage an inheritance. Garvey recently met with parents who wanted to transfer some of their wealth to their young adult children as a gift but were concerned that this might send the unintended—and incorrect—message that the children no longer needed to earn their own living. Indeed, adds Jones, “Money can be a magnifier. For someone who has struggled, whether it be from substance abuse or other issues, money may make things worse. It can also create tension in a marriage.”
These wide-ranging financial and emotional risks are emerging as the baby boomer generation ages. According to Cerulli Associates, a financial research firm, it is estimated that nearly 45 million U.S. households will transfer more than $68 trillion in assets over the next 25 years† †.
A plan that fits your goals
Creating a plan that works for your family begins with thinking about what exactly you hope to achieve. Do you envision an enduring business or philanthropic venture, nurtured by future generations? Is education extremely important to you? Service to your community? Taking care of family members who may be unable to care for themselves?
As you explore these questions, you may begin to focus on particular needs and how to address them. That may include the challenge of preparing potential beneficiaries to manage the money they receive, as well as making provisions for children with special needs. And while looking ahead to the long-term future, it’s also important not to shortchange your own objectives as you move into new chapters of your life.
In addition, if you have philanthropic goals, your plan can include specific provisions that set out what you want that part of your legacy to look like. You might set aside a percentage of your assets to go to charity, for example. Or perhaps you’re considering establishing a private charitable foundation that your children can help guide. Through all of this, it’s important to identify your priorities as clearly as possible and then make sure they’re integrated into your wealth transfer plan.
A thoughtful estate plan can help you control where, when, and how your wealth is passed along and can address your deeper beliefs as well.
“Make sure that you’re not only transferring your assets,” Garvey says, “but you’re also transferring your values.”
Timing can be crucial
You’ll also need to consider when and how you want your wealth to be transferred. In many cases, lifetime gifts to your children or to trusts you set up for them can be just as advantageous, from a tax perspective, as bequeathing assets through your will or other wealth transfer vehicles as part of your estate, says Garvey. Passing along some wealth now could let you see how your heirs use it, and you can structure transfers so that you retain control of how the money is used.
In the case of Garvey’s clients who were considering a large gift to their children, the family began to explore how to use this initial gift as an opportunity to provide their children with financial education and empowerment during the parents’ lifetime. Rather than simply handing over the money and hoping for the best, the parents began a conversation about money and values that they hope will be ongoing, helping to make the younger generation responsible stewards of what they’ve been given.
“Having that kind of discussion now and finding ways to express your values can mean that later, when you’re no longer around, you’ve not only prepared the assets appropriately, you have prepared your family as well,” says Garvey.
Finding the right structure
Once you have established your goals and your timing, your advisors can help you determine what planning structures—your will, trusts, and other documents and tools—may be needed to meet your personal, financial, and charitable objectives, while helping to head off potential financial dangers and emotional distress.
Trusts, in particular, can be remarkably flexible. “Trusts are the dominant tool currently used by estate planning professionals to structure an estate,” Jones says. A living trust, for example, could help distribute property without the complications, delays, or public exposure of assets that are
transferred through a will and have to go through the probate process. Several kinds of charitable trusts, meanwhile, can benefit family members as well as designated philanthropic causes, while various forms of trusts can help you carry out your financial wishes for your family while retaining some control over how the money is distributed. Your advisors can help you take your family’s needs and your vision for the future and incorporate them into a specific estate plan that takes into account relevant tax laws and other considerations.
Your Huntington Private Bank advisor can work with you to help you understand your options and provide access to experienced professionals and sophisticated resources to move ahead with your vision. Your advisor can act as the point person on that team, but your unique vision will be the guiding force.
“Our role is really to facilitate getting from that initial conversation through the execution of that document,” Jones says.
What’s important is to begin the conversation.
“Estate planning is something that needs to happen now,” Garvey says. “We believe that planning in advance and involving the appropriate family members in the process allows us to help people create a successful transition of their wealth and their values.”
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