Overcoming Challenges and Creating A Legacy Plan

Written by Robin Young, CFP® on .

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Recently, we came across this article from Financial Advisor Magazine, written by Robert G. Kuchner, entitled When is and Inheritance Too Big? At the outset of the article Mr. Kuchner outlines three legacy scenarios from real people. All three scenarios seemed well thought out, but only two turned out to be the right choice. In the third story, the woman who had passed away had established a trust for her son, but wanted her husband to be able to redirect a portion of her assets so that he would have financial options. Unfortunately, he was successful, due to this clause, in effectively nullifying the entire intent of her will and excluding his own children from the trust.

In the coming decades, we will be witnessing the greatest wealth transfer in recent history. With so many families trying to determine how best to create their legacy, we thought it prudent to discuss some of the major challenges and opportunities for planning a legacy that protects you and your loved ones now and the future.

As is outlined above, there is a great deal of emotion and family dynamic (good, bad, or ugly) surrounding wealth transfers. When decisions about money come into an already potentially volatile mix of emotions and family history, the outcome isn't always so pretty. Establishing a plan well before you pass is critical to ensuring that plan protects your wishes and the well-being of those you love. It takes time and deliberation to decide on all of the complexities of a legacy plan, especially for those who have a high net worth because of the "size of their assets and the complexity of the vehicles they typically use to pass wealth to the next generation."i

So, what are the challenges to creating a successful legacy plan?

Sometimes it is just being able to walk through the door to have a discussion about one's own mortality. Many people avoid the discussion altogether and some think that their existing estate plan, that may have been made decades ago, will suffice to create legacy they are hoping to leave.

In other cases, there can be the fear of discussing the goals of one's legacy plan with the knowledge that difficult decisions may have to be made about what a child or spouse may receive and that the decision may be contrary to what they may anticipate.

"Transferring wealth raises complex psychological and interpersonal issues that involve life goals and how children relate to them; the value of work versus the benefits of financial security; and long family histories that mix love, fierce conflict, expectations, ambitions, resentment and respect."

There can also be the fear that upon receiving a great deal of money, the beneficiary may act impulsively, make poor decisions, and could become a danger to themselves or family members either directly or indirectly by behaving in destructive ways.

These concerns are very real to many families and one way to avoid such outcomes could be to determine an alternative to a large lump sum wealth transfer. In a recent CNBC article, it was reported that Baby Boomers want their children to learn about struggle, hard work, failure and the joys of earned success. Some voiced their doubts about their children's responsibility when it came to having a large sum of money.ii

Electing for alternatives to a traditional legacy plan requires a full understanding of your entire financial and family picture. If there are concerns about a child's or grandchild's medical condition, the alternative would be different than if there are relationship issues surrounding ex-spouses, divorces, or any inter-sibling problems.

The most important thing that one can do when beginning the process of establishing a legacy plan is think about your values, how you want to be remembered, and how you would like to share your wealth (both financial and non-financial). For example, consider why you would like to help your family, if you would like to donate to charity, if you have concerns about how a beneficiary might spend the money they are given, if you believe that one beneficiary might need to be protected from another, etc.

Having candid and sometimes difficult discussions with your loved ones now can help to diffuse some of the turmoil that could happen in the future. The last thing anyone wants is to have to deal blindly with financial issues when a loved one passes away. Working with a trusted advisor to help in facilitating those conversations, establishing a road map for your legacy and helping you to determine the safest and best way to execute your legacy is an advisable approach to take.

To read the Full Article in Financial Advisor Magazine click here




Sources for this article:
i. http://www.fa-mag.com/news/when-is-an-inheritance-too-big-27484.html

ii. http://www.cnbc.com/2016/06/15/the-great-wealth-transfer-has-started.html