A truly effective estate plan does not simply move money and assets from one generation to the next. A truly effective estate plan addresses three basic goals: (1) how to leave your assets to the right people (the loved ones you designate); (2) how to ensure they receive those assets at the right time so that the funds help your loved ones throughout their lives and not just for a few vacations, extravagant purchases or perhaps an extended spring break; and finally (3) how to keep the wrong people out and ensure that your legacy is not lost to creditors, predatory lawsuits, divorce or government claims. An effective estate plan will provide for your legacy to be protected throughout your beneficiaries' lifetimes and perhaps future generations as well. A truly effective estate plan should also address and provide incentives to promote the family's core values. A good estate plan will also help inspire, motivate and educate our children to become the people that you hope them to be.
The risk or problem is that bad things happen to good people, through no fault of their own. Divorces are far more common than ever before. Lawsuits are an increasing concern. Bankruptcy and creditor claims may arise. Even if those issues do not arise, your legacy could be subject to second level estate tax. A truly effective estate plan will provide a means to protect your legacy from those bad things that may occur.
A truly effective estate plan will also go beyond money and even asset protection and address a family's or individual's core values. A truly effective estate plan will help the next generation to become successful, productive and happy members of society.
A truly effective estate plan motivates, inspires and educates the next generation to achieve the four C's:
- Character. A truly effective estate plan will help motivate, inspire and educate the next generation to be people of exemplary character.
- Competence. A truly effective estate plan will help motivate the next generation to be competent and capable.
- Confidence. A truly effective estate plan will help educate and enable the next generation to have the confidence to succeed.
- Core values. Many families have unique core values that they wish to instill in future generations. I grew up on a ranch with five brothers and three sisters. All of my siblings graduated college, most with advanced degrees. My father worked 5 ½ days a week and worked our ranch. In our family, we are all hard workers, respectful and recognize the importance of education and seek to maintain family traditions and relationships in the years to come.
A truly effective estate plan will address your "values legacy". What do you want your kids or grandkids to know that was important to you? What kind of adults or what character traits are important? For example, honest, hard-working, family traditions and healthy relationships are core values in my family. How can your estate plan influence and promote these values?
Your Estate Plan Should Promote Your Core Values
We all try to teach and motivate during our lifetimes. Your estate plan should reinforce those core values. Your estate plan should identify the key elements of those core values and those beliefs which you are most passionate about to motivate, educate and inspire those who will follow you.
To accomplish these goals, creative planning is needed. Each family's plan is unique, but some of the tools we offer are as follows:
- Incentive Provisions or Trusts. Trusts or trust provisions can be used to help motivate the next generation achieve their goals. Perhaps the most common example is education. If you have younger children, you often want them to graduate from college. An incentive provision does not simply provide that the cost of education will be paid. An incentive provision will provide a "performance bonus" if a degree is obtained from an accredited university before the age of 25. The "bonus" distribution is a way to communicate the importance of education.
- Documentation of the Family Story. A successful family has a unique story and history. That is easily lost in today's modern world. Sharing the family history with children and grandchildren can be a very powerful tool. A business owner or patriarch/matriarch may have struggled to succeed and overcome many barriers or challenges. This story should be shared in a way that educates, inspires and motivates the next generation. A family meeting and perhaps a legacy video may prevent a family's unique story or history from being lost.
- Family Retreat. An annual family trip or retreat can be combined with an educational speaker, event or discussion. This can be a very powerful tool and need not be overly expensive. Such an event can include outside speakers. I recently attended an event where a granddaughter of Lawrence Welk spoke on how their family educated future generations on how to become productive, competent, confident persons of good character. For a high net worth family, such an event can be very effective and may become an ongoing tradition for the family.
Another example may be the desire for your children to have a full time job. Many clients do not wish to create trust fund babies who live off of their inheritance. Those clients may require that their heirs have a full time job during certain age ranges to prevent their heirs from simply living off of the inheritance. We want to develop the desire and ability for our heirs to be productive members of society.
- Personal Directions Letter. We suggest that each of our clients provide their successor trustee 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 and may identify the core values that we wish to instill in future generations. This letter may or may not be shown to the heirs.
A truly effective estate plan goes far beyond simply moving assets from one generation to the next. An estate plan provides a unique opportunity to protect those assets from divorce, lawsuits, creditors, bankruptcy and estate tax. A truly effective estate plan can also inspire, motivate and educate the next generation to be persons of good character, more competent, confident persons and to preserve a client's or client family's core values to future generations.
If you have any questions about this topic, please contact the Goralka Law Firm.