The Legacy Your Children Deserve

by William T. Knox IV, CFP, CFA, JD, formerly of RegentAtlantic Capital, LLC

William T. Knox of RegentAtlantic Capital, LLC

From the moment our children are born, we must consider and plan for their future without us. As new parents, we are well advised to prepare for every scenario — including one in which our kids might lose both Mom and Dad prematurely. For their protection, we appoint guardians who will care for them and trustees to look after our assets wisely on their behalf.

Just as our parenting roles evolve as the children mature into adults, so do the issues that lie at the heart of thoughtful estate planning. As we start to savor this later phase of life — the freedom that comes with an empty nest, possible retirement and accrued financial assets — we may think anew about what to do with those assets when we no longer need them. At this stage, the picture often includes more potential beneficiaries, including grandchildren and those charities with which we’ve been involved.

Every estate plan, however simple or complex, is in effect someone’s answers to a list of questions. The list may be short or long, and there are no right or wrong answers. The one mistake is not to pose these questions to yourself, spell out your answers in well-crafted documents, and repeat the exercise every few years or so. Here are basic questions that need to be posed as we revisit our estate plans in our mature years:

If you’re financially secure, are you already making lifetime gifts at a sensible level? Lifetime gifts to individuals enjoy special tax advantages, and lifetime gifts to charities reduce your income taxes. The added bonus is that you’re still around to watch the beneficiaries enjoy your generosity.

Who should benefit from your remaining assets when you die? If you don’t leave a surviving spouse, how should your assets be divided among your children, grandchildren, other people you’ve been close to, and charities or causes that are important to you?

Among beneficiaries of the same class, is treating them “equally” the same as treating them “fairly”? Or do some beneficiaries deserve — or require — different or special treatment compared to other similar beneficiaries? Are grandchildren in a different category than children?

Should beneficiaries have to reach any milestones or achieve certain goals in order to receive their inheritance? So-called “incentive gifts” may sound smart, but they can be challenging to administer. Some people believe that major inheritances should at least be deferred until beneficiaries have had to stand on their own feet for a while, e.g., age 35 or 40.

To what extent should gifts be made via long-term trusts, rather than handed to the beneficiaries outright? This question involves several issues: a beneficiary’s ability to manage assets sensibly; the potential for a large inheritance to dull a beneficiary’s ambition or rob them of the chance to “do it themselves”; the exposure of assets to claims by a beneficiary’s ex-spouses and creditors; the exposure of assets upon a beneficiary’s death to taxes that could have been avoided.

When has a beneficiary received “enough”? Or received “too much”? It isn’t surprising that many people, having paid income and property taxes all their lives, are eager to stiff the government when they die. But avoiding death taxes is one thing; leaving every last nickel to your heirs might not be the best answer.

Stated another way, should your death be viewed as the Great Lottery Day by your family, the day when the lucky survivors’ lifestyles got a permanent lift? Or should it mark the time when you handed each appropriate family member and friend a helpful share of the assets you didn’t need, and gave the rest to the causes you believed in that will outlive all of us?

What it comes down to is: how would you like to be remembered? Shouldn’t your estate plan reinforce all that you stood for during your life? As a parent (and perhaps grandparent), you shared a lot more than your assets with your offspring. Shouldn’t your estate plan be a final act of sharing your values with them?

Should you make outright charitable gifts through your estate, or endow a long-term charitable fund? Many people hope that a permanent charitable fund will give their descendants a chance to stay in touch with each other and build their own “gifting muscles” while remembering their generous ancestor for many years (decades, centuries).

And once you’ve answered all these questions, you should consider one last question: Has the time come to discuss your assets and your estate plan with your beneficiaries? If not, how much longer will their continued ignorance be helpful to them, or to you?