All That You Leave Behind: Planning Your Legacy

“A very rich person should leave his kids enough to do anything, but not enough to do nothing.”
-Warren Buffet, as quoted in a September 29, 1986 interview with Fortune.

inheritance-planning-tipsAccording to the consulting firm Accenture, boomer parents will be distributing about $30 trillion to their millennial descendants over the next 30-40 years. While it would seem that the subject would spark some lively and important inter-generational discussions, quite the opposite is true.

Martin Halbfinger, a private wealth manager at UBS Wealth Management, outlines four main reasons why families are hesitant to discuss the $30 trillion elephant in the room:

  • People tend to avoid discussing the uncomfortable subject of death at almost all costs.
  • Parents are resistant to disclosing their financial affairs to their children and other heirs.
  • Parents don’t want their children to know what they might receive on the chance it might cause friction between siblings.
  • They are concerned about how their children handle money and hesitant to create expectations.

The same basic elements make up most estate planning processes: a will, one or more trusts, the assignment of an executor for the estate, and a living will or medical power of attorney. Here are some suggestions for putting the pieces together for your heirs.

1. Make sure that your own needs are being met first.

When most commercial airliners take off, the flight attendant goes over the emergency procedures. If the cabin loses pressure and the oxygen masks pop out of the ceiling, we are instructed to secure our own mask and start to breathe normally BEFORE we help someone else with their mask. The point here is that you can’t properly help someone else until you’ve seen to your own needs first.

This bit of advice applies to estates as well. Your own health care and long-term living expenses must be provided for first, and even then, you must be cautious before committing certain assets or dollar figures to heirs. It is entirely possible that your own longevity or health care needs could exceed what you predict.

Parents may be tempted to neglect their own needs in favor of their children’s. For instance, parents have paid for children’s college expenses, only to become dependent on their children in later years when challenges arise and they have not taken care of their own needs first.

The greatest gift you can give your children is your own independence. Some ways to do this include:

  • utilizing investments outside of the stock market;
  • diversifying into different asset classes;
  • not waiting until retirement to create cash flow through investments;
  • owning one or more homes to build equity in real estate assets;
  • utilizing permanent life insurance that has cash value which can be borrowed against if needed.

You’ll also want to refrain from making promises that cannot be guaranteed. Remember that your assets will remain your assets to use as long as you need them. One you may find that circumstances, illness or longevity may lead you to consider selling a life insurance policy (death benefits can be sold in some circumstances) or obtaining a reverse mortgage on the family home for additional income.

2. Communicate clearly with your heirs.

Hand Giving MoneyDespite the reluctance of parents and children to discuss the inevitable, such communication is essential. Mark Accettura, a Detroit area elder law attorney, notes that while “estate planning is not a democratic process,” parents should let their heirs have a sense of their financial situation.

Atlanta Financial Psychologist Mary Gresham is a proponent of having a family meeting around the issue. These meetings are a great forum for going over instructions on where important documents are kept and who to contact should you pass away. (We also highly recommend This is also the perfect time to discuss your intentions and any questions your beneficiaries might have about how assets might be distributed.

No matter how well-intentioned, avoid setting up unrealistic expectations. While you should definitely discuss money matters with children, it is best to not lead them to assume all assets will be “theirs” someday.

There is a certain amount of awkwardness built in to these discussions, but that is nothing compared to the potential explosiveness of unpleasant surprises after you’ve gone. Take the trouble to explain the logic of your decisions with your children and allow for feedback.

3. Strive for fairness in distributing your estate.

Mark Accettura advises, “If you want to minimize fighting, leave it as equal as you possibly can.” Not only does this apply to assets, but also to assigning responsibility for settling your estate. He suggests that anyone with a level of capability should be assigned a small role at the very least.One common scenario involves an adult child who struggles financially and gets occasional (or regular) help from Mom and Dad. Whether assistance is doled out in your lifetime or via your estate, this kind of help can be counter-productive. In Millionaire Women Next Door, Thomas Stanley refers to such coddling as “Economic Outpatient Care (EOC).”

tack of old and young handsStanley’s research has led him to conclude that, over time, such gifts actually make the recipient less able to provide for themselves. Such favoritism also can lead to resentment and does little to foster healthy relationships between siblings. Relationships can be sorely tested by the inequitable distribution of your estate.

Those who receive the most assistance while their parents are alive generally receive a disproportionately large share of the estate as well. The successful children are essentially given negative reinforcement for achieving their own measure of success.

Regardless of what your concerns are, it is always prudent to consider the dynamics of your family. You may wish to discuss such issues in a family meeting or privately with each adult child.

4. Strive to be a prosperous role model and leave a legacy of financial self-confidence.

There is no reason to wait until a family meeting to involve your children in financial planning. The time to start teaching a sense of fiscal responsibility is when your kids are still young. (If they are grown, “now” is the next best time!)
Some ways to include your children in your financial life may be:

  • Give children a role in planning for family vacations, schooling, or other expenses.
  • Have regular occasional meetings about the household budget, involving the whole family in an awareness of how much things cost and how they can participate (for instance, by working together to manage utility costs.)
  • Share what you learn as you go about managing your savings and investments, creating cash flow, buying properties, or growing a business.
  • Consider using one or more whole life policies as a “family bank.” Family members can assist in determining the criteria for family loans, and can use such an instrument themselves to purchase their own cars, pay for graduate school, or start a business.

If you practice communicating with your children about money matters, you will instill a positive, open and practical attitude toward finances. This best financial legacy you can leave your children is to give them the tools to generate their own lasting wealth!
Contact your Prosperity Economics™ Advisor to discuss any of the ideas in this article, or contact us if you are in need of an advisor to assist you in creating a strategy for sustainable wealth.

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