Estate planning is vital for people with significant wealth. A properly structured plan can aid in the successful distribution of your assets to those you love. Transferring assets to your beneficiaries, while avoiding estate taxes, is paramount for most individuals.
Estate planning is primarily a one-time event. You meet with your attorney, create a will or trust, and then you put it in your safe. The documents probably contain standard language to transfer money to your children, relatives, or charities once you’re deceased.
Of course, you’ll have no control over how your estate plan will turn out because you’ll be dead. The successful distribution of your estate will rely on others, hopefully people you trust, to honor your wishes. Yes, your instructions are written and recorded, but your executor still must execute. The beneficiary can pursue legal action if they’re aware of a breach of fiduciary duty by the trustee.
An addition to your estate plan is a wealth transfer plan. A wealth transfer plan is a process allowing you to give money away while you’re living. You will be able to control the assets, distribution, and timing of your gifts.
For example, if you give money to your children and they’re excellent stewards of your gift, then you can entrust them with more money. If they aren’t, you can limit how much money they’ll receive in the future. It’s a test run.
The same is true for gifts to churches, charities, and organizations. You’ll be able to witness how they handle your donation. If they do it well, you can be confident they’ll treat your future gifts in the same manner. If they’re poor stewards, you can remove them from your estate plan.
A wealth transfer plan will allow you to actively manage your distributions, a luxury you won’t have with your estate plan once you’re gone.
His master replied, ‘Well done, good and faithful servant! You have been faithful with a few things; I will put you in charge of many things. ~ Matthew 25:21
A few years ago, I was having a conversation with a client about her estate plan. We discussed giving her money away sooner rather than later. She wanted to support her family financially while experiencing the joy of giving. She decided to help the younger generation with their education. As a result, her gifts will bear fruit for decades. Her giving has not hindered her financial plan, if anything, it has been enhanced.
A wealth transfer plan will also help your beneficiaries because they’ll be part of the process. No one likes surprises, even if it’s millions of dollars. A large, unexpected gift may do more harm than good, especially if your kids don’t have the experience to manage substantial wealth. Including children in the conversation about how you plan to distribute your estate will set expectations for all. Your family will remain united and, hopefully, sibling rivalries will be avoided.
Estate planning involves trust, love and respect. If you put significant restrictions on your children before they can receive their money, you probably don’t trust them much. It’s a lack of trust if you make your children adhere to several rules or jump through hoops to be compliant with your wishes. What is the message you’re sending? I love you, but… If you don’t trust your kids with how they’ll spend the money, don’t give them any. Setting up a trust with trap doors won’t change their behavior or your faith in their ability to meet your demands. Of course, if your kids are minors or have special needs, then a trust is recommended.
Giving through a wealth transfer program will educate your kids on how best to handle money. Your experience and wisdom can help them become better stewards of resources. Working together as a family will pay dividends for years to come.
Wisdom, like an inheritance, is a good thing and benefits those who see the sun. Wisdom is a shelter as money is a shelter, but the advantage of knowledge is this: Wisdom preserves those who have it. ~ Ecclesiastes 7:11-12
Randy Alcorn said, “You can’t take it with you, but you can send it ahead.” Wise words. There are no banks in Heaven. What’s the point of dying with millions, or billions, of dollars? Why not distribute your estate while you can?
Here are a few questions to ask if you want to create a wealth transfer program.
Why are you saving money? What’s the goal for your resources? A financial plan can answer these questions. Your plan can create multiple giving scenarios and strategies. The plan will quantify and clarify your goals.
Who will receive your money? When will they receive it? How will they receive it? The timing and titling of your assets is important.
Do you own a business? Who will run it when your gone? Do your kids want to be business owners? Do they have the capacity to operate a company? If you have multiple children, who will call the shots?
What if your wrong? If your giving plan isn’t working, you can make changes while you’re alive and in control. After your gone, your estate plan is irrevocable.
So, should you ditch your estate plan? No. A thoughtful wealth transfer plan, coupled with your estate plan, will benefit many – especially you and your family. You’ll be able to witness the joy of giving and they’ll be able to create a solid foundation. Win-win.
Naked I came from my mother’s womb, and naked I will depart. The Lord gave, and the Lord has taken away; may the name of the Lord be praised. ~ Job 21:1-2
December 13, 2018
Bill Parrott is the President and CEO of Parrott Wealth Management firm located in Austin, Texas. Parrott Wealth Management is a fee-only, fiduciary, registered investment advisor firm. Our goal is to remove complexity, confusion, and worry from the investment and financial planning process to help our clients pursue a life of purpose.
Note: Investments are not guaranteed and do involve risk. Your returns may differ than those posted in this blog.