Planning Your Legacy
Whilst no one sets out to leave a financial mess behind if they lose mental capacity or pass away, if you want to leave your family fond memories rather than confusion and conflict, you need to properly consider and document your legacy plans. It’s rarely an easy topic to consider or talk about, but once addressed, it can make a significant difference to your ability to get on and enjoy life.
Legacy planning requires a whole-of-life approach. Simply having a Will in place is rarely enough.
Comprehensive legacy planning is built around your values and life goals. Our Senior Advisers have helped many clients construct and document a detailed legacy plan. We’ve described below a few key matters which we believe all families need to consider.
Parental Responsibilities
Parents have a responsibility to prepare their family to receive money. They shouldn’t simply expect or hope everything will be ok. Unfortunately, many professions who are supposed to assist with wealth transition focus more on preparing the money for heirs rather than preparing heirs for money. This is a transactional approach to the issue, and capacity building takes time to do properly.
As an example, a Wells Fargo study showed 69% of older respondents view monetary gifts to children and beneficiaries as an expression of love, whilst 30% of Millennials say monetary gifts are a way to exert control or influence.
Toxic Outcomes
The potential flashpoints amongst beneficiaries is often a long list. Whilst many people think their children will behave appropriately in dealing with their estate, in our experience it is often the children’s spouses who plant seeds of conflict. The genesis may be a perceived inequality of treatment over the years, or one sibling feeling a need to intervene in how another sibling is spending the money they’ve observed their parents accumulate over decades.
Identifying these pressure points today and building strategies to address them can reduce the risk of fractured family relationships in the future. Sometimes the optimal solution is simply having a chat, but you should start by considering what factors could give rise to disharmony amongst your beneficiaries.
Lifting the Curtain
Do your beneficiaries have any sense of your current wealth? How may they react if they found out? No one wants their wealth to cause their loved ones to live shallow lives. As Warren Buffett said, “leave your children enough so they can do anything, but not enough so they can do nothing”.
At what point could money become destructive to a child? Is it $500,000, or $1 million, or $10 million? If I buy my child a car or house, is this helpful or harmful? These are important questions to consider and plan for.
Sharing Stories
Do your children understand the trials and tribulations you and your family experienced to build the wealth and life you enjoy today? The odds are your story involves working hard, saving money where you can, and investing wisely. These are all important lessons to pass onto the next generation, but it’s well documented that storytelling is the most effective way to help people learn. Plan to spend time telling your story to your children and grandchildren who may one day benefit financially from your efforts.
Your heir’s responsibilities
Even within the same family, children often behave very differently with money. People are continually demonstrating their level of financial responsibility through their behaviour – what have you observed about your children’s approach to money?
Red flags can include credit card debt and periodic reliance on parents for financial assistance because they haven’t set aside money for emergencies. Learning how to budget early on and understanding you need to prioritise your spending habits rather than live pay cheque to pay cheque are ways your beneficiaries may demonstrate they are ready to accept money one day. If these behaviours aren’t evident, then considering how to put protections in place becomes essential.
Philanthropy
Many people want to leave a legacy which extends beyond their family. Some set up charitable foundations for their family to not only make the world a better place, but also to help educate their children about good financial governance. We have helped clients set up over 20 Private Ancillary Funds (Foundations), all with different time horizons and objectives. Most would describe the experience as fun and rewarding.
Use an Expert
Estate planning can be a minefield – Wills, Trusts, Powers of Attorney, Guardianship, testamentary trustees, Companies, Shareholdings and Appointors are a few of the matters which may require consideration. Some people dutifully put these documents in place, but don’t have the right conversations beforehand to clarify their wishes and determine how best to structure their estate for the best interests of their beneficiaries and their desired legacy.
We always recommend engaging an expert estate lawyer to draft Wills. The solicitor who “does a bit of everything” is rarely up to the task of dealing with the complexity. An expert may cost a little more, but you are more likely to have the peace of mind of knowing your legacy has been documented properly. We have vetted a number of estate lawyers who we collaborate with to look after our clients.
Ongoing Evaluation
Your legacy and estate plans are never set and forget. Your biggest worry about leaving money to beneficiaries today could be quite different in a few years’ time. The potential risk factors to future family harmony often change over time.
With the coming months likely to involve many family interactions, there is no better time to stop and reflect on whether your legacy planning is on track. Our team of advisers has a dedicated questionnaire we can walk you through to help clarify how you should ideally approach your legacy planning to increase the chance of a successful outcome for you and your beneficiaries.
Author: Rick Walker