Dear Clients and Friends,
We are blessed by the extraordinary legacy that George H. W. Bush, the 41st President of the United States, left when he died in November of 2018 at the age of 94. About thirty years earlier in his January 1989 Inaugural Address, former President Bush said:
“We cannot hope only to leave our children a bigger car, a bigger bank account. We must hope to give them a sense of what it means to be a loyal friend, a loving parent, a citizen who leaves his home, his neighborhood, and town better than he found it. What do we want the men and women who work with us to say when we are no longer there? That we were more driven to succeed than anyone around us? Or that we stopped to ask if a sick child had gotten better, and stayed a moment there to trade a word of friendship?”
His son, George W. Bush, the 43rd President of the United States, repeated these words in his father’s eulogy and said:
“Well, Dad – we’re going to remember you for exactly that and so much more.”
In his speech, he described his Dad as a noble, loyal, honorable, patient, kind, loving, humorous, humble, optimistic, patriotic, empathetic, generous, and courageous. He also added that his Dad was a man that respected life, valued character over pedigree, looked for the good in others, cherished his family and friends, and was sustained by the love of the Almighty. What a legacy both George and Barbara Bush lived and what a legacy they left for us.
As private wealth advisors, we have the privilege of helping families not only grow their wealth but helping them to think holistically and comprehensive about their wealth. It’s a planning process I call “Concerto,” where purpose, values, and goals orchestrate legacy strategies across family, wealth, business and philanthropic disciplines. These legacy strategies help families not only plan for how they are going to leave a legacy in the future, but how they will live a legacy now.
I love Stephen Covey’s quote: “Live, love, laugh and leave a legacy” as it captures this perspective perfectly. Living and leaving a legacy is not only about money or property, but something more precious – to pass on our roots, our family history, wisdom, and values. Herbert Spencer said: “To be rooted is perhaps the most important and least recognized need of the human soul.“ Hodding Carter goes on to say: “There are only two lasting bequests we can hope to give our children. One is roots and the other is wings.” This is what we need to leave as a legacy – roots and wings for the younger generations who so desperately long for it.
In this issue of The Financierge, we focus on estate planning, a critical component of family, wealth, business and philanthropic legacy strategies. We will provide an overview of estate planning and it’s importance and conclude with some ideas and actions steps to consider. We are also excited to include an entertaining and educational audio and video interview with one of our estate planning attorney referrals, Laura Meier. Laura is the co-founder of her firm, a #1 best-selling author, and a frequent keynote speaker and sought after contributor on radio and TV.
The Financierge AUDIO Podcast
with Laura Meier, Estate Planning Attorney
The Financierge VIDEO Podcast
with Laura Meier, Estate Planning Attorney
Estate Planning and Why It’s Important
“To laugh often and much; To win the respect of intelligent people and the affection of children; To earn the appreciation of honest critics and endure the betrayal of false friends; To appreciate beauty, to find the best in others; To leave the world a bit better, whether by a healthy child, a garden patch, or a redeemed social condition; To know even one life has breathed easier because you have lived. This is to have succeeded.” – Ralph Waldo Emerson
Like any strategy, most of us need a plan to help us achieve a goal. Creating a legacy plan is no different. The optimal place to start is by identifying our purpose, goals, and values. This will guide how we live and shape our family, wealth, business and philanthropic legacy plans. Our legacy plan is not our estate plan. However, estate planning is critical to the successful execution of our legacy plan. Estate planning is the legal process of preparing for the management and disposal of our estate during our life, and at and after our death. The following are some of our thoughts on estate planning and why it’s important:
Family Protection – Estate planning gives us peace of mind because we know our loved ones are financially taken care of, protected from making painful choices about our medical care, and receiving their inheritance in a timely manner. It also protects our family from creditors and predators, from squandering wealth, from losing access to needed benefits, and allows us to name a trusted guardian to raise our minor children.
Asset Protection– Estate planning helps us execute our legacy plan – who inherits what, when they inherit, and how they inherit. It also helps to protect our assets, facilitate a timely transfer, and to possibly defer or reduce tax. If we don’t have a plan, our family may end up fighting over assets, or even worse – our State of residence will decide for us.
Asset Transfer – Estate planning helps us to transfer our businesses, homes, cars, yachts, planes, jewelry, art and other personal property. Some of this property, such as real estate, may transfer automatically to co-owners. For other assets, such as retirement accounts, they will transfer to our named beneficiary. That’s why it’s important to make sure our beneficiary designations are always correct.
Wealth Protection – Estate planning has several asset protection tools that help keep our wealth safe during our lifetime, as it passes to our loved ones, and long after our death. We can also protect wealth by making a business succession plan to ensure our businesses successfully transfer ownership upon our death.
Tax Planning – Estate planning can also help us to defer or minimize gift, estate, generation-skipping transfer, and income taxes. Depending on the size of our estate, our loved ones could lose money and property due to high estate tax costs. For 2019, we won’t owe federal estate taxes unless our estate exceeds $11.4 million (for an individual), or $22.8 million (for a couple). If we leave money or property to our spouse or a charity, there is no tax. If we leave our estate to our spouse, they can claim the total exemption when they die. There are also several other advanced estate planning techniques to reduce taxes on our estate.
Note – The current 2019 federal estate tax has rates up to 40% for estates that exceed $11.4 million (individual), or $22.8 million (couple). Also, there are 15 states and the District of Columbia that have an additional state estate tax, and six states that have an inheritance tax. Maryland and New Jersey have both. The current federal estate tax exemption is expected to sunset on December 31, 2025, and reduce to about $6M per individual.
Advance Healthcare Control – Estate planning supports our wishes if we become incapacitated by illness or accident. It will specify where we live, who will take care of us, what medical care we will receive, and who will make decisions on our behalf. If we don’t have an estate plan, the court in our State of Residence will appoint a guardian who may not know our wishes or be someone we don’t want to make decisions for us.
Funeral Wishes – Estate planning helps to lay out the kind of funeral arrangements we would like, and how the expenses will be paid.
Philanthropy – Estate planning helps us with our philanthropic legacy goals. For example, we may want to provide a donation to a charity when we pass on by creating a charitable foundation or charitable remainder trust or simply making a bequest.
Digital Estate – Estate planning helps us manage our digital estate by naming a digital executor and trustee of online accounts, usernames, and passwords.
The following are some of the tools that are used to accomplish our estate planning goals:
Last Will and Testament – Wills allow us to provide instructions for who inherits what and must go through a probate process. The probate process is costly, time-consuming and there is a loss of privacy because personal information becomes court and public record.
Trusts – Trusts allow us to separate legal ownership of property and its beneficial use. Trusts keep assets safe and control how we provide for loved ones. As an example, special needs trusts can be used to provide for a disabled loved one while ensuring money is managed appropriately and access to important government benefits isn’t lost. Spendthrift trusts can be used to ensure an irresponsible heir doesn’t waste an inheritance or lose it in bankruptcy. A Medicaid asset protection trust can be used to help loved ones qualify for Medicaid to pay for a nursing home without having to impoverish themselves first.
Corporations – Incorporating a business helps facilitate the transfer of assets to our heirs because it is a legal and separate identity from the individual providing certain advantages and protections for the business owner. For example, if we create a Limited Liability Company (LLC), the LLC can own the assets, we can be the managing member, and our family members can be given an ownership interest in the LLC. Because the family members lack control, the value of their interest is low, so gift taxes or estate taxes aren’t triggered by the transfer of ownership.
Inter Vivos Gifts – Inter Vivos gifts are gifts given during our lifetime – for 2019, that’s $15,000 per donee. It reduces the value of our estate which reduces federal and state estate taxes.
Living Will – A living will describes the kind of medical care we want to receive or reject under different types of circumstances.
Advanced Healthcare Directive – An advanced healthcare directive provides instructions for the healthcare choices we desire should we become incapacitated. Oftentimes, it includes the creation of a living will and names a healthcare power of attorney – a person who will make healthcare decisions for us.
Durable Power of Attorney – A durable power of attorney gives someone the authority to make certain decisions for us and act on our behalf if we are incapacitated. A general power of attorney gives broad authority like control over our checking accounts. A healthcare power of attorney gives limited authority like control over our healthcare choices.
Joint Ownership – The ownership of assets such as real estate and investments can be structured as jointly owned property with rights of survivorship. The purpose of this is to allow jointly owned assets to automatically pass to the co-owner(s) upon our death without going through probate. Property joint ownership takes precedence over our Will.
Pay-on-Death or Transfer-on-Death Accounts – Pay-on-death (POD) or Transfer-on-Death (TOD) are used for bank and investment accounts and specify that if we die, that the assets are to automatically transfer to our designated beneficiary. This allows the money or property to transfer automatically outside of probate. Beneficiary designations take precedence over our Will, so it should be reviewed periodically.
Life Insurance – The purchase of life insurance can be a good tool to provide for our loved ones after our death. The beneficiary designation on a policy should be reviewed periodically. Oftentimes, it is optimal to have a trust be the beneficiary of our life insurance so that the money can be managed by a trustee for the benefit of a disabled or minor loved one, and also so there isn’t a loss to a benefits program like Medicaid. Also, the death benefit from our life insurance is subject to estate taxes. If you have a taxable estate over $11.4 million (per individual), then you should consider creating an irrevocable life insurance trust (ILIT) and transferring the policy to the trust. A properly designed ILIT can avoid estate and gift taxes and provide liquidity at death to pay for estate taxes.
Bottom Line and Action Steps
- Estate plans are a critical component of our legacy planning and wealth management. An estate plan protects our loved ones and provides us with peace of mind. If we don’t have an estate plan, the probate court in our State of residence has one for us that could cost our loved one’s time, money, public exposure, and other unintended consequences.
- Once our estate plan is in place, we should review it on an annual basis or when we have life changes so that our estate plan can be updated. The following are a few items to consider at least annually.
- Make sure trusts are funded and bank accounts, life insurance, homes, cars, and other tangible assets are titled in the name of the trust.
- Confirm named beneficiaries on our 401(k) and pension plans, investment and IRA accounts, bank accounts and insurance policies are correct. Also, make sure there we have a contingent beneficiary and consider a trust company if we don’t know anyone. We should also check beneficiary designations on digital assets like our reward points, social media, and digital storage devices. Or at a minimum provide someone with your accounts and login information.
- Photos and memories should be secured in some type of digital storage device or cloud service.
- Our financial and healthcare durable power of attorney should be checked for accuracy. We should also consider having a power or attorney for our young adult children in case we need to make medical and financial decisions once they’ve turned 18.
- Make sure someone knows our plan and our medical information. For clients, we store this in their online vault.
- And last but certainly not least, we should record a legacy video for our family that includes topics such as our values, hopes, wisdom, special memories, ancestry, and wishes at death. For clients, we can provide you with access to our video studio and use our interview questionnaire to help you through the process.
As a wealth management practice, not only do we help grow and protect your wealth, but we also help with all aspects of family, wealth, business, and philanthropic legacy planning. Please reach out with any questions, comments, or if there is anything we can do to serve you better.
May your loved ones be blessed as you live and leave a legacy.
Warm and best regards,
Don B. Saulic, CFP® CPA
Partner, Private Wealth Management
Select Financierge Topical Index (by Publish Date)
Business Entity Structures and New Tax Law Considerations (Aug 20, 2018)
Five Charitable Planning Perspectives to Know Before You Sell Your Business (Aug 20, 2018)
Two Estate Planning Tips for Your Businesses (Aug 20, 2018)
Four Strategies to Preserve Your Business’ Future (Aug 20, 2018)
Five Ideas about 529 College Savings Plans (Nov 2, 2017)
Dividend Stock Investing (Feb 14, 2018)
Six Items to Keep in Your Vault (Nov 16, 2017)
Twelve Proactive Tips to Fight Identity Theft (Nov 16, 2017)
Twelve Ideas to Guard Your Family in a Digital World (Nov 16, 2017)
Is Your Lifestyle Balanced and in SHAPE? (Nov 20, 2018)
Real Estate Planning
Four Points to Ponder Before Buying or Leasing a Home (Jun 22, 2018)
Six Considerations About Mortgages, Refinancing and Taxes (Jun 22, 2018)
Five Elements of Reverse Mortgages (Jun 22, 2018)
Four Perspectives to Consider in Deciding to Move to a State with Lower Taxes (Jun 22, 2018)
Risk Management and Insurance Planning
Starting Social Security Benefits – Ready, Set, Hold!? (Nov 2, 2017)
Nine Considerations to Maximize Social Security Benefits (Nov 2, 2017)
Lifestyles of the Affluent and Exposed (Nov 16, 2017)
Eight Benefits of Health Savings Accounts (Mar 16, 2018)
Seven Ideas for Life Insurance (Mar 16, 2018)
Six Considerations About Long-Term Care Insurance (Mar 16, 2018)
Starting Social Security Benefits – Ready, Set, Hold!? (Nov 2, 2017)
Ten Things to Know About IRAs and Saving for Retirement (Feb 14, 2018)
Cheers to Your Health, Wealth and Wisdom (Jan 15, 2019).