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Don’t Just Leave Money Behind … Leave a Legacy

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Baby boomers will leave behind more than $30 trillion over the next 3 decades.

That’s a lot of money that holds with it the power to do great things—or nothing at all. Because while judgment, discipline, and balance are all qualities we hope for in our heirs, let’s face it: there’s a good chance we’d be rolling over in our graves if we could see what happens to all our hard-earned wealth after it passes from our hands to the next generation.

The first time I saw how quickly an inheritance could vanish was 30 years ago. A new client, Jackie, came to us for help investing a $500K inheritance she’d received from her parents. She was just 30 years old, single, and was barely getting by financially while caring for her 9-year-old son, so this gift—which was worth considerably more back in 1986—was a wonderful blessing. But while she asked for our guidance, her Hollywood friends convinced her to “invest” every penny of her inheritance in a new movie. In less than a year, the money was gone. Jackie truly believed she was making the best choice, but her lack of wisdom cost her and her son what could have been significant benefits. Instead of a new home or an education for her son, the only thing Jackie walked away with was a hard-earned lesson in finance.

Unfortunately, Jackie’s story isn’t uncommon. If Jackie’s parents had left the inheritance in a Trust for the needs of their daughter and grandson, she may have been able to go back to school to get her degree, he may have been able to attend college, or Jackie could have purchased a nice home for them to live in. Instead, the money went up in smoke.

The simple way to avoid a similar bad ending is to put regulators in place on how, when, and in what way the money we leave behind can be used. Here are 5 steps to get you started:

1. Learn about your beneficiaries’ values and if they’ve demonstrated good judgment in their lives.

Have one-on-one conversations to discuss subjects that often never come up unless you choose to “go there.” Take your child or grandchild to lunch to chat about major life issues and important values. Have they experienced any debilitating addictions to chemical or alcohol? Is there a history of financial irresponsibility such as not paying back creditors or family members? What about the future? What education would they add if money were not a barrier? What do they wish for their children’s education? What charities do they volunteer for, give donations to, or admire?

2. Determine how you want your assets to be used.

While the most common choice is to provide an inheritance directly, with no restrictions on how the money is spent, leaving the money in Trust may be a wiser choice. The specific Trust provisions will determine how the funds can be used. And I recommend writing a letter to the Trustee of the Trust who will have the final say in how and when funds are to be paid out. For instance, if you want your granddaughter to be able to buy a car, provide a general price range in the letter, and remember that specifications are easily updated in the future with the stroke of a pen.

3. Identify the most appropriate Trustee.

Allison is 71 years old and widowed. She has no children of her own, but she has a stepson, Allen, who is 52 years old and not fully functional. When we spoke last week, Allison was about to name Allen as her executor. Knowing him a little and her a lot, I suggested she assign her younger cousin as her Trustee instead. When Allison passes, her cousin will be able to guide Allen’s spending and help ensure Allison’s legacy isn’t squandered. (If you don’t have a person in your life whom you feel would be right for the job, consider using a corporate trustee such as a bank).

4. Review your Will to be sure all the pieces are in order.

Perry was recently remarried, and he and his new wife asked us to review their Wills and beneficiaries and make recommendations. It’s a good thing! Perry’s ex-wife was still listed as his beneficiary even though they’d been divorced for more than 15 years. And contact information was missing for his adult children who were also listed as beneficiaries. While it may seem obvious, it’s these details that can derail the transfer of your estate when the time comes.

5. Work with your financial advisor and estate attorney to be sure everything is structured according to your wishes. 

All too often, a Will or Trust is never even read by the client. Be sure you understand what each document says, and be sure they’re structured honor your wishes when you’re not around to clarify.

Andy and Geraldine are a great example of wise planning. When they married in their early 60s, Geraldine had no children, and Andy had two children and three grandchildren. When Andy died at age 72, Geraldine was the beneficiary on the house and his 401(k) and IRA. The life insurance of $150K was payable to an Educational Trust for the benefit of Andy’s three grandchildren. As a result, two of his grandchildren were able to fund their degrees at top universities, and the third is now finishing a computer programming degree. The remaining money in the Trust will be paid out next year proportionately to the grandkids.Geraldine is still working and will be quite comfortable when she retires.

The most basic definition of a legacy is “a gift of property or money,” but by taking these five basic steps today, you can go a step further: Plan today to ensure you are giving a lasting gift that enables your beneficiaries to fulfill their personal and financial potential.

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