Estate Plans Versus Wealth Transfer Plans

Estate Planning Alone Won’t Always Accomplish Your Family and Financial Goals

Estate Plans Versus Wealth Transfer Plans

When it comes to estate planning, do you have your ducks in a row? Even if you have all the proper documentation in place, you may be missing an important piece of the puzzle if you don’t have a wealth transfer plan.

Estate Plans

Estate planning documents are the best way to ensure your assets are distributed according to your wishes when you die. When you pass away without a will or trust in place, state law will determine who receives your assets. Unfortunately, this may not be in accordance with what you would have preferred. When you record your wishes in a legal document, however, you get to choose exactly who benefits from your estate.

Another reason to have an estate plan is that, without one, your family will be left with some or all of the following:

  • Expensive attorney and court costs
  • Wasted time
  • Stress and frustration
  • Distribution of assets with no regard for your wishes

Proper estate planning documents remedy all of the above, and you also get valuable flexibility in who benefits from your assets. You may choose to leave your wealth to your family, close friends or your favorite charity, but your assets could also be used to pay taxes, attorneys or other service providers. Having the proper documents drawn up prior to your end of life means your assets go where you want them to go in a fairly quick and low-cost transfer process. Additionally, when your wishes are clear and in writing, it can help keep or instill family harmony during a difficult time.

If you haven’t begun your estate plan yet, please reach out to an estate planning attorney to determine the documents you will need to meet your family’s needs. If you are working with your financial planner/advisor, you can consider asking her/him for a recommendation as many competent and experienced financial planners have already built a network of estate attorneys they trust and enjoy working with.

Wealth Transfer Plans

If you already have your estate documents in order, you may be thinking there’s nothing more to do. However, estate planning in the absence of wealth transfer planning can lead to a number of unfortunate outcomes:

  • Family Drama – Too many families are torn apart by discord and jealousy brought on by poor estate planning. There can be feelings of jealousy and animosity when a family member passes away and beneficiaries are revealed. Some heirs may feel short-changed or simply confused about the deceased’s decision-making, and feelings of hurt can quickly become anger. This type of discord is especially troublesome when a family business is involved.

 Related article by Echo Huang, CFA, CFP®, CPA - Don’t Put it Off: A User-friendly Guide to Organizing Your Estate Plan

  • Loss of Wealth – It is not uncommon for family wealth to be gone by the second or third generation. Many times, heirs are simply unprepared to receive an inheritance, and they may make critical errors in tax planning and investing.
  • Too Much Too Soon – “Sudden Wealth Syndrome” is truly problematic for heirs who receive a large sum and then spend with wild abandon, failing to understand they are quickly squandering a family fortune that took time and effort to build.

Luckily, a safeguard exists to protect your family against all of these financial ills, and that safeguard is a wealth transfer plan. This plan consists of a series of decisions you make and actions you take to prepare your heirs for what will happen when you die.

Goals of a Wealth Transfer Plan

Perhaps the single most important part of wealth transfer planning is to openly communicate your goals and values as they relate to money and family. The following steps are also quite valuable:

  1. Be clear about your chosen heirs or beneficiaries, as well as time frames for asset transfers. Although this type of open discussion can lead to some bad feelings, you’ll have the opportunity to address issues while you’re still alive and put potential problems to rest.
  1. Introduce your heirs to your financial planner, your attorney, and your tax advisor. If they have questions, it’s easier to address them now while you’re still living.
  1. Build a foundation of financial understanding so your family will be better prepared when the time comes to receive your assets.  
  1. Discuss all the options for transferring your wealth, including the potential tax consequences of direct gifts or the importance of charitable giving when appropriate.
  1. Help your heirs begin their own estate planning so they will have documents in place that make them better prepared to accept their future inheritance.

Estate planning is important, but wealth transfer planning adds a critical layer of preparation for your family. Engage in both to ensure your assets are distributed and managed according to your wishes.

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