“To ensure a lasting legacy, you need to get your documents in order and have a clear plan for how your wealth will transfer, avoiding taxes and inheritor pitfalls along the way.”
Asset distribution is how many estate plans begin, but we can create legacies for generations to come through our estate planning, says Kiplinger in the article “Legacy Planning: Create a Lasting Legacy“. You may not realize it until you sit down to prepare an estate plan, or even until you prepare a second estate plan. Your life has been devoted to building wealth and now it’s time to plan for the next generation. This is when estate planning becomes legacy planning.
Why is Legacy Planning Important?
If the goal is to leave wealth to children, the plan may be simply to bequeath assets.
However, if children are not good at handling money or if there is a concern about a marriage’s longevity, then you’ll want to look past a simple transfer of assets on death. For some families, a concern is leaving too much wealth to children, undermining the parent’s life of work and respect for their accomplishments. Legacy planning addresses these and other serious issues.
New York estate planning is crucial for tailoring estate plans to comply with both state and federal laws. It involves advanced planning strategies, avoiding probate, and understanding the implications of New York estate tax. Consulting with legal advisors can help navigate these complex issues.
Which Documents are Necessary for Estate Planning?
Most people need the following documents:
- Revocable Living Trust, or RLT. The person who creates this trust maintains full control of assets that are titled to the trust while they are living, and then directs how assets are to be passed on when one spouse dies and then after both spouses die.
- Pour-Over Wills. Used in conjunction with an RLT, these work to direct assets to the RLT.
- Durable Power of Attorney. These documents are part of planning for incapacity. They designate a person who will make financial and/or legal decisions for you if you cannot do so.
- Health Care Directives. Note that these have different names and details, depending on the state. For most people, they consist of a Health Care Proxy and, in some states, a Living Will. The Health Care Proxy names a person who can make health care decisions if you can’t do so for yourself. These documents provide a platform for you to share wishes about medical care, giving guidance about your wishes if you become too ill to communicate, including your wishes on pain medication, artificial feeding and hydration and resuscitation.
It is crucial to consult with tax and legal advisors when preparing these documents to ensure compliance with both state and federal laws.
How Do I Leave a Lasting Legacy?
Many people believe that their children should be the only beneficiaries of their wealth. However, for others, even those with modest estates, supporting an organization that has meaning to them through a gift in their will is just as important as leaving money to children and grandchildren.
Here are a few questions to consider when thinking about a legacy:
- How much wealth is “enough” for heirs?
- At what age should money be transferred to heirs?
- Should incentive milestones be created, like completing college, attaining higher education goals, or staying sober?
It is also important to address tangible personal property in estate planning to prevent family disputes and ensure that heirlooms are distributed according to the deceased’s wishes.
If assets are left directly to children, there is always the risk that they may lose the wealth. Sometimes that is not the child’s fault, but this can be prevented with good planning. Inherited assets can be protected in trusts which can be created to protect wealth and provide for professional management.
Do Trusts Avoid Estate Taxes?
Another important consideration when creating a legacy is minimizing tax liabilities, including estate tax and federal estate tax. Not every estate plan is designed with taxes in mind, so you’ll want to discuss the implications of gift and estate tax for married couples with your estate planning attorney. The issue of taxes can become more complex if the estate includes illiquid assets, such as real estate or a family-owned business. Additionally, understanding the new york estate tax and its unique calculation rules is crucial. New york estate taxes can be particularly burdensome due to the ‘cliff tax’ structure. It’s also important to be aware of new york’s estate tax and its lack of portability between spouses. The york estate tax has significant implications for both residents and non-residents. Strategic planning is necessary to maximize the york estate tax exclusion for the first spouse. For york estate tax purposes, specific calculations and thresholds must be considered. The york estate tax rate can significantly impact estates just above the exemption limit. Seeking professional advice is essential to mitigate york estate taxes effectively.
Reference: Kiplinger (Oct. 30, 2020) “Legacy Planning: Create a Lasting Legacy”
