Gifts + Estate Planning

From Barron’s: Legacy Planning Can Be Tricky. How to Divide Your Estate and Keep Heirs Happy.

BY Spectrum Wealth Management | Aug 26, 2022
By Debbie Carlson
August 15, 2022

Leaving a legacy isn’t just for wealthy families with large estates. Rather, it’s an opportunity for people to revisit family values and create ways to be remembered by future generations. And interest is picking up.

Jared Nelson, silver sales manager for Danish design company Georg Jensen, known for its high-end silver products, says as Covid delayed events such as weddings, the firm saw a surge in clients buying items as gifts that could become legacy items—such as children’s spoons to celebrate births and candlesticks for newlywed couples. 

But legacy planning often goes beyond the tangible and heirlooms, and it can be tough since it means discussing two sticky subjects: death and money. 

Jeff Winn, managing partner at International Assets Advisory, says legacy planning is critical to avoid unintended hard feelings between heirs. Grandparents and parents shouldn’t leave heirs to decide who gets what after their passing, he says. “People will say, ‘Love will find a way.’ Stop that. … The way love finds a way is you have a clear conversation,” he says.

There are several ways people can leave legacies, whether it’s through tangible assets passed on to private heirs or public gifts to institutions. Financial advisors say early planning and communication can avoid potential pitfalls while making a lasting impact on recipients. Here are some points to consider.

Plan Early and Communicate

Legacies are often built around items with special meaning, such as jewelry, artwork or vacation homes. As heads of families think about passing on these assets, they need to plan how to divide these items—some of which aren’t neatly divisible—and talk with heirs. 

Start conversations by discussing what certain items mean to the family or how it represents the family’s values, says Andy Hart, CEO of Delegate Advisors. Parents and grandparents can express their wishes for whom they think may care for these items in the future, and family members can mention what they cherish. 

Sometimes it’s obvious that one family member may like a ring or a rug. If it’s not obvious which heir wants what, Winn says the givers should reach out and start a discussion that may give them insight on how best to divide legacy items equitably. 

“I’ve been in positions where families say, ‘Here are 15 or 20 things. Do you kids have a real desire for any of them specifically? If so, please speak up and we’ll do our best to figure out how to pass them on,’ ” he says.

These early talks matter. Nelson says he’s witnessed families gripe and fight about who received family heirlooms, especially if there’s only a single piece. He encourages people who are buying items now with the intent of these being passed down to buy more than one to avoid future fights. 

The Solomonic Situation

Ken Van Leeuwen, managing director of private-wealth manager Van Leeuwen & Co., is working with a client in Nantucket, Mass., who wants to leave her home to children and grandchildren. She’s setting it up in a trust with one of her children as trustee, and is figuring out how the trust can pay for upkeep. She’s also laying out a list of rules for property maintenance and how future family members can decide if it needs to be sold. 

“Her legacy is spelling out how she wants things done,” he says.

Andrew Busser, president, family office at Pitcairn, says he recently worked with three siblings who inherited a Maine vacation home. One sibling wanted to sell it, another wanted to keep the home but couldn’t afford maintenance, and the third also wanted to keep it. After several discussions, the third sibling bought out the other two, but as part of the sale agreement, the second sibling rents the home for two weeks.

Working With Institutions

Another way to create a legacy is through donations to museums and other nonprofit groups. Hart says donors can spell out conditions about the gift, such as when it may be displayed and how, and whether it can be sold. This can be especially important if the donation is of a collection that’s extremely valuable or may have an intangible significance, such as historic documents. 

Busser says givers should arrange for these donations while they are alive so both parties can work out key details, rather than hitting an institution with a surprise donation. “You want them to know about it, so that they are well prepared to take receipt and to care for things,” he says.

Advisors say it’s also important to get proper documentation of the donation, including appraisal, especially if the donation is part of tax write-off.

Donors can create legacies by supporting favorite causes at institutions with a lump-sum financial gift that’s paid out over time, Winn says. That helps remind people in the organization of their connection with the donor over the years. 

Establishing a lasting gift can be a significant lift for the average person, but that’s where the planning comes in. Winn suggests that gifts such as endowed scholarships that are meant to last 10 years or more should be seeded with at least $100,000, with an eye to disperse 5% a year. That’s enough money to substantially help the recipient.

The average person can use donor-advised funds to save for larger legacy objectives and get the tax deduction right away, while others with more substantial wealth can use trusts. Hart says tax-conscious people will benefit from early planning because they can move that money out of their estate while giving it time to grow in a tax shelter.

“The moment you know that you have enough money to do everything you want to do…you should start to think about where you want the (extra money) to go,” he says.

This article was written by Debbie Carlson, MarketWatch, and published in Barron’s on August 15, 2022.

  2. Image courtesy of iStock

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