Consider these five steps when planning a lasting, values-driven legacy.
A well-designed estate plan can form the foundation for a family legacy, providing a values road map for future generations to follow.
Cathy Nakamura, CTFA, senior vice president — senior trust advisor at Wells Fargo Bank in the Wells Fargo Wealth & Investment Management division, has experience helping clients navigate the process of planning a lasting, values-driven legacy.
“A good starting point is to determine what matters most to you and how you would like to see those priorities passed on through your estate plan. You can then create the structures and open communication that help carry your values to the next generation and beyond.”
Nakamura suggests taking these five steps to help extend the impact of your estate plan
1. Create a family mission statement
A family mission statement explains what you value and hope to pass on to the next generation. While a family mission statement is not a legally binding document, it can be impactful in communicating your values to future generations. Working through the details of that mission statement together, as a family, can help the next generation succeed when it comes to the wishes outlined in an estate plan — one of the key components that can be frequently overlooked.
“Oftentimes, it’s not until there’s a life event that the next generation is introduced to the family’s wealth and estate plan,” Nakamura says. “It could be a surprise, and the next generation may not know what to do with the funds or how to honor their parents’ wishes.”
She encourages parents to first outline their goals and objectives within their estate plan and create their family mission statement before sharing plans with other family members. A trust advisor and wealth strategist can help in that regard in partnership with your estate planning attorney.
“It starts with the wealth creator identifying what they want their legacy to be — and what purpose they want to achieve,” Nakamura says. “We can help engage the next generation and facilitate meaningful discussions among family members on their family values and fine-tune the family mission statement together.”
Communication with the wealth creators helps future generations understand the rationale of the estate plan and the family mission statement and helps alleviate potential family conflict.
2. Encourage actions that align with family values
Your estate plan can help encourage behaviors in future generations that are consistent with your family values. “For example, parents could add provisions that support a child who chooses a profession that is typically less lucrative than other professions, as long as it aligns with the family’s values,” she says. “Similarly, they could set conditions that reward other behaviors, such as earning a degree or building a productive career.”
When everyone understands the reasons behind your decisions, it helps pave the way to greater family harmony. Be sure to document and discuss provisions with your children.
It is important to work with your estate planning attorney in crafting language that both aligns with your family values and is legally enforceable.
3. Highlight the importance of education
Investing in younger generations by funding their education could be an important part of your values-based estate planning. And there are options to explore that can help yield tax advantages.
“Paying into a 529 plan or paying tuition bills directly to the institution can help reduce estate taxes,” Nakamura says. “In addition, you can make up to five years’ worth of annual exclusion gifts to the 529 plan in one year.1 So, based on the 2023 annual exclusion of $17,000 (or $34,000 per couple), you can contribute up to $85,000 (or $170,000 per couple) without using any of your lifetime exemption. While the money in 529 plans may only be used for educational expenses, they can also be transferred to another beneficiary, such as a grandchild or great-grandchild, if the original intended beneficiary does not use the funds.”
Another option is to create a trust with provisions providing financial support to named beneficiaries for their health or education or for starting a business and other endeavors important to the wealth creator. Your trust advisor can help you explore the potential advantages of leveraging trusts for education or health savings.
4. Fund a foundation or LLC
Starting a foundation or LLC can also offer tax benefits, but more importantly, the structures can help provide direction and purpose for family wealth.
“Starting a company or a nonprofit can be a great way for families to work together around the idea of giving back or creating family stewardship that aligns with the family’s values,” Nakamura says. “Plus, it’s very organized and well-documented, so everyone understands their role in both helping to preserve and grow the family wealth.”
If you’re interested in forming a foundation or LLC, Wells Fargo Wealth & Investment Management offers resources to help navigate through those processes. Talk to your trust advisor to get more information.
5. Consider bringing your advisors together as you plan
As you consult with your tax and legal advisors to determine the appropriate wealth transfer strategy for a values-based legacy, consider including your financial or wealth advisor and trust advisor to help you create a road map.
“We can put structure and form around your estate priorities,” says Nakamura. “Also, don’t overlook the opportunity to talk to your family about what matters to you — and what you hope will matter to them when you’re gone.”
1. The donor must elect that the gift be treated as having occurred over a five-year period in order for it to qualify for the federal gift-tax exclusion. If additional gifts are made to the same beneficiary during this five-year period, a federal gift tax may apply. If the donor dies within this five-year period, a pro rata share will be included in the donor’s estate for federal estate tax purposes. State gift and estate tax laws may vary. Consult your tax advisor.
Please consider the investment objectives, risks, charges, and expenses carefully before investing in a 529 savings plan. The official statement, which contains this and other information, can be obtained by calling your financial advisor. Read it carefully before you invest.
Wells Fargo & Company and its affiliates do not provide tax or legal advice. This communication cannot be relied upon to avoid tax penalties. Please consult your tax and legal advisors to determine how this information may apply to your own situation. Whether any planned tax result is realized by you depends on the specific facts of your own situation at the time your tax return is filed.
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