Essentials
Essentials of Wealth Transfer
Chapter 2, What goals do I have?

Begin the process by completing these discovery steps before outlining what you want your plan to achieve. Being armed with this perspective can make the planning process more efficient when you’re ready to sit down with your legal, tax, and financial advisors.

Step one: Complete your personal balance sheet.

Different kinds of property and ownership arrangements result in different ways that property is transferred upon an owner’s death. Here are some of the ways that property may be titled and may impact how your property transfers on death:

  • Single ownership
  • Tenancy in common
  • Joint ownership with rights of survivorship
  • Trust
  • Beneficiary designation — including life insurance policies; Individual retirement accounts (IRAs); 401(k) plans; annuities; and many types of employment benefits, such as stock options and deferred compensation
  • Community property

Having a personal and detailed balance sheet that reflects both the assets and their titling lets you see your total financial picture, including assets that you might not otherwise consider, like life insurance and real estate as well as digital assets.

List all assets of financial and personal value. In a separate column next to each asset, indicate the way each asset is held: for instance, “trustee,” “individually,” “joint tenants with right of survivorship,” and so forth. For any beneficiary designation property (life insurance, retirement plans, and corporate benefits), list who is named as primary and secondary beneficiaries.

Does your estate plan cover all of your cherished assets?

Whether it’s prized animals or digital content, here are some considerations for including unique assets in your estate plan.

Learn why and how

Step two: Assemble a list of your current estate planning documents.

Do you have a will? A revocable living trust? Nothing? “Nothing” may be a perfectly reasonable answer for some younger professionals who don’t have children, however, if you have assets, you should consider an estate plan.

Step three: Identify your key goals and issues.

Once you have your documents from steps one and two prepared, this is a good time to sit down with your advisors to outline what you want your plan to achieve. Let values-based concerns — like family dynamics, personal relationships, and meaningful work — drive the financial decisions as you consider your legacy.

Here are some potential considerations to discuss with your advisors as you identify potential challenges in fulfilling your goals.

  • Many married couples assume that the answer is each will leave everything to the other. If both spouses have wealth of their own or children from a previous relationship, those may be considerations that may require additional planning strategies.
  • Parents may want to leave their children enough to increase their happiness but not so much that it impacts their initiative. This issue may be addressed by deciding to give children less or to pass on wealth in a structured fashion (usually in trust).
  • Consider whether you want to make gifts to grandchildren to help them cover expenses, such as education expenses. Talk to your estate planning attorney about gifting money directly.
  • If you are planning to give to charity, you may want to consider whether a private foundation, donor-advised fund, charitable remainder trust, or other such structures are right for you. Be sure to discuss your options with your tax, financial, and trust advisors to determine a suitable approach for your circumstances.

Any tax benefits depend upon your individual circumstances. Please consult your tax advisor.

While the operations of the Donor Advised Fund and its Pooled Income Funds are regulated by the Internal Revenue Service, they are not guaranteed or insured by the United States or any of its agencies or instrumentalities. Contributions are not insured by the FDIC and are not deposits or other obligations of, or guaranteed by, any depository institution.

Dividing the wealth: Three approaches

A retired parent with two children has two assets: a home worth $3 million and investment account worth $5 million.

First Approach

First approach

“Equalizing” gifts

Scenario

The situation

The parent knows her son wants the home, while her daughter has a business and could use the liquidity. So the parent leaves the home to the son and the investment account to the daughter.

Considerations

The retired parent may be living off her investment account to the point that her expenditures are greater than her earnings. This can mean that, while the value of the house might be appreciating, the investment account value is shrinking, resulting in an imbalance.

Second Approach

Second approach

Percentage of estate or trust

Scenario

The situation

The parent leaves 50% of her estate to each child.

Considerations

The children are free to divide the property up so that the son could wind up with most or all of his share in the form of the house, but the daughter might take part of the house as well to make up for the dwindling size of the investment account. If the percentage gifts are not going to be equal to all beneficiaries, then the person making the gift should be very clear in communicating why. This will go a long way to ease hurt feelings.

Third Approach

Third approach

Shared ownership

Scenario

The situation

Each beneficiary owns a fractional interest of the assets given.

Considerations

This is perhaps the most “fair” solution, in the sense that all beneficiaries receive the same interest. Collaboration and coordination among the children and other beneficiaries are key components for the success of this strategy.