Building a values-based, multi-generation estate plan

A man and woman stand together watching their family

Here are five key considerations for planning a lasting, values-driven legacy.

A well-designed estate plan is a critical part of creating a lasting legacy. It can also be an excellent way to communicate your values and pass them on to your children and grandchildren.

“An estate plan can provide a values roadmap for future generations,” says Maria Marquez, CTFA, a senior vice president-senior fiduciary advisory specialist, Wells Fargo Wealth & Investment Management. “That means creating the structures and open communication that help transfer your values to the next generation.”

Cathy Nakamura, CTFA, a senior vice president – senior fiduciary advisory specialist at Wells Fargo Wealth & Investment Management, agrees. “You can start by determining what matters most to you and how you would like to see those priorities passed on through your estate plan.”

Specialists like Marquez and Nakamura often help clients navigate the process of planning a lasting, values-driven legacy. Here, they outline five ways to 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 very 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 — a key component that is frequently overlooked.

“Often times, 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 fiduciary advisory specialist and wealth planner can help in that regard.

“It starts with the wealth creator identifying how 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.”

Documenting and discussing those provisions with your children can help pave the way to greater family harmony. “It really helps when everyone understands the reasons behind your decisions,” Marquez says.

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 significant tax advantages.

“Paying into a 529 plan or paying tuition bills directly to the institution can 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 2021 annual exclusion, you can contribute up to $75,000 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 fiduciary advisor can help you explore the advantages of education savings accounts and trusts.

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 is 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,” Marquez says. “Plus, it’s very organized and well-documented, so everyone understands their role in both helping to preserve and grow the family wealth.” Wells Fargo Private Bank’s Philanthropic Services can offer additional guidance to help you determine if this could be right for you.

If you’re interested in forming an LLC, your relationship manager can also help provide resources around transition planning, business valuation, and the management of closely held assets.

5. Consider working with your wealth advisors

As you consult with your tax and legal advisors to determine the appropriate wealth transfer strategy for a values-based legacy, consider including your wealth advisors to help you create a roadmap.

“We can put structure and form around your estate priorities,” says Marquez. “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 legal or tax advice. Please consult your legal and/or tax 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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