Tell Your Heirs What They're Getting. Even if You Bore Them to Death.
February 06, 2009
A dozen young adults gather in a mahogany-lined office as a bespectacled, older gentleman slides a sealed envelope from the pocket of his bespoke suit. As the fireplace crackles, he clears his throat and thanks the gathered group for attending the reading of his client's last will and testament. Couples clutch each other's hands as the sound of a letter opener slices through the room.
That's an image you've seen countless times on soap operas and in the movies. But the heightened drama around inheritance doesn't help the loved ones you'll leave behind. In fact, if the reading of your will is going to be the first time your heirs understand what's being left to them, you may have a major estate planning problem on your hands.
Don't Take Your Intentions to the Grave
According to professional estate planners, inheritance is often about more than just money. For successful entrepreneurs, an inheritance may include the hope that future generations will carry on a family business. In some families, preserving the heritage of valuable property or charitable foundations takes a precedence over personal wealth. And when divorce or remarriage enter the picture, maintaining the civil boundaries between branches of a family tree may require more political savvy than financial prowess.
Keep Your Heirs from Killing Each Other
If you keep your intentions secret until the opening of your will, you create opportunities for conflict among your survivors. For example, family members counting on an inheritance to pay for a grandchild's college tuition might be devastated to learn that your liquid assets must instead cover an outstanding debt or have been earmarked for someone else. Writing a will and keeping it updated regularly clarifies your intentions over time. Communicating openly and honestly about your financial situation can prevent the kinds of lawsuits and conflicts that tear families apart after the passing of a loved one.
Die Cheap and Die Smart: Protect Your Estate from Taxes
Despite posturing by politicians over exemptions and tax rates, large estates generally surrender about half their value to state and federal governments upon a citizen's death. That five million dollar inheritance you intend to pass down could end up being only two to three million dollars once Uncle Sam has his way with your property. Unfortunately, many Americans overlook opportunities to transfer assets gradually (and tax-free!) while they are still able to make sound decisions.
"Trust" Your Loved Ones
With advice from an attorney, you might consider placing some of your property into a "living revocable trust." This legal entity allows you to enjoy the benefits of real estate ownership while designating additional trustees who can take over the trust upon your death. Likewise, placing your business assets or investment portfolio into a corporation with your heirs as shareholders can eliminate much of their tax burden, while creating opportunities for conversations about their inheritance.
Planning to pass on your property while you still enjoy sound health can give your life the kind of lasting impact that makes for a good documentary--and a lousy soap opera.
