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The Wealth & Wisdom Blog

Information on Estate Planning, Estate and Trust Administration and Unique Asset Planning

Controlling the Narrative of Your Legacy

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How will you like to be remembered?  What will be the defining element of your legacy?

Since his death, George Floyd’s name has become synonymous with a global call to address systemic racism.  Millions of people around the world have spoken out and marched in an effort to address systematic racism.  At a personal level, our oldest son Micah Wessman died unexpectedly in 2009.  Following his death, my wife and I founded a nonprofit organization now called Hope for the Mourning to help fellow grieving parents.  While both George Floyd and Micah Wessman have a legacy beyond their own lifetimes, neither of them had a choice in creating that legacy.

Many of us will, however, have the opportunity to control the narrative of our legacy. Especially in these difficult days of the global pandemic, I have had the opportunity to discuss with some of my clients the legacy we hope to leave.  The preparation of a “Legacy Letter,” also known as an Ethical Will, allows us to articulate those desires.  While holding no legal significance, a Legacy Letter can serve as an autobiographical narrative, a proclamation for family and friends of one’s deeply-held beliefs.  You and your clients might consider writing a Legacy Letter for the following reasons:

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Cory Wessman Legacy Letter

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I have encouraged many of my clients to create a Legacy Letter, also known as an Ethical Wil. As of Summer, 2020, I thought I would share mine as an example.

I want to be remembered as a follower of Jesus Christ.  I also want to be remembered as a kind and gentle husband and father, a generous giver of time and resources, a patient and wise legal counselor, and an athlete who lacked talent but not desire.

It is my hope that my single greatest legacy is to spur my family, friends and clients towards a life-long journey with Jesus Christ.  I hope that I used my time and finances to show the surpassing worth of Jesus Christ, and to love Heather, Micah, Owen, Brendan and Kinsley with my whole being.  I hope that my love for the Lord came through in my personal relationships, including my relationships with my work colleagues, clients, and fellow grieving parents.

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Legacy Letters

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A family legacy letter, also known as an “Ethical Will,” is a non-legal document that provides surviving family members with one’s wishes and directions for leaving behind a relational, spiritual, and family legacy.  While it is critically important to have one’s legal and financial affairs in order, creating a legal estate plan is only one element of planning well.  In addition to creating a good legal estate plan, we believe that all of us should be working to leave a legacy within our families and communities.  For that reason, clients might prepare a statement, which I call a “Legacy Letter,” also known as an “Ethical Will,” to accompany their legal documents and that provides family members your thoughts on your own legacy in your own words.

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Lowered Hurdle Height for Asset Transfers to Children

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In last month’s update, I shared how our family has documented our memories of the 2020 pandemic.  One of my lasting memories will be of the virtual learning assignments for our children. As the self-appointed physical education teacher, I took it upon myself a few weeks ago to create an obstacle course in our front yard. I used a few of our unending supply of cardboard boxes–itself another pandemic memory–to create a hurdle course, a sight that I am sure drew the attention of the board members of our homeowners association.  My youngest son initially experienced difficulty in clearing the cardboard box hurdles, by reason of both his diminutive stature (blame his mother’s genes) and his poor flexibility (blame his father’s genes).  As a result, I took it upon myself to improve his confidence by cutting down the height of the hurdles, and his performance improved significantly at the new and lower hurdle height.

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Grantor Retained Annuity Trust (“GRAT”)

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A “Grantor Retained Annuity Trust” (“GRAT”) is a planning strategy used to transfer wealth without necessarily using any federal gift tax exemption.  Under this strategy, a donor irrevocably transfers assets to an irrevocable trust, but purposely retains a fixed annuity amount for a fixed period of years (called the “annuity period.”) While the donor will benefit from the fixed annuity amounts received back from the GRAT during the annuity period, the donor irrevocably gives up the right to benefit from the remaining assets (if any) that are remaining in the GRAT after the payments made to himself or herself following the end of the annuity period.

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Documenting Asset Transfers to Adult Children

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How are you going to remember these tumultuous days of the 2020 coronavirus pandemic?  My three kids were each given a writing journal by my mother, who encouraged each of them to write about daily life in the midst of a pandemic, both for themselves and for future generations.  Earlier this week, I also helped my kids bury a time capsule—a shoe box full of items that my kids envision would be of interest to future generations who are trying to understand how a family of five is living through a 2020 pandemic.  Over these past few weeks, I have interacted with a few clients who have decided that, by reason of the most significant economic downtown in our lifetimes, now is the time to provide financial assistance to their adult children.  Some clients are helping a child with an intra-family loan, while others are gifting assets to the child.  In this month’s update, I provide a brief overview of the tax and legal implications of transferring assets to adult children, either by loan or gift, and stress the importance of documenting the client’s intentions in this regard.

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Signing Legal Documents Under Self-Quarantine

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Over the past few weeks, our firm has continued to operate as normal.  We have hosted face-to-face meetings in our office, as well as video calls, telephone calls and emails.  We have, however, observed an increase in the number of new or existing clients who are addressing while in a “self-quarantine” or “shelter in place” situation.  In this month’s update, I provide a brief summary of the signing formalities associated with the four “basic” estate planning documents.

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Three Lessons on Appointing Fiduciaries from Ancient Israel

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Who should I appoint as my backup trustee and executor?  This is perhaps the most common question posed by my estate planning clients.  I recently studied the kings of ancient Israel.  I thought that those of us who counsel clients on making appropriate key individual or “fiduciary” appointments could apply a few lessons learned from the lives of these kings; specifically, how not to appoint successor fiduciaries. As you and your clients consider their various fiduciary appointments, consider the following three principles taken from the stories of ancient Israel.

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Key Individuals (“Fiduciaries”) In Your Estate Plan

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Everyone completing an estate plan must give consideration to the individuals (or entities) making decisions on your behalf in the event of your incapacity or death.  If you are married, you would likely name your spouse as the first “agent.”  However, you would still name someone to serve if you (or, if married, both you and your spouse cannot serve.  These are the important roles to fill:

  • Health Care Directive: Health care decisions in the event of your incapacity;
  • Power of Attorney: Financial and legal decisions in the event of your incapacity;
  • Guardianship: Care and custody of minor children in the event of death;
  • Trustee: Management of trusts for named beneficiaries; and
  • Personal Representative / Executor: Administration of expenses, transfer of assets in the event of death.

 

Unintended Consequences: The Use of Conduit Trusts for Retirement Accounts

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If you have read any of Malcom Gladwell’s books, or listen to his podcasts, you are acquainted with various examples of the law of unintended consequences. Gladwell demonstrates how well-intentioned efforts to solve societal problem might actually prove to be an impediment to success.  In the 1990’s, Australian lawmakers enacted legislation requiring Australian children to wear bike helmets whenever riding bicycles.  As it turned out, the relatively low supply of helmets created such a high cost for helmets that overall bike ridership declined significantly.  In that case, the unintended consequence of the legislation was a decrease in the overall health of children.

Along a similar vein, by reason of the recently enacted “SECURE ACT,” an oft-used trust planning structure called a “conduit trust” will have unintended consequences for unsuspecting clients if not properly addressed and corrected. Before the enactment of the SECURE Act, it was possible to name a trust as a beneficiary of a retirement account after the death of the account owner and still obtain the “stretch” typically associated with required minimum distributions (“RMDs”) based upon the life expectancy of the trust beneficiaries.  Even though the trust was the legal owner of the inherited IRA, the IRS would “see through” the trust’s ownership and use the life expectancy of the trust beneficiary (or beneficiaries) to determine the RMDs.  In this fashion, it was possible to both (1) achieve the sought-after protections of trust ownership, and (2) minimize the income tax implications by “stretching” the withdrawal period over the life expectancy of the trust beneficiary (or beneficiaries). In order to qualify for this preferred “see through trust” tax treatment, however, it was necessary for the trust to be characterized as either a “conduit trust” or as an “accumulation trust.”

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This blog is intended to provide the reader with assistance in understanding various estate planning and trust estate planning concepts. In an effort to keep things as digestible as possible, I have tried to keep each blog post as short as possible.  As a result, an astute reader would see that I often fail to address various exceptions to rules or principals, or how various principles relate to one another.  There are a number of moving parts associated with various planning structures summarized on this blog.  In order to achieve your estate planning objectives, it is important that you receive the assistance of an experienced estate planning attorney.  Otherwise, your family may be in a worse position for your having attempted these strategies on your own.  Until we form an attorney-client relationship, you should be aware that your visiting this blog has not formed an attorney-client relationship, and none of this information can be taken as legal advice.  To contact my office about scheduling an appointment, contact us at 612-465-0080.