People often look at legacy planning as an exercise in math. They think “When I die, I’ll leave equal amounts to each of my heirs”.
It’s really important to give legacy planning the attention it deserves. Not doing so can be costly in many ways.
Equal can be equitable
I shared in a previous article that your children’s tax brackets can impact how much they actually receive. A $100,000 gift of IRA money is a different amount to different people. If one heir is in the 12% tax bracket and another in the 34% bracket, they would pay $12,000 and $34,000 in federal income tax respectively. State income taxes are a consideration as well. Challenge the idea that dividing assets evenly is the most responsible choice. Work with your financial advisor to find out if that is true in your situation.
The family conversation
I hear a lot of people say something like: “They will find out what they get when I die”. While any gift should be appreciated, this can leave people feeling slighted and relationships can be damaged due to the lack of understanding. One heir who helped you in your later years might believe they should get a larger inheritance. Perhaps one is in need and you want to help. Maybe one person got financial assistance in the past and the other didn’t. It’s valuable to share this information with your heirs so they don’t end up resenting you, or each other.
Transparency can make a world of difference when you say “I love you so much that I thought of giving you an equal portion, but the another person isn’t as well off as you, so I want to help them.” Perhaps a loved one has health considerations and might benefit more from a financial gift where another may appreciate something more sentimental. You may also have a favorite charity you want to leave assets to, communicating that will help make sure it happens in the way you desire.
One of the biggest areas of hurt comes from the non-monetary gifts. If one child really likes a family heirloom and another doesn’t, splitting those items or gifting them without thinking it through could be hurtful.
Stewardship vs. Symmetry
One beneficiary may be equipped to receive a business. One may be responsible while another is not. Legacy involves modeling wisdom, generosity and intentionality. It is essential that you consider all three areas in your giving strategy. Contemplate whether giving now would be better than waiting. Imagine the joy you can bring to give in your lifetime.
The Spiritual Importance of your gift
As a Certified Kingdom Advisor (CKA®), I would be remiss not to discuss the spiritual part of a gift. There are a number of components to this area that require deep and prayerful consideration as well as conversation with trusted persons. Inheritance communicates values, so you want to know if you are sharing with your heirs the values that the gift entails. Often people leave an inheritance without sharing the values behind it.
Have you identified your heirs, have you trained them on what stewardship means and have you shared with them what it means to be a good steward of the gifts they will receive? Giving someone money without instructions can be a recipe for disaster. It can mean they spend the money on things you wouldn’t appreciate. What if they spent $80,000 on a car and you sacrificed to save that money? Consider leaving a letter of instruction or ideas you believe would be an honoring use of the money. Further consider whether leaving someone out of an inheritance is likely to make them more or less likely to find thier spiritual path. If writing someone out means they don’t find the Lord, is it worth it? That doesn’t mean they need to get the “full portion” but a small token or a path toward receiving a portion could go a long way.
Disclaimer: This article is for informational purposes only and is not tax, legal or financial advice. Everyone’s situation is different, so consult a financial advisor. If you would like to connect with me, please call 615-619-6919 or email me at smoran@redbarnfinancial.com You can learn more at redbarnfinancial.com
Investment advisory services offered through Hornor, Townsend & Kent, LLC (HTK), Registered Investment Adviser, Member SIPC, 800-873-7637, www.htk.com. Red Barn Financial is unaffiliated with HTK. HTK does not offer tax or legal advice. Always consult a qualified adviser regarding your individual circumstances.