The Three Important Parts of a Fulfilling Retirement By Terry S. Mulhern

Part Three: Legacy

In my book: Retirement: Congratulations You Have been Promoted to CEO! The Habits of Highly Effective CEOs that are Necessary for Retiring Healthy, Wealthy and Fulfilled, ( https://www.retirement-ceo.com/ ) I go into detail on the pieces of an effective retirement plan that include Health, Wealth and Legacy.  In this third of three articles, I will cover Legacy.

Of the three sections of my book, this is the one where it is critical to receive the most outside counsel from professionals.  These include your financial advisor, but we will also need estate and trust attorneys.  This is not an area where I would recommend using online boilerplate forms. 

How to Be Remembered for Multiple Generations on Your Family Tree

As you move through life, leaving a legacy tends to become more important. The definition of legacy can differ from one person to another, but in its most basic sense, it means leaving individuals and/or other entities (such as schools, charities, or foundations) a bequest of property or assets to be used in a beneficial manner.

Using Leverage to Create an “Instant Estate”

Regardless of the size of your current net worth, there are strategies that can be used to create an “instant estate” using pennies on the dollar. One of the best ways to accomplish this is through the purchase of life insurance.

It’s been said that “Life insurance offers a man the only way where he can make his will before he makes his money.” This is true in that, even after making just one premium payment, your intended recipient(s) can receive a substantial payout.

In addition, not only does this financial tool provide you with a specific amount of money for a beneficiary, but it also offers certainty, because if a policy is in-force when the insured dies, the recipient(s) are assured of receiving the death benefit proceeds.

Because life insurance proceeds are paid out directly to the named beneficiary, these funds can bypass the long, expensive, and public probate process. Probate is the legal process of administering a deceased person’s estate.

Knowing that your survivors will inherit life insurance proceeds can also allow you to spend more of your savings on yourself during retirement. Well-known retirement income specialist Tom Hegna states that, “What is the most efficient way to pass your wealth to your heirs after you pass? Don’t Leave your kids any money! Leave them life insurance so you can do it for pennies on the dollar.”

Making Sure Assets Go Where YOU Want Them to Go

Not making any type of provisions for who gets what when you’re gone can create some significant obstacles when the time comes – and it is likely that taxes and other expenses (such as probate) will reduce the amount of assets that can be left to those you care about.

If you are married and you plan to leave the bulk of your assets to your surviving spouse, then the planning process is pretty straightforward, because your spouse is allowed to receive 100% of your assets free of estate tax.

But at the death of the surviving spouse, Uncle Sam could end up being the biggest beneficiary – by way of taxes – unless you have planned ahead. Either way, you can’t “take it with you,” so having a plan in place is crucial if you want more of your hard earned assets to go to the people you care about. It can also put more control in your hands in terms of what goes where.

Leaving Your Business in a Better Place for the Next CEO

“Ultimately, leadership is not about glorious crowning acts. It’s about keeping your team focused on a goal and motivated to do their best to achieve it, especially when the stakes are high and the consequences really matter. It is about laying the groundwork for others’ success, and then standing back and letting them shine.” (Chris Hadfield, astronaut and former Commander of the International Space Station)²

If you own a business, a big part of your legacy planning will be determining how you would like the company to move forward after you’re gone. In this case, will the business be sold to an outside individual or entity, or passed on to a next generation family member?

Therefore, it is important to create a plan that covers the company’s assets, as well as its organizational structure, so that potential future events won’t have an adverse effect, and that you can keep the company – and your legacy – up and running.

Putting Funding in Place for the Transfer of a Business

If you own the business with other owners or partners, one of the best strategies for ensuring the succession of your share of the business is to put a buy-sell agreement in place that is funded through life insurance.

A buy-sell agreement is a legally binding contract that stipulates how a partner’s share of the company may be reassigned if that partner dies or otherwise leaves the business. Typically, this agreement stipulates that the available share be sold to the remaining partner(s) or to the partnership.³

One of the most common ways of structuring a buy-sell agreement is a cross-purchase. In this case, the partners purchase life insurance on each other and also name themselves as the beneficiary(ies).

Then, if one of the partners dies, the proceeds from the life insurance will be paid out to the remaining partner(s) and used to by the surviving partner(s) fund the purchase of his or her shares.

How Can You Donate to Your Favorite Like the Wealthy?

If you have one or more charitable organizations that you are affiliated with – either through volunteering, making monetary donations, or both – there are some strategies that you can put in place that could provide the entity(ies) with a substantial gift, but without the entire amount coming out of your own pocket.

Due to its certainty, guarantees, and favorable tax treatment, life insurance is oftentimes the funding mechanism for these strategies. But it isn’t just as simple as buying a policy and hoping that all falls into place. Rather, these plans need to be properly constructed in order to fully maximize all of the benefits for both the donor and the charity/recipient.

Using Trusts for Charitable Donations

Trusts are oftentimes used in charitable giving strategies – and likewise, life insurance may be used as the funding vehicle in these transactions, too. Some of the more common techniques include the use of Charitable Remainder Trusts, Charitable Lead Trusts, and Charitable Remainder Annuity Trusts.  There are thee types of trusts available that you will want to review with your trust attorney.

Charitable Remainder Trust (CRT)

Charitable Lead Trust

Charitable Remainder Annuity Trust (CRAT)

Why Having Only a Will Isn’t Enough

Millions of people participate in probate court proceedings and related cases every year. Many of these become contested (challenged), oftentimes in dramatic and unexpected ways. While a significant number of these cases don’t cost millions of dollars or take years to resolve, they are nevertheless very important to those who are involved and can be both financially and emotionally draining.²

Regardless of whether your estate is worth millions, or substantially less, a will is an integral component for getting your estate in order. In fact, wills are considered to be the most basic estate planning document used for passing assets on to the next generation. Even a handwritten will, given the right circumstance, can be considered valid.

What to Include in Your Estate Plan

It is essential not to leave anything to chance – regardless of how young and healthy you may be right now. In addition to having a will, one of the other key components of a good, solid estate plan is including one or more trusts.

One reason for this is because trusts can protect the financial interests of your family. They can also allow you to be more selective regarding the actual distribution of your assets following your death.

There are usually four components that come into play with a trust. These include a:

• Grantor
• Trustee (and Successor Trustee)
• Beneficiary(ies)
• Property / Assets

A trust can be either revocable or irrevocable. It is important to understand the difference between the two, as it can have a significant impact on what happens with the trust’s assets, as well as how your overall estate is valued upon your passing.

Revocable Trusts

With a revocable trust, the terms may be changed at any time. In addition, the grantor of a revocable trust may remove beneficiaries, designate new ones, and modify stipulations regarding how the assets that are in the trust are to be managed.

Irrevocable Trusts

One of the biggest differences between revocable and irrevocable trusts is the lack of flexibility of the latter. For instance, the terms of an irrevocable trust may not be changed by the owner of the trust. In fact, the ownership of the trust’s assets is actually removed from the grantor’s estate.

Making Sure Everyone is On the Same Page

In many ways, your legacy team may look a bit like your wealth building team. But in this case, your primary goal is protecting assets and property, and making sure that it goes where you want it to go in the future. 

Having the right people on your team can have a substantial impact on the success or failure of a project, outcome, or plan. Unfortunately, old sayings like, “If you want something done right, do it yourself,” can actually hinder your progress. That’s why it is essential for you to surround yourself with people whose skills complement your own.

Making Sure Your Legacy Plan Stays In-Tact

One of the best ways to get ahead when working as a team is to communicate. Sports teams, businesses, and builders – all of these groups must communicate with each other in order to produce their desired result.

Otherwise, if left only to their individual “silos,” nothing would fit together. Therefore, it is essential that all of your legacy team members offer value, and that they communicate with one another on a regular basis in order to achieve your objectives. Life can change over time – sometimes according to plan, and other times completely unexpectedly. So, it is essential to ensure that your plan is being kept up-to-date. Like Gary Vaynerchuk, author and entrepreneur, says, “Please think about your legacy because you are writing it every day.”