Life Changes

Estate Planning Strategies: How to Match Your Plan to Your Priorities

Consider these strategies for providing for your family, transitioning your business, and giving to charity.

by Sarah Tuff Dunn - August 05, 2019

If you’ve dedicated some time to estate planning, you may have some pretty good ideas about who should get the house, family heirlooms, and your 401(k) plan or life insurance policy after you pass away. But did you plan thoroughly enough? How confident do you feel that your priorities and values will truly be reflected in your estate plan?

Daniel Prebish, Director of Life Event Services for Wells Fargo Advisors in St. Louis, offers important insights, including dos and don’ts, for three common priorities of many estate plans: providing for family, transitioning a business, and giving to charity.

Providing for your family

Prebish says it can be a bit more complicated than signing your name on the dotted line and filing away your documents for a future date.

“It’s really important to understand that simply signing a document is not enough to assure that your wishes will be carried out,” Prebish says.  “Asset titling and beneficiary designations need to be consistent with your will or living trust.”  Also,  if you die and a spouse or child is completely surprised by your estate plan, that can lead to problems and even litigation. With that in mind:

Do

  • Explain the general outline of your plan to family members ahead of time.
  • Confirm that account ownership or beneficiary designations are not at odds with your will or trust. For example, if you mean to divide assets equally between your son and daughter but your checking account is in joint names with only your daughter then that account will go only to her.

Don’t

  • Hide the location of your assets or their worth from your executor or successor trustee. It will take much longer to carry out the will or trust if that information is missing.
  • Place too many limits regarding information you share with your executor or the trustee who will administer your estate.

 Transitioning your business

“Estate planning can be challenging for families who own a business—giving children the correct roles and making sure the roles are spelled out in the plan,” Prebish says.

He recalls working with a client on a written estate plan when he spotted one big potential mistake: Ownership in the business was going to be evenly divided among four children, so the child who was designated for the CEO role would not have a majority of voting shares. The children whom the owner viewed as “less capable” would actually be in control. With that in mind:

Do

  • Begin planning for this transition as soon as possible to prepare children for roles that fit their capabilities. That includes having a plan that eventually gives the child who is running the business a majority of voting shares needed to run it properly.
  • Make sure family values and business values are aligned. Does it make more sense to grow the business to the point where it can be sold, or can it be sustained as a family business for generations? Whatever the overarching goal, be sure to communicate it to your children.

Don’t

  • Assume that at some point you will quit working but the kids will continue to pay you a salary. If the children are not truly owners, they probably won’t learn how to operate like successful entrepreneurs. Instead, says Prebish, consider selling shares in the business to children; that way, a good portion of your income could be taxed as capital gains instead of ordinary income.
  • Assume those you decide will take over the family business really understand what it takes to be successful. Children will only develop the necessary accounting skills, sales aptitude, customer service skills, or other requirements to effectively run the business if you give them responsibility in those areas.

Giving to charity

The impact of a charitable donation can be even greater if timed properly and if given from the proper type of asset in their estate. Prebish recalls a client who included a generous charitable gift in her will. “The client left a large IRA of similar value to the children,” he says. “We talked about the idea of doing just the opposite—leave the IRA to charity (because the charity would not pay tax on distributions), and leave other assets (that would get a step-up in cost basis to potentially reduce capital gains taxes ) to the children.”

Do

  • Arrange the right timing for your charitable gifts.  Your attorney, tax advisor, and financial advisor can help you understand how you are impacted by the increase in the standard deduction, and limits on deducting state income taxes. Evaluate whether it would be beneficial for you to “bunch” charitable gifts into alternate years (possibly using a charitable donor-advised fund).
  • If you have planned to make charitable bequests at death, consider making those gifts during your lifetime instead. If you don’t expect to owe federal estate taxes, it might be more advantageous to get the potential income tax deduction available for lifetime gifts. Also, you get the  personal satisfaction that comes with making a positive difference you can see before you’re gone.

Don’t

  • Make charitable gifts today that would jeopardize your future financial security or current income needs.
  • Give a noncash asset that the charity isn’t expecting or can’t easily manage. An art collection, for example, might be a welcome gift to a museum, but a burden to a food bank.

Sarah Tuff Dunn is a freelance writer in Vermont and a frequent contributor to Lifescapes. Her work has also appeared in The New York Times.

Additional Resources

What are the 10 documents you need to get started on your estate planning?

Recently remarried? Here’s how to help make sure your estate plan matches your new status.

Trust services available through banking and trust affiliates in addition to non-affiliated companies of Wells Fargo Advisors. Wells Fargo Advisors and its affiliates do not provide legal or tax advice. Any estate plan should be reviewed by an attorney who specializes in estate planning and is licensed to practice law in your state.