This story originally appeared on NewRetirement.
Preparing for retirement means having a financial plan as well as a good idea for what you want to do during this period of your life. Estate planning has a similar duo of goals: You want to establish clear instructions for how your money and other assets will be distributed as well as figure out a way to leave behind the ideas and actions that are important to you.
If leaving behind a meaningful and long-lasting legacy is an essential goal, here are a few tips and ideas.
Determine How Much Money You Are Likely to Have
“Some men storm imaginary Alps all their lives, and die in the foothills cursing difficulties which do not exist.” — Edgar Watson Howe
There really is no point in worrying about leaving behind a financial legacy until you really know how much you might have left. And, even then, the future is full of unknowns that may indeed alter the value of your estate.
Retirement planning involves guesswork on a big number of variables that will ultimately determine the size of your financial legacy. You can work with a financial adviser to determine the likely value of your estate.
However, a really good retirement planning calculator can let you play with your numbers and try different scenarios to estimate what you may or may not have left over in the end.
One popular feature of the NewRetirement retirement planning calculator is that it helps you track your net worth from now through to your goal age: the age through which you would like to fund your and your spouse’s retirement.
Figure Out Who or What You Want to Benefit From Your Legacy
Establishing what you want your legacy to be will certainly require some soul searching.
Most people want to leave their assets to their children, grandchildren, or other relatives, and the focus is on finances. However, other people choose to leave behind money and instructions to fulfill a goal or to advance a specific purpose.
My great aunt Alice lived a unique life for someone born in 1890. She was a schoolteacher who managed to travel the world alone in her free time. She amassed sizable savings from her earnings and the home she inherited from her parents.
She opted to leave her financial legacy to the local fire department to help them with the purchase of a helicopter to keep the community safe.
As Aunt Alice showed, you can establish any kind of legacy you wish. Some of the most unusual bequests?
- Comedian Jack Benny arranged to have one long stem red rose delivered to his widow every day of the rest of her life.
- Infamous hotelier Leona Helmsley left $12 million to her dog.
- Napoleon Bonaparte supposedly requested that his head be shaved and the hair be given to his friends.
- Other somewhat unusual trusts can be established for such things as the care of an art collection, the construction and maintenance of a monument, the management of a business, or any other cause or idea.
What is important to you? Who is important to you? What do you want to support after you are gone?
I suspect that unusual wills and trusts will become increasingly popular. Baby boomers are known for rewriting the rules and the generation’s social activism may drive new kinds of legacies.
Here are a few ideas about using a legacy creatively:
- If you care about the oceans, you can give to a charity supporting seas and sea life. Or, maybe you could arrange a trust for a one time or annual beach clean up in your community.
- Want to give the money to your children but also wish to deliver a message about your values, carefully consider ways to put limits on the inheritance.
- Some people set up their inheritance to be used for yearly family reunions.
Look around carefully for an estate planning professional who can help you achieve your legacy goals, especially if you have some out of the box ideas.
Don’t Forget Your Spouse and Other Dependents
A tricky part of legacy planning is making sure that both you and your spouse are taken care of while you are alive, but that you can both leave behind your shared or individual legacies. The complexity comes from the fact that you are unlikely to leave the world at the same time as your spouse or other dependents.
Retirement planning with a spouse can involve hugely delicate compromises in how to spend your time and money. Legacy planning also requires the ability to discuss big ideas and make significant decisions with your loved ones.
Choose the Right Will or Trust for Your Goals
Your will or trust is the cornerstone of your estate plan, and you have a lot of different options depending on your assets and legacy goals. Here are a few of your choices:
A will is a legal document that sets forth your wishes regarding the distribution of your property and the care of any minor children. It must be worded and signed according to legal guidelines and it goes into effect once you die.
Trusts are more complicated, nuanced, and comprehensive than wills. A trust is a fiduciary arrangement that allows a third party, or trustee, to hold assets on behalf of a beneficiary or beneficiaries. Trusts can be arranged in many ways and can specify exactly how and when the assets pass to the beneficiaries. A few ways trusts differ from wills:
- Trusts generally take effect as soon as you create them. Wills are only in effect after you die.
- Wills only cover assets owned solely by the benefactor (also known as a grantor or donor). Trusts can manage and distribute other kinds of assets.
- Wills are subject to probate, most trusts are not.
- Wills transfer assets upon death. Trusts can be set up to hold assets even after death, to be managed and distributed according to the benefactor’s instructions.
- Trusts can have provisions that cover what should happen if the benefactor becomes ill or disabled.
Types of Trusts
There are also many different types of trusts to serve different types of estate planning goals:
- Revocable and Irrevocable Trusts: Revocable trusts can be changed by the benefactor. Irrevocable trusts can not.
- Charitable Trusts: These are specifically designed to transfer assets or make payments to a charity. You can set up a charitable trust to transfer your assets directly to the charity or you can arrange for the charity to receive a predetermined income stream for a set period of time.
- Marital Trusts: Benefits are provided to a surviving spouse.
- Bypass Trusts: These bypass the surviving spouse in order to limit a tax burden.
- Purpose Trusts: A purpose trust does not have a beneficiary. Instead, the trust exists to perpetuate a cause or purpose. (Purpose trusts could be used to maintain an art collection, pet care, maintenance of property, running of a business, or other purpose.) Purpose trusts are not allowed in all states.
- Separate Share Trusts: In this type of trust, the benefactor can stipulate different features for each beneficiary.
The best type of trust for you is determined to whom or what you want to bequeath your legacy and under what time frame and other stipulations.
Understand the Trade-Offs
Many retirees scrimp and save in order to be able to leave behind an inheritance. Others spend a little more or even lavishly and enjoy what they have earned.
Some beneficiaries are hoping to receive a windfall. Others actually wish that their parents or loved ones would spend a little more and really enjoy the time they have now.
There is no one right way — you can try to leave a legacy or not. You get to decide. However, it is useful to be aware of the trade-offs you might be making — especially when it comes to your home equity.
Your home is likely your most valuable asset. And the majority of retirees see the value of their home as the legacy they can leave their children. However, if you are in need of money to help fund your retirement years, you should certainly think about tapping into your home equity through downsizing or other means.
A Comprehensive Estate Plan Is Not Just a Will or Trust
While a will or trust is probably the most critical aspect of your estate plan, there are at least four other legal documents that you should prepare.
And, depending on the complexity of your finances and desires for your legacy, there are many other legal documents that you could potentially require.
Learn more about the four most important estate planning documents: a will or trust, an advance directive, a power of attorney, and a letter of instructions.
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