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Basic estate planning can serve as a tool to help you reach your financial legacy goals, both charitable and inheritance – here’s how.


Breaking financial legacy planning into smaller categories makes the incredibly complex process a bit more manageable, but it’s also helpful to remember that no aspect of your finances is siloed. If creating a legacy, especially a charitable legacy, is a financial priority, this should impact every area of your finances, including estate planning.


What is Estate Planning?


Estate planning is an outgrowth of good financial planning; financial planning explores and maps out your financial dreams and goals, and estate planning is part of the execution of the processes to achieve those dreams. At its most basic level, it involves creating written documents that lay out your wishes regarding the handling of you and your assets upon your death or incapacitation.

While a will is an important part of estate planning, it is far from the only important document. In addition to a will, a basic estate planning package typically includes powers of attorney, advanced medical directives, guardianship instructions for surviving minors, etc. The need for at least basic estate planning is applicable to any life stage, but it is something I prioritize most urgently with my clients in the preretirement and retirement phases of life, since the need becomes more acute the older you get and the larger your net worth grows.

A quick caveat here before we dive deeper, much of the content to follow touches on legal themes but should not be construed as legal advice; I intentionally speak about these topics in a generalized way, so please consult a qualified estate planning attorney familiar with the laws in your state for more specific guidance and for assistance in finalizing estate planning legal documents. If you need help finding a good estate planning attorney practicing in your state, I’ll be happy to assist with a referral (always free from any referral fees, of course).


What Happens When You Die Without a Will?


To better understand why estate planning is so critical to legacy building, let’s begin by looking at what happens when you die intestate (without a will). When this happens, your assets become frozen until a probate judge is able to comb through every detail of your estate and apply the intestacy laws of the state where you reside.

This process can be time-consuming, expensive and emotionally draining for your heirs, not to mention that it is highly unlikely any of your assets would end up supporting charitable goals in the absence of legally binding documents clearly expressing your desire that they do so.

A will gives you the chance to direct probate proceedings according to your wishes, and it tends to make for a smoother process, although it can still be time-consuming and expensive, depending on the probate laws in your state and the size of your estate. In general, the larger the assets going through probate, the higher the legal fees involved, and most states now have simplified “shortcut” processes for small estates.


How Does Probate Impact Your Financial Legacy?


Probate is not just potentially problematic because it can be expensive and time consuming, the probate hearings also give all interested parties a chance to contest aspects of the transferring of assets, including the will and the appointment of the executor. While important to preserve beneficiary rights, this can open the door for things to go sideways and start to go in directions you never would have intended.

Additionally, the probate proceedings must be made public to notify creditors who have claims against the estate for money owed, potentially attracting unwanted public scrutiny; it is not uncommon for unscrupulous scammers to monitor these public notices and prey upon vulnerable heirs.


How to Bypass Probate


Because of the drawbacks to probate, one of the major goals of estate planning is to bypass probate as much as possible, and there are several ways to do so.

Inter Vivos Giving

The simplest and, some would say, most extreme option (although not so extreme in the context of maximizing legacy impact) is to just give your assets away before you die. This calls to mind the adage, “do your giving while you’re living, so you’re knowing where it’s going.”

I should say, significant inter vivos giving (giving while you’re still alive) can be a great option for charitable giving, but it may not be the best option for inheritance goals, because your heirs don’t get a step-up in basis; your cost basis on the purchase of the asset would transfer to your heirs.

Designating Beneficiaries

Another good way to bypass probate, which is probably familiar to most, is designating beneficiaries on IRAs, 401ks, life insurance policies, and annuities. You can even designate Payable on Death (POD) beneficiaries on bank accounts and Transfer on Death (TOD) beneficiaries on many taxable brokerage accounts, and some states allow you to designate beneficiaries on real estate deeds and motor vehicle titles.

When you pass away, these assets pass directly to your beneficiaries without having to go through probate. To achieve both charitable legacy goals and inheritance legacy goals, qualified charitable distributions (QCDs) from your IRAs can be a good complement to beneficiary designations, whereby you do QCDs during your lifetime and designate heirs as beneficiaries of the remaining amounts at your death.

Add Joint Owners

You can also add a joint owner to a bank account, taxable brokerage account or a real estate deed, and provided that joint ownership includes rights of survivorship, when you pass away, ownership of the asset reverts fully to the surviving joint owner without having to go through probate.

There are a couple of major drawbacks here, though. One is that you lose control over the assets when they pass to the joint owner, and the surviving joint owner is free to change the ultimate beneficiaries of the assets in a way you would never have intended. This highlights the importance of good communication with any joint owners to ensure you are on the same page regarding estate planning goals. The other major drawback is that if the joint owner passes away, gets divorced, or gets sued, the assets in your joint account with them could be part of their settlement.

Revocable Living Trust

A final option is to create a revocable living trust, which were invented as a way to bypass probate. Once the trust is created, you then must take the next step of retitling assets to the trust, but once in the trust, those assets will pass according to the instructions in the trust document without having to go through probate. You retain the right to “revoke” that funding and move money in and out of the trust as needed; so, when you have a brokerage account tied to that trust, it functions exactly like a regular, taxable brokerage account, the only difference being that upon your death the assets will pass according to the trust document rather than your will via probate.

Your brokerage company will help with retitling brokerage account assets to the trust, your estate planning attorney can help with retitling real estate deeds to the trust, and you can then retitle any other asset valuable enough to warrant the effort, including expensive jewelry, art collections, etc.

Additionally, a trust allows you to not only control who receives your assets, but the timing of the disposition of those assets. With a will, once your estate is settled in the probate process, any assets that pass through the will are immediately accessible to beneficiaries (heirs or charities), which can be problematic if they are not mature enough to steward that amount of wealth. There are countless stories throughout history of large windfalls proving ruinous to immature wealth stewards. In contrast, there is great flexibility in the distribution parameters you can set for a trust and, in many ways, you are limited only by your imagination.


The Takeaway


Leaving a financial legacy requires not just developing wealth surplus (wealth over and above that needed for retirement spending) but creating a plan for the distribution of that wealth surplus, which is what makes proper estate planning so valuable. Many people do not think intentionally about this kind of planning, and the consequences can be devastating to your legacy. That doesn’t have to be your story, though, and Charis Legacy Partners can help.

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