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Creating a Values-Based Estate Plan

Creating a Values-Based Estate Plan

April 19, 2022

Many investors have some understanding of traditional estate plans that specify how you want to distribute your property after you die. A values-based estate plan is different, but the two types can overlap, giving voice to how you bequeath your wealth to your beneficiaries.

A values-based estate plan (VBEP) is a spiritual or ethical document rather than a financial one. It describes your values and priorities and may lay out any concerns about how your assets will be protected. A VBEP is a free-form document with no special formats or structure. Yet it may be the most personal communication you ever issue.

Leaving behind legacy assets: A VBEP is a way to leave a message to your loved ones, your community, and the world. For example, it might describe the important events in your life or why you contributed to a particular charity, encouraging others also to do so. It can also coordinate with your traditional estate plan by referencing certain trusts you set up based on your ethical values and concerns for others. I’ll describe three such trusts.

Caring for an adult child with special needs. You may have profound concerns about the financial support a child or other loved one with special needs will require. A support trust might be an appropriate vehicle since it protects the trust principal from the claims of creditors (1). You can limit the beneficiary’s financial interest to the amount of trust income and principal needed for support, maintenance, and education. A trustee distributes the necessary funds and protects the trust from creditor attacks.

Protecting the financially irresponsible. Your VBEP might address your concerns about a beneficiary who can’t control their spending. A spendthrift trust might be a good solution since it forbids the beneficiary from transferring any financial interest from the trust (2). Or you might consider a discretionary trust, in which you allow a trustee to decide how to use the trust’s principal and income (3). Once again, the beneficiary has no power to transfer money from the trust. Both types of arrangements protect beneficiaries from creditors’ claims.

Protecting your grandchildren. For various reasons, some grandparents prefer to grant their assets directly to their grandchildren (or others who are at least 37 ½ years younger than the trust grantor) instead of their children. A generation-skipping trust accomplishes this and may provide significant tax benefits (4). If you prefer, you can use a Uniform Gifts to Minors Act (UGMA) account to transfer money and securities to a grandchild or other minor (5). You can opt for a Uniform Transfers to Minors Act account if you wish to transfer tangible or risky assets (e.g., real estate).

Your estate plan should reflect your values. A values-based estate plan allows you to reflect in writing your experiences, beliefs, and hopes for your heirs. It also can help explain the reasoning behind your traditional estate plan. I invite you to contact me to discuss why an estate plan should be part of your overall financial plan. This information is not intended to be a substitute for specific individualized tax or legal advice. We suggest that you discuss your specific situation with a qualified tax or legal advisor.

LPL Financial Representatives offer access to Trust Services through The Private Trust Company N.A., an affiliate of LPL Financial.

Securities and advisory services offered through LPL Financial, a registered investment advisor, Member FINRA/SIPC. LPL Financial and Cavanaugh Financial Group are separate entities.

This material was prepared for John Cavanaugh and does not necessarily represent the views of the presenting party or their affiliates. This information has been derived from sources believed to be accurate. Please note—investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting, or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax, or legal advice and may not be relied on for the purpose of avoiding any federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

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