How can you leave a lasting legacy for your loved ones?

In the event of your death, your estate may not be easily accessible to your loved ones. You could be leaving your loved ones without steady income to pay for the mounting bills for many months or even years. Estate preservation would be difficult if your loved ones do not have enough money to cover the estate tax upon your demise. Estate planning will ensure your spouse, child or children are cared for, even when you are no longer around.

But estate planning is not just about death and taxes but about control. Estate planning is controlling the management and disposition of your assets for your loved ones, for the next generation and the generations to come.

Melvin elaborated on the “Generic Plan” which is what happens when you do nothing. This would be very convenient for you but the most expensive and inconvenient for your loved ones. This is the part where you leave everything to chance and have beneficiaries struggle on estate-distribution laws and policies in case you are “taken out of the picture.” Heirs, if they wish to acquire their inheritance, need to shell out a large amount of money to settle estate tax. The government is the number one beneficiary, so to speak. The distribution of the estate could also be the source of fighting among families or relatives.

Given the above, Melvin offered 5 customized plans for estate planning:

1. Last Will and Testament – This has the advantage of being the easiest to do. You will not even need a lawyer in the case of a holographic will. It just needs to be handwritten by you, dated, and signed. However, this is highly contestable. Having a notarial will with a lawyer and three witnesses will solve this. The greatest disadvantage to using the Last Will and Testament is that it is the most taxed. All your properties will be listed here and taxed.


2. Direct Donation - You can donate your property to your children while you are still alive. The biggest advantage of this is that your children can already enjoy your donation. However, as the parent, you lose control of the property. Imagine a scenario with the prodigal son in the bible.


3. Irrevocable Trusts – These are effective at reducing your gross estate, but this is still subject to donor’s tax. Through your instructions, the trustee can make distribution of the income of the trust and/or body of the trust to the beneficiaries in such time and such manner that you have provided in your letter of wishes. This has the advantages of asset management to provide for the needs of your beneficiaries before and after death and/or smooth wealth transfer. This is particularly useful in the case when you have a child who is mentally or physically incapacitated. However, this can be expensive with annual management fees.


4. Family/Close Corporation – In this set-up, it is easy to divide the estate and wealth to the family. According to Melvin, if your family has a legitimate functioning business, always use the family corporation because you can use the tax advantages to reduce your overall expenses.


5. Insurance – Insurance is the most underrated for estate planning. It can be used to pay the estate taxes and provide a level of comfort for your loved one. From a business perspective, it adds value for group insurance, retirement planning and the like.

You cannot assume that “one size fits all” in estate planning as each family is unique in terms of their values, aspirations, and goals. But indeed, proper estate planning will ensure that your estate will never go to unintended beneficiaries, minimize taxes for beneficiaries, provide a financial buffer so your family can continue living as intended, and hopefully, eliminate or minimize disagreements between family and relatives.

Each one of us will have a different situation. If the main goal is to carve out value from the estate to avoid the bite of estate tax, insuring one’s life and designating the heirs as irrevocable beneficiaries is a very effective way of minimizing estate taxes. This will also address liquidity problems in terms of settling the estate taxes and local transfer taxes that will apply.

If you consider using the Last Will and Testament, do note that the existence of a will necessitates a long and costly court proceeding. This often becomes a public spectacle which makes it susceptible to intrigues.

And while having a family corporation does have significant tax advantages, you may encounter issues like: Who will lead the business after you? What if he/she is not qualified or interested in the business? Can in-laws be part of the business? What if they are interested and better qualified? How do I ensure my legacy for the future generations to come?

Premier Family Business Consulting has been helping families in business for the past ten years. We believe that healthy and meaningful family relationships and family unity are the means to family business success across generations. If you need help, ensuring a lasting legacy for your loved ones, or you have any questions about estate planning, wealth preservation, family governance and corporations, book your free 30-minute consultation with us at https://premierfamilybusiness.com/contact/.