Written by: Gerard F. Joyce, Jr. | Fiduciary Trust Company International
Benjamin Franklin famously said, “By failing to prepare, you are preparing to fail.”
For Millennials who are settling down, it’s never too early to start thinking about protecting and growing their wealth and ensuring it is passed on as they wish.
Wealth managers and trustees can take the lead to actively encourage their high-net-worth clients’ Millennial children to start off on the right foot as they begin their own families. Below are some important wealth planning tips for modern, Millennial-led families:
Prepare a Last Will and Testament—and Securely File Multiple Copies:
From Pablo Picasso to Prince, the list of famous high-net-worth personalities who died without leaving a will and/or estate plan in place is long. The truth is, many people don’t have one. According to
com’s 2019 Will and Living Trust Survey, only one in six Millennials has a will. And while 76% of the respondents, who varied widely in age, agreed that “having a will was important,” only 40% had drawn one up. The biggest reason respondents gave for not following through with drafting a will was that they “haven’t gotten around to it.”
Millennials who are becoming fathers and mothers for the first time should prepare a last will and testament as part of an estate plan as soon as possible, instead of assuming they are too young and have time to wait. If the unthinkable happens, significant others, children, business partners, and others shouldn’t be left hanging.
Perhaps the most daunting decision for young parents is who will act as a guardian for their child(ren). Not all couples have an obvious choice, and even the lack of an obvious choice for a guardian can be a great source of stress and a potential roadblock to finalizing a will.
Wealth managers and trustees can also proactively encourage Millennials to periodically review their wills, estate plans, and other important documents so they can be updated as needed—and suggest that they provide copies to their lawyers and/or financial advisors.
Become Involved Beneficiaries:
Millennials who are in the process of beginning to focus on estate planning have a lot on their minds, but if they are beneficiaries of family trusts, they also need to understand the basic workings of their specific trusts in order to sufficiently prepare themselves and their families for any financial decisions down the road.
Wealth managers and trustees can be valuable resources for the children of their clients who are starting families of their own by reaching out and offering to educate them on their inheritance. “When do I get my check?” isn’t satisfactory knowledge for a beneficiary of a trust who must consider the expenses and wellbeing of a spouse and children.
Beneficiaries should know how the trust is managed, and how long it will last. They also need to understand their rights as a trust beneficiary, and whether their significant others or children have rights to the inheritance. Trustees can educate them about who manages the trust and how often distributions will be paid out—and, crucially, what would constitute overspending based on the amounts of distributions and the time frame of the trust.
In addition, beneficiaries should possess an understanding of their inheritance from a tax perspective. Are trust distributions subject to personal income taxes? Will an inheritance be subject to estate taxes? The answers to these questions can vary depending on the state because states may also impose an estate tax in which beneficiaries and their families reside, and therefore, need to know about such taxes if they are to plan effectively for the future.
Finalize a Prenuptial or Postnuptial Agreement:
While prenuptial agreements often entail negative connotations in our culture, Millennials and others will wish they had them in place in the event of a divorce or separation. Furthermore, family trusts often include stated provisions that the spouses of children, grandchildren, and other heirs cannot inherit assets.
If Millennials want their spouses or civil partners to be able to inherit, they need to talk openly with their parents or grandparents and the trustees, to ensure they can do so. They can also work with family advisors to include terms in the dispositive provisions (i.e. who gets the trust property and when) which spell out how much income their spouses and children can receive from the trust following a divorce, separation, or death. Families may have valid reasons for not wanting an heir’s spouse to inherit, and if so, the spouse or partner should understand them.
Whether Millennial couples enter a postnuptial or prenuptial agreement, one of these estate planning documents is necessary if one member of the couple is a beneficiary of a trust or has accumulated new wealth on their own prior to a marriage or civil partnership. Even if such an agreement specifies what a significant other
is entitled to as opposed to
not entitled to in the event of a divorce or separation, it’s important to at least have one on file so that spouses and partners know what they and their children have rights to, should the relationship go sour.
Plan Ahead for the Possibility of Changes in Income, and for Additional Children:
Income is always a necessity for meeting expenses and maintaining comfortable lifestyles, and in case there is an interruption in income, high-net-worth parents need to take steps ahead of time to ensure they and their children will be well-positioned to cope financially. Millennials should think about how much savings they would require for an effective cushion in case they experience a job loss, especially if they are breadwinners for young or growing families.
In addition, Millennial parents should calculate how much extra income they would need to support the number of children they wish to have, or how much would be required to support another child who arrives as an unexpected bonus. If they are beneficiaries of a family trust, the trustees may have the power to increase trust income in the event that the family grows.
Ensure Adopted Children Can Inherit:
If Millennial beneficiaries expand their families by adopting children, they need to make sure that their trust provisions enable adopted children as well as biological children to inherit any wealth and/or tangible items (such as artwork, etc.).
In general, throughout the U.S., adopted children can inherit from their adoptive parents, and the adoptive parents’ relatives, as soon as the adoption decree becomes final—and the legal relationship between adopted children and their birth parents is severed at that point. However, in some states, adopted children may still inherit from birth parents following their adoption, and in Illinois, for example, birth parents may acquire property from an adopted child’s estate gained as a gift under intestate laws or through a will.
Furthermore, beneficiaries who have adopted a stepchild have something else to think about: only 14 states explicitly allow a child adopted by a stepparent after the death of a birth parent to maintain the right of inheritance from or through the deceased birth parent—or another biological relative—regardless of the adoption (as long as the deceased birth parent’s parental rights were not terminated prior to death).
It’s never too early to begin family estate planning, especially for Millennials who will inherit considerable wealth from parents and/or grandparents. Wealth managers and trustees can play an important role in assisting Millennial heirs with estate planning so they will be ahead of the game once the time comes for them so they will be ready when they start families of their own.
Gerard F. Joyce, Jr. is Managing Director, Deputy General Trust Counsel, and National Head of Trust & Estates at Fiduciary Trust Company International.
