In the world of financial planning, we are increasingly hearing (and using) the word "sustainability." Generally, sustainability has referred to socially responsible or ESG investing. But sustainability is also an element of personal financial planning. A sustainable financial approach incorporates planning to suit present needs, maintaining one's desired lifestyle during retirement years and establishing a legacy.
Recently, Covid-19 has prompted widespread economic uncertainty — and for some, even those who are younger, personal reckonings with mortality. Planning for the worst-case scenario can seem daunting, but it can also be an opening to powerful conversations about your values and what impact you'd like to leave on the world around you. Conversations around estate planning can give you peace of mind in a number of ways, from your own future to your family's, as well as the lasting impact you want to be remembered by. Below are a few of the considerations when approaching how to create a robust and sustainable estate plan.
An estate plan is a blank slate. There is no fill-in-the-blank template, nor is there a formula for determining the best approach. Each individual's circumstances, priorities and preferences are unique. For example, some people aim to spend all of their money during their lifetimes, while others plan to leave behind assets for the benefit of their children or charitable causes. Determining which of those categories a person falls into requires introspection and questions such as, "Who do I want to take care of? What are my concerns for the future? What do I want to be remembered for? Who or what do I want to honor?"
A robust estate plan is not a single, fixed document, but instead a living plan that is consistently updated. It includes an advanced health care directive, durable power of attorney and more. For individuals with significant estates who are looking to minimize their tax burden, the estate planning process can be even more complex, and the plan should be revisited frequently to stay abreast of changing tax laws. Developing a sustainable estate plan will likely require multiple conversations with financial advisers, an estate planning attorney and, above all, family members. With each new step, revisit how this estate plan works toward the overarching, sustainable goal.
Death and money can be controversial and hard topics for even the most loving and well-adjusted families. Complicated family dynamics and uncomfortable conversations with partners, children or other heirs may be the reason so many people avoid estate planning. According to the 2020 Estate Planning and Wills Study conducted by Caring.com, only 32% of respondents said they have one or more estate planning documents. Of those who do have documents, about 24% have a will, 13% have a living trust and only 6% have an advanced health care directive.
Failing to establish a robust plan can result in even more conflict and hardship for family members who are left to settle their loved one's affairs in the absence of guidance or instructions about their wishes. For this reason, it is also critical to review and update estate plans periodically: every five years, and immediately following major life events, such as marriage, divorce, the birth of a child or the death of a spouse. During these periodic check-ins with your estate plan, discuss it with your family in the framing of what you want your legacy to be, and how you want your inheritance to have an impact. Incorporating your family into this process can help ease into these difficult conversations and will ensure that your family is committed to the same legacy you are envisioning.
Another way to plan your legacy and help family members is to think beyond assets: Leave impactful reminders about the things that mattered to you, the lessons you learned or things you want your family to remember. For example, tell your children, "Blood is thicker than water; always put family first, even if you have differences." Maybe gather a host of letters for your loved ones to open throughout the years after your passing to brighten their day. You can also mention the traditions you'd like for them to carry on after your passing.
And while matters such as naming a guardian for your child will come to mind when estate planning, try to think outside of that, as well. For example, if something were to happen to you, is there a certain family member or friend you know has a special bond with your pet and would take good care of them? And, of course, consider the more lighthearted touches. ("Don't let your mother watch any more crime TV than she already does.") It is OK for these mementos to be insightful and heartwarming, but a little bit of humor — especially if it's your own personal humor — can also go a long way in such a heavy matter.
The year 2020 has brought challenges and uncertainty unlike most of us have seen in our lifetimes. While estate planning requires a significant investment of time and effort, it can also contribute to greater peace of mind during this tumultuous time. Establishing a sustainable financial plan and a meaningful legacy can help individuals make a future positive impact in the world — no matter what happens tomorrow.