Write It Down: The Importance of Documenting Wishes

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While traditional estate planning typically covers the tax efficient transfer of financial assets, guidance is often missing regarding the equally important insights into the family's legacy and wishes.

Once official estate planning documents have been drafted and signed, many wealthy individuals find that something is still left unaddressed in all of the paperwork and legalese: a personalized expression of their hopes and desires for their children and grandchildren.

Traditional estate plans take care of the who, what, when and how of wealth transfer, but do not document the wishes or intent of the generation planning to transfer the wealth. What if you want heirs to be involved philanthropically or to emphasize the arts in the education of their children? Or what if it's important to you for the next generations to keep the family's history alive by retelling stories and traveling to explore roots?

As tax and trust laws have changed in recent years, allowing for a greater share of assets to be passed to heirs over longer periods, the imprint of values, history and beliefs on wealth transfer has become a rising priority among wealthy families.

Joan Crain, Global Family Wealth Strategist at BNY Mellon Wealth Management, notes that many wealth advisors address this gap in traditional estate plans by helping clients draft a “letter of wishes."

These wishes are a deeply personal addition to an estate plan's six essential components, which includes three distinct health care documents, a durable power of attorney, a last will and testament and, in most cases, a trust.

The health documents should include a health care proxy, which designates someone to make health care decisions on your behalf should you become unable to communicate; a HIPAA authorization allowing doctors to discuss your situation with certain people you specify; and a living will, which documents your end-of-life preferences.

A durable power of attorney further buttons up your affairs by naming someone who has legal authority to handle your finances as well as other legal and private matters either at the time you designate or if you become incapacitated.

Finally, a last will and testament details how you want your assets and possessions distributed upon your death.

Typically, trusts are the vehicles used to carry out those transfers to heirs, often for tax benefits, but also to build controls and directions around how the dispersions should occur. A trust may delay distributions until a particular age in adulthood or specify that assets can only be used for costs deemed essential, such as education or a down payment on a house, not a heli-ski trip to Chile.

Crain explains that increasingly trusts will include a “statement of intent" within the trust document itself. This allows the grantor to clearly state reasons for the existence of the trust, which can be invaluable, particularly for long term trusts where adhering to the grantor's intent may be important both legally and morally. In most jurisdictions, where beneficiaries and/or their legally appointed representatives have a right to see the trust document, the statement of intent is accessible to them.

The Missing Piece

The letter of wishes adds yet another layer of focus to assist in carrying out the instructions in your will or trust.

“This is an unofficial document that can help serve as a backdrop," says Jere Doyle, senior vice president and estate planning strategist at BNY Mellon Wealth Management. “It can often help a trustee make decisions about the appropriate dispersion of assets in situations that are beyond the scope of a trust's letter of intent."

A letter of wishes is not officially part of the trust and is not irrevocable or legally binding. It can be revised at any time and can either be kept confidential—between the trust creator and the trustee—or shared with beneficiaries.

Rather than including explicit instructions, a letter of wishes may be conversational in tone, emphasizing hopes for how a legacy can help shape and influence beneficiaries' lives.

For example, a letter of wishes may note:

“Beneficiaries should receive the best education from the finest schools to which they can be admitted and pursue other types of educational opportunities to enrich their lives."

This could help guide a trustee if, say, a grandchild seeks trust assets to study fine art in Paris or to attend a more expensive private graduate school over the more affordable state university.

If the letter of wishes emphasizes the importance of understanding the struggles of immigrant great grandparents in their homeland, a trustee can take this into account if beneficiaries request a trust distribution for a trip overseas to retrace their relatives' history.

The Value of Advice

Contemporary advisor-client relationships are far more conducive to earnest discussions about life's wishes and how to plan for them—whether for legal documents or your more informal letter of wishes. While traditional advisors tended to focus primarily on investments, today's wealth managers understand that to plan wealth well, they must develop a deep relationship with the family and become familiar with that family's unique dynamics. This means not just building a bond with the primary wealth builder, but the older and younger generations, too.

“A lot of people now want planning around these highly personal matters as much as they want investment help," Doyle says. “To meet that need, advisors get deeply involved—they know the names of clients' kids, go to their house for dinner and go to the family's funerals."

As years pass and circumstances change, advisors also need to stay alert to how wishes evolve. “You don't wave a magic wand and have a plan and be done with it," Doyle says. “Your ideas may change and your letter of wishes can, too."

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