Leaving a Legacy For University of California Employees

According to a study by Fidelity Investments, 52% of retirees believe leaving a legacy is important, with 74% hoping to leave an inheritance for their children and grandchildren (Fidelity, 2020). However, leaving a legacy can go beyond financial gifts. A report by Merrill Lynch found that retirees who engage in volunteer work or donate to charity often feel a greater sense of purpose and fulfillment, and are more likely to leave a positive impact on their communities (Merrill Lynch, 2017). By focusing on leaving a meaningful legacy, retirees can not only make a lasting impact on their loved ones, but also on the world around them.

Benefits of a will:

• Distributes property in accordance with your preferences
• Appoints an executor to administer your estate.
• Appoints a guardian for your minor children. 
• Can create a trust.

You've worked hard with University of California over the years to accumulate wealth, and it's likely reassuring to know that after your passing, the assets you leave behind will continue to provide for your loved ones and the causes you care about. To ensure that your legacy reaches your intended successors, you must make the necessary preparations immediately. There are four fundamental methods to leave a legacy: (1) through a will, (2) through a trust, (3) through a beneficiary designation, and (4) through joint ownership arrangements.

Wills

A will is essential to any estate plan. We advise our University of California clients to have a will regardless of the size of their estate, even if they have implemented other estate planning strategies. There are two methods to leave property in a will: specific bequests and general bequests. A specific bequest specifies the recipient of a particular item of property ('I bequeath my niece Jen Aunt Martha's diamond brooch'). A general bequest is typically a portion of the remaining property or assets after all specific bequests have been distributed.

Principal heirs typically receive general bequests ('I leave the rest of my property to my wife, Jane'). Generally, you can leave any type of property to whomever you choose via a will, with the following exceptions:

• Even if you name a different beneficiary in your will for the same property, the property will transfer according to the beneficiary designation.
• Jointly owned property with survivor rights transfers directly to the joint owner.
• The disposition of trust property is governed by the provisions of the trust.
• Regardless of what you leave him or her in your will, your surviving spouse is entitled to a statutory share (e.g., 50%) of your estate.
• Certain jurisdictions permit inheritance rights for children.

Caution:  Leaving property outright to minor children is problematic. You should name a custodian or property guardian, or use a trust.

Trusts

Using a trust to bequeath property to one's heirs is another option we'd like to highlight for our University of California employees. According to the terms of the trust, the trust property transfers directly to the trust beneficiaries. There are two fundamental categories of trusts: living or revocable and irrevocable. Living trusts are highly adaptable because the provisions of the trust (e.g., beneficiary renaming) and the property in the trust can be modified at any time. You can even reverse your decision by reclaiming your property and terminating the trust.

In contrast, an irrevocable trust can only be modified or terminated in accordance with its terms. This can be helpful for University of California clients who wish to minimize estate taxes or safeguard their assets from potential creditors. A trust is created by executing a document known as a trust agreement (we recommend that University of California clients have an attorney draft any form of trust to ensure that it achieves their goals).

A trust cannot distribute property it does not own; therefore, you must also transmit property ownership to the trust. By listing the items on a trust schedule, non-documented assets (e.g., jewelry, tools, and furniture) are transferred to a trust. It is necessary to re-register or re-title property with ownership documents. You must also appoint a trustee to administer and manage the trust's assets. You can name yourself trustee of a living trust, but you must also name a successor trustee who will convey the property to your heirs after your death.

Tip:  A living trust is also a good way to protect your property in case you become incapacitated.

While property that  passes by will is subject

to probate, property that  passes by a trust,

beneficiary designation,  or joint ownership

arrangement bypasses  probate.

Beneficiary Designations

Beneficiary designations transfer contractual property, such as life insurance, annuities, and retirement accounts, to successors. Typically, filling out and signing a form is sufficient. Beneficiaries can be individuals or entities, such as a charity or a trust, and multiple beneficiaries can be named to share the proceeds. You must identify both primary and contingent beneficiaries.

Caution:  You shouldn't name minor children as beneficiaries. You can, however, name a guardian to receive the proceeds for the benefit of the minor child.

When designating a beneficiary, we recommend that these University of California employees consider the income and estate tax implications for their heirs and estate. For example, the proceeds your beneficiaries receive from life insurance are generally not subject to income tax, whereas the proceeds they receive from tax-deferred retirement plans (such as traditional IRAs) are subject to income tax.

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These University of California employees should consult a financial planner to determine if their beneficiary designations will produce the desired results. When your circumstances change (e.g., marriage, divorce, death of a beneficiary), you should reconsider your beneficiary designations. With your will or trust, you cannot alter the beneficiary. You must complete a new beneficiary designation form and approve it.

Caution:  Some beneficiaries can't be changed. For example, a divorce decree may stipulate that an ex-spouse will receive the proceeds.

Tip:  Certain bank accounts and investments also allow you to name someone to receive the asset at your death.

Joint Ownership Arrangements

Two (or more) people can jointly own property, and when one dies, the other becomes the sole proprietor. This form of ownership is known as joint tenancy with survivorship rights (JTWRS). Certain states refer to a JTWRS arrangement between spouses as tenancy by the totality, and a few states have a form of joint ownership known as community property.

Caution:  There is another type of joint ownership called tenancy in common where there is no right of survivorship. Property held as tenancy in common will not pass to a joint owner automatically, although you can leave your interest in the property to your heirs in your will.

You might find joint ownership arrangements beneficial and convenient for certain types of property, but not for all of your property. Having a joint checking account, for instance, ensures that an heir will have immediate access to funds upon your passing. And jointly owning an out-of-state residence (such as a vacation property) can eliminate the need for an ancillary probate proceeding in that state. However, it may not be practicable to own property jointly if there are frequent transactions (e.g., your investment portfolio or business assets) because you may need the approval and signature of the other owner for each transaction.

Other disadvantages of joint ownership include: (1) your co-owner has immediate access to your property; (2) naming someone who is not your spouse as co-owner may result in gift tax consequences; and (3) if the co-owner has debt problems, creditors may attempt to seize the co-owner's share.

Caution:  Unlike with most other types of property, a co-owner of your checking or savings account can withdraw the entire balance without your knowledge or consent.

Conclusion

Leaving a legacy is like planting a tree. Just as a tree grows from a small seed and eventually becomes a majestic presence, our legacy starts with small actions that accumulate over time to create a lasting impact. Just as we carefully tend to a tree by providing water and nutrients, we must nurture our relationships and contributions to society to create a legacy that is meaningful and impactful. And just as a tree provides shade and shelter for future generations, our legacy can inspire and benefit those who come after us.