The desire to leave a lasting financial legacy resonates with so many of us. It’s one of the main reasons we build wealth in the first place—not just to spend it here and now, but to see it better our family and our world long after we’re gone. When managed well, a financial legacy can make a powerful difference for our kids, grandkids, and the causes we care about.
But while almost all of us want to leave a lasting legacy, few of us are confident about how to make it happen.
That’s where this blog comes in handy. In the sections that follow we explain the things you need to know about legacy planning: what it is, why it matters, and how to go about it. We’ll walk you through a clear path to a legacy that lives on.
What is Legacy Planning (and Why Does it Matter)?
Legacy planning is a financial strategy that creates a future for your values, beliefs, and wealth.
Legacy planning extends beyond traditional estate planning. It’s not just about managing assets; it’s about ensuring your life’s work and values continue to make a difference. Unlike conventional estate planning, which often focuses on the legal aspects of asset distribution, legacy planning encompasses a more holistic view, including philanthropic goals, family values, and the imprint you wish to leave on the world.
Legacy planning can include:
- Charitable giving strategies
- Establishing educational trusts
- Passing on family stories and values
- Succession planning for family businesses
- Providing for future generations
So why is legacy planning important?
It’s about leaving more than just assets; it’s about leaving a mark.
Legacy planning is crucial because it allows you to extend your influence and care beyond your lifetime. It ensures that your values, and not just your valuables, are passed down to future generations. This type of planning enables you to create a bridge between your life’s achievements and the future you wish to shape for your loved ones and the causes you are passionate about.
Without legacy planning there may be:
- Assets distributed contrary to your wishes: Without a plan, your assets may not go to your intended beneficiaries.
- Legal and financial complications for heirs: Lack of planning can lead to complex legal issues and financial burdens for heirs.
- Family disputes: Absence of clear instructions may cause misunderstandings and conflicts within the family.
- Missed charitable contributions: Your philanthropic goals may not be realized without specific plans.
- Business succession uncertainty: For business owners, no plan can lead to instability and uncertainty in business succession.
- Inefficient asset use: Without strategic planning, inheritances may be reduced significantly due to taxes and fees.
- Inadequate care for dependents: Without a plan, there may not be proper arrangements for minor children or dependents with special needs.
- Loss of family history and values: A lack of planning might mean missing the chance to pass on important family traditions and values.
How to Leave a Financial Legacy
1. Select Legacy Advisors
Your financial legacy is important and it can be complicated so it’s important to have the right support around you. We believe the earlier you bring professionals in, the better. They can help you go through the next steps the right way so you don’t have to change as much later on.
There are two main types of advisors you want around you.
- Financial professionals: A qualified financial advisor like Generous Wealth will have experience across multiple domains—investment management, tax strategy, and generosity planning—and will know how to integrate these areas into one cohesive plan.
- Legal professionals: A lawyer will be involved in creating many of the important documents of your legacy plan (such as a will) and will often oversee disbursement to your beneficiaries.
2. Identify Your Legacy Goals
Once you have the right people on your team, they’ll guide you through the process of identifying your goals. This is the time when you reflect on what you want out of your legacy. You need to answer questions like these long before you get into the numbers:
- What values do you want to see live on?
- What people do you want to bless?
- What causes do you most hope to impact?
You may already have clear answers to these questions or you might be thinking about them for the first time. Either way, it is important to get your thoughts down on paper. Vague goals are unrealized goals, so get as specific as you can. Above all, work to identify what is most meaningful to you. Those values will be the North Star that guides you throughout the rest of the financial legacy process.
3. Gather Necessary Components
Now that you know what you want to accomplish with your legacy plan, it’s time to go about gathering the necessary components.
Wills and Trusts
Wills and trusts are fundamental tools in legacy planning.
- Wills allow you to specify how your assets should be distributed after your death. They can also appoint guardians for minor children and express your final wishes. A will becomes public record once it goes through probate, which can be a lengthy and sometimes contentious process.
- Trusts, on the other hand, offer more control and flexibility. They can help manage your assets during your lifetime and after your passing, often bypassing the public and time-consuming probate process. Trusts can be tailored for specific purposes, such as caring for a family member with special needs, preserving wealth across generations, or managing a family business.
Beneficiary Designations
A beneficiary is the person in line to receive benefits from a specific plan or policy. Beneficiary designations are found in retirement accounts, life insurance policies, and other financial products.
By naming beneficiaries, you are determining who you want to receive your assets. This can be family members or even charitable organizations.
Life Insurance
A life insurance policy helps provide for dependents after your passing. These policies can provide immediate financial support to your beneficiaries, helping cover all sorts of expenses.
Because life insurance proceeds are generally not subject to income tax, they are also an efficient way to transfer wealth.
Charitable Contributions
Philanthropy can be integrated throughout your legacy plan.
As suggested above, you might decide to name a charity as a beneficiary of a trust or life insurance policy. You may also choose to establish a charitable trust or donor-advised fund which can both fund causes important to you and offer tax benefits.
Integrating the Components
As you can see, the components of a financial legacy are vast and varied.
That’s why the best process is to clarify your goals first and then get all of the options out on the table. There are many possible combinations but knowing precisely what you hope to accomplish will make it easier to choose between two strategies and their results. Your financial advisor will be able to help you run various scenarios and see what makes the most sense for you.
Some plans may emphasize certain components or skip over others entirely, but it is well worth weighing all your options and understanding how they can fit together.
4. Account for Taxes
Taxes are a necessary consideration in any financial process.
Nowhere is this more true than in building a financial legacy. Any step or option will have tax implications. For example:
- Capital gains taxes can greatly reduce any assets given to your beneficiaries
- Charitable donations can decrease your tax liability and maximize your gifts
- Life insurance policies have income tax-free proceeds
Your financial advisor should clearly spell out the tax implications of any part of your legacy plan. They’ll help you optimize your strategy so that more of your legacy goes to your desired beneficiaries and less to federal and state taxes.
5. Involve Family in the Process
At Generous Wealth Advisors, we believe that the family should be involved early in the legacy planning process.
This means talking with your kids or grandkids about money early and often enough that your intentions and values are clear. You’ll want to find opportunities to:
- Promote financial literacy
- Communicate how you define “true wealth”
- Prepare heirs for their inheritance
The more your family is involved in the process, the closer they’ll be aligned with your wishes. There is no better way to ensure your values live on than to share them with your loved ones. Not only does this prevent your heirs from making reckless financial decisions, it also keeps harmony within the family during some of the most difficult seasons.
6. Navigate Challenges and Common Pitfalls
As an important and oftentimes complicated process, legacy planning presents various challenges and pitfalls. But by anticipating and preparing for these issues, you can avoid them becoming major problems.
Addressing Family Conflicts and Misunderstandings
Family dynamics can be complex, and introducing discussions about legacy and inheritance can sometimes lead to conflicts or misunderstandings. To mitigate these issues consider:
- Open Communication: As we said above, foster an environment of transparency by discussing your legacy plans with your family. This helps to manage expectations and reduce potential conflicts after your passing.
- Fair vs. Equal: Understand that fair distribution of assets may not always mean equal distribution. Explain your decisions to your family to prevent feelings of injustice or resentment.
- Professional Mediation: In cases of deep-seated conflicts, consider engaging a professional mediator. This can help facilitate discussions and find mutually agreeable solutions.
Avoiding Legal and Financial Missteps
Legal and financial errors can significantly undermine your legacy plan.
- Regular Reviews and Updates: Laws and financial situations change. Regularly review and update your legacy plan to ensure it remains compliant with current laws and reflects your current financial situation.
- Professional Guidance: Utilize the expertise of financial advisors, estate planners, and lawyers. They can help navigate complex legal and tax issues, ensuring your plan is both effective and compliant.
- Clarity and Detail: Ensure all documents are clear and detailed. You want to avoid any ambiguity that could lead to legal challenges. Clearly state your intentions and provide specific instructions where necessary.
Ensuring Flexibility in Your Legacy Plan
A rigid legacy plan may not stand the test of time as circumstances evolve. Instead, we recommend:
- Building in Flexibility: Consider including mechanisms in your plan that allow for adjustments. This could involve empowering trustees with discretion to adapt to changing circumstances or creating trusts that can be altered under certain conditions.
- Planning for Different Scenarios: Anticipate various future scenarios, such as changes in family dynamics, financial status, or health situations. This foresight can help in crafting a plan that remains relevant and effective through various life changes.
- Regular Re-evaluations: Life is unpredictable. Regularly re-evaluating your legacy plan ensures it remains aligned with your current wishes and life circumstances.
By addressing these challenges and avoiding common pitfalls, your legacy plan can become a well-structured and resilient framework that effectively carries out your wishes and benefits your loved ones and the causes you care about.
The Lasting Impact of a Well-Planned Financial Legacy
If you follow the steps outlined in this article, you’ll be on your way to a financial legacy that stands the test of time and transcends monetary value. A well-planned legacy is the perfect capstone to a well-lived life and creates a lasting impact on the people and causes you love most.
By taking the time to craft a legacy plan, you’re committing to leaving a positive mark on the world around you. Whatever stage you’re at in this process, be encouraged that it is a valuable use of your time and energy. And of course, if you need help at any time throughout the planning process, the team at Generous Wealth is here to walk alongside you. Let’s craft a legacy that echoes for generations to come.