Planning Your Legacy: Begin With the End in Mind
By Steve Lear, ChFC, CLU, BFA™ and Dan Lear, CFP®, CPWA®, BFA™
What’s Included:
- What is Estate Planning?
- What is Legacy Planning?
- How to Create a Legacy Plan
- When to Start Planning for Your Legacy
- What Will Your Legacy be?
- Who Will Receive Your Legacy?
- Legacy Planning Steps
- Looking Ahead
You’ve probably heard the terms “estate planning” and “legacy planning” and wondered, “What’s the difference?” While it’s true that these terms are often used interchangeably, we recognize a subtle difference. Estate planning is the how. Legacy planning is the why.
What is Estate Planning?
Estate planning is the process of determining who will inherit your assets when you pass away. Estate planning involves working with an estate planning attorney to draft legal documents and meticulously updating your beneficiary designations to ensure your assets flow according to your desires.
What is Legacy Planning?
Legacy planning extends beyond estate planning, taking into account the underlying meaning behind your financial decisions. Legacy planning is more emotionally challenging because it forces you to confront your mortality. However, confronting your mortality can bring clarity to your living years. You won’t be here forever, so how do you start planning for your legacy while still living a busy and fulfilling life?
How to Create a Legacy Plan
Many people reach the end of their life with money left over. If you plan to be one of them, you need to start legacy planning. Consider the following scenario:
You have reached age 100. While you know you will die soon, you have lived a long, exciting, and content life. As your financial advisors, we’ve come to say goodbye and thank you for allowing us to be part of your life. We’ve brought along your net worth statement. As you imagine this, think about the following question: What does your net worth statement need to read for you to have no regrets?
Your answer today clarifies what you need to do tomorrow.
When to Start Planning Your Legacy
When it comes to legacy planning, there is no one correct answer. The only requirement is to be proactive – as being proactive helps ensure that your wishes are carried out effectively and according to your unique desires.
You are ready to begin the legacy planning process when the following three conditions exist:
You accept mortality
To get started on legacy planning, you must overcome the fear factor. Legacy planning forces us to confront mortality, a prospect that can be unsettling. It’s natural to want to avoid thinking about death, but planning is a gift to not only you, but your loved ones.
Nobody ever wants to talk about their mortality, and even once you have accepted mortality, helping your spouse, children, or other loved ones accept that you will not be here forever is even more challenging. Having an open conversation about this topic is crucial.
You are confident that you are on track to have money left over at the end of your life
This is where we as financial planners can provide the most assistance. Our job is to help you establish your goals, and help you through different stages of life to work toward achieving those goals
Many people worry about making the wrong decisions. Remember, estate and legacy planning is not set in stone, and it can be updated as circumstances change. That being said, as long as you know you have the means to leave behind a legacy, you are ready to start planning for it.
You are committed to helping future generations
Legacy planning enables you to pass down not only financial wealth but also your values, principles, and beliefs. With legacy planning, you can benefit future generations and foster generational wealth-building, all while aligning your wealth with your values and goals.
What Will Your Legacy be?
There are four general responses to the question, “What is your desired legacy?”
I wish to leave my family nothing.
Not many people choose this option, but those who do are typically in a challenging situation; there is no one in the next generation that they love, trust, or respect enough to leave them an inheritance. If this is the case, it may be helpful to think more widely about your legacy. Is there a group or cause that you would like to support in lieu of blood relatives?
Other people may choose this option because they want to spend all of their assets while they are alive. They have been paying taxes their whole lives, and now they want the government to pay them back through Social Security or government-sponsored long-term care facilities. As financial advisors, we strive to steer clients away from this, as we’ve seen how government-sponsored long-term care facilities compare to other options that someone might be able to afford through careful financial planning.
I wish to leave my family with just enough money to settle my financial affairs.
This is a twist on the first answer, with the goal that your passing is not a burden on the next generation. People who choose this option are not looking to leave behind a large inheritance, but rather to ensure their final expenses are covered and their affairs are in order. Depending on your circumstances, this amount may range from $10,000 to $250,000 to cover most final expenses, including administrative costs, funeral expenses, outstanding debt, taxes, legal fees, and more.
I wish to leave my family as much money as possible.
Although this option is well-intentioned, it could still benefit from professional guidance. People who indicate that they want to leave “as much as possible” have probably never answered the question, “How much is enough?” It’s unlikely that a person will ever achieve true financial satisfaction if they consistently strive for “as much as possible” instead of reaching their definition of “enough.”
Additionally, we want our clients to consider carefully the potential drawbacks of saving until the end of their lives. In many cases, we want our clients to feel free to spend some of the money they’ve worked and saved for their entire lives. Whenever possible, we assure our clients that it is okay to book the trip, help their children, or give to a meaningful charity. We don’t want our clients penny-pinching in retirement in order to ensure they are leaving as much money as possible to the next generation.
I wish to leave my family with a specific dollar amount or percentage of my net worth.
Although this can be a challenge to define, this is the answer that most closely aligns with the Affiance Advantage™ process. The question we want to help you answer is: “What can I leave the next generation that will make the greatest impact without sacrificing our everyday life in retirement?”
An example of this is somebody saying, “I have four children, and I would love for each child to inherit $250,000.” Having a concrete legacy goal helps us, as financial planners, develop a plan to achieve it. Knowing that you are on track to achieve your financial goals – including the legacy you want to leave – can significantly reduce your stress level and the stress for family members in future generations who will be caring for you.
Who will Receive Your Legacy?
After you’ve decided what your legacy will be, you need to choose to whom it will be passed on. The most common beneficiary choice is a blood relative, but that doesn’t mean it’s your only choice. You could also consider someone who shares your values or someone who has shared unforgettable moments in your life. Instead of trying to choose one or more individuals, it could be a group of people in need or a community organization you support. The options are endless, and ultimately, it is your decision.
Legacy Planning Steps
Once you are ready to begin the legacy planning process, have determined what you would like your legacy to be, and who you would like to receive it, it is time to put your decisions into action. Your financial planner will help guide you through putting all of these desires into a tangible form.
Estate Planning
Estate planning is a vital component of creating a legacy. This is the legal process of documenting what assets will be distributed to whom after your lifetime. Estate planning helps you maximize the wealth you leave behind by considering strategies to minimize taxes and other expenses while you are still alive. Additionally, estate planning encompasses critical end-of-life decisions, such as appointing guardians for minors and providing healthcare directives. Estate planning is more tangible than legacy planning, because it includes drafting legal documents, such as wills, trusts, and healthcare proxies.
Communicate with Your Beneficiaries
It is essential to have a conversation with your beneficiaries about their inheritance before you are unable to do so. Failing to have these conversations can lead to real consequences. For example, many beneficiaries are unaware of the extent of your wealth. If it exceeds expectations, it is essential that your beneficiaries are prepared to manage the assets effectively. On the other hand, if it is smaller than expected, your beneficiaries will need to ensure that their own savings and investments are aligned with their financial goals.
Many people designate one beneficiary to be in charge of the immediate decision-making process after your passing. However, if this is not communicated to everyone, it can lead to conflict. It is essential to consider this, and if you decide to have one person in charge, communicate with them to ensure they are prepared and willing to accept the role.
When you speak with your designated beneficiary, or your beneficiaries, ensure that they know what estate documents you have arranged and where they are physically kept. Having knowledge of, and access to, these documents will allow your beneficiaries to make quick and informed decisions.
Every person and family is different. While the goal of your estate and legacy planning is to make your post-death wishes come true, sometimes conflicts of interest arise. Your beneficiaries may have other goals and priorities. Communicating your wishes in person is imperative to help get everyone on the same page. You are already trusting your beneficiaries to carry out your legacy. Why not trust them with this critical conversation?
Charitable Giving
Consider a legacy plan that includes charitable giving in whatever way is most meaningful to you. This allows you to pass more than just financial assets to future generations. Leaving a gift to charity is a way for you to pass on your values.
For many families, legacy planning is not solely financial but more focused on making a lasting impact. There are several options for incorporating charitable giving into your legacy plan, including a private foundation, donor-advised funds, and trusts, among many other options. These can be used as investment strategies that can maximize your impact. It can also be a strategic tool to lower taxes on your assets.
Part of legacy planning is choosing what organizations you would like to support. Finding a charity that aligns with your values and beliefs is critical, as it will last beyond your lifetime if you include it in your legacy plan.
Plan with the Next Generation in Mind
This may seem obvious, but legacy planning is all about the next generation. We know that by starting earlier, young people who save and invest regularly can drastically affect their financial outcome. However, every generation perceives this financial advice differently.
For example, millennials are the primary generation receiving inheritances currently, and further down the line, it will be Generation Z. Millennials tended to start investing later, and once they started, they invest more conservatively and have a higher level of distrust in financial advice.
Generation Z, on the other hand, has been heavily influenced by technology and is 45% more likely to start investing by age 21 than millennials according to Investopedia.
It is essential to have discussions with your beneficiaries about how they intend to use their inheritance, including their investment goals, financial literacy, and other related topics. You may discover that it would be more beneficial to “give with a warm hand, rather than a cold one.” This means that giving while alive could be more valuable for your beneficiary. Perhaps your gift could be used to fund education, a business startup, or a first home. If you wait to give until your death, these opportunities may have passed by. Work with your financial advisor to see how they can help your beneficiaries through the various stages of their lives.
Looking ahead
At Affiance Financial, our estate and legacy planning professionals are here to help you prepare for your future. We place a significant emphasis on personalization for our estate and legacy planning services, taking the time to understand your unique financial situation to craft a detailed plan that puts your beneficiaries in a position to thrive. When it comes to estate and legacy planning, there is no one-size-fits-all answer, but we are here to help you work toward your unique financial goals. If you are ready to start planning your legacy, contact your Affiance Financial advisor today.
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The views represented are not meant to be construed as advice. Moreover, no client or prospective client should assume that this content serves as the receipt of, or a substitute for, personalized advice from Affiance Financial, or from any other professional. Affiance Financial is not an attorney and no portion of this content should be interpreted as legal advice.
Please Note: Affiance Financial and Private Client Services do not serve as an attorney and do not prepare legal documents.
Sources:
https://realestatelawfl.com/the-psychological-battle-of-estate-planning/
https://www.thepittigroup.com/blog/legacy-planning-how-safeguard-your-loved-ones-future
https://www.heckcapital.com/insight/legacy-planning-5-tips-getting-started
https://www.investopedia.com/gen-z-investing-trends-8782299
