When Planning Your Legacy, Consider More Than Your Estate

May 27, 2016

estate planningIn planning for your retirement, you have four L's to address: lifestyle, longevity, liquidity and legacy. We've looked at the first three in previous articles. In this article we'll consider the fourth—your legacy.

Legacy planning is more than estate planning. It certainly encompasses your estate and how it will be passed on, but it also considers your personal legacy—the memories, values and life lessons that made you and your family what they are today. You can let the principles that you live by guide you in your planning, as well as find ways to pass them on to the generations that follow.
Here are five points to consider in legacy planning:

  • Your financial security. Your cash flow in retirement is traditionally part of estate planning and has been addressed in our previous articles on the four L's of retirement. The point is to ensure that you and your spouse are financially secure in retirement. Make sure you have the legal documents such as a living will in place to take care of you in case you become unable to.
  • Your estate. Your physical assets include everything from your home and vacation home to your artwork and coin collection. Now is the time to consider how they will be passed on to your heirs. In striving to be both equitable and fair, consider both monetary and sentimental value. The quilt made by your grandmother may not have monetary value, but it may be beloved by your granddaughter, and that should be taken into consideration. As part of the estate planning process, make sure the legal documents are in place to minimize the tax burden on any inheritance that would otherwise fall to your heirs.
  • Your business. In deciding the disposition of your business, you have important questions to answer: Will your company be passed on to the family, or will you sell it? If the former, should the business be run by one or more members of the family? Is its purpose strictly to provide income, or will it provide vocation and career fulfillment to at least one member of your family? Answering these questions can guide you in deciding what should be done with your firm after you've passed.
  • Your causes. It's an honor to be able to leave our mark on the world, and in the United States, philanthropy is one of the most popular ways to do that. Your favorite causes will value the financial legacy you leave them in your will. If you want to give to charity on an ongoing basis or make it part of the legacy you leave to your family, you can consider creating a structure such as a charitable remainder trust or private family foundation.
  • The intangibles. By intangibles, we mean the memories, values, principles and life lessons that shaped you and that you want to pass on to your heirs. These more abstract assets can be as important to your loved ones as the physical assets you leave them. Grieving children and grandchildren could be consoled, for example, by a "legacy will" or "wisdom will" that shares your life lessons and desires for your family. A video in which you describe your life and success would be valued in the generations ahead who didn't get the chance to know you but can now be inspired to honor your memory by managing their inherited wealth in the way you wished.

Ultimately, the key to legacy planning is communication. Discussing how your estate will be divided after you pass probably isn't a comfortable topic—for you or your family. But that conversation is essential. By sharing your plans with your family and gathering their feedback, you can better create a legacy that will reduce conflict among family members and provide comfort when you are gone. If such a discussion leaves you anxious, talk to your financial planner about facilitating the conversation. Your advisor can help keep the big picture in mind while providing the financial acumen to ensure that the details are understood and taken care of.