by Paladin Editorial
Most high-net-worth-individuals work towards preserving the wealth of their ancestors and growing their corpus through various investment strategies. They do so to meet their own financial obligations and goals and also to provide for their children.
While most are aware of estate planning to manage their physical assets well, legacy planning takes it a step further. Of course, it will include assets, wealth, property, businesses, and even investments. Investors need to inculcate and teach financial discipline in their heirs to enable them to take care of their assets. That is the legacy one leaves behind.
While some high-net-worth-individuals may be well-versed with financial planning and have a strong sense of wealth management and control over money matters, passing on wealth to beneficiaries goes beyond the ambit of just finances. It also has legal processes that require you to figure out beneficiaries, make suitable allocations and prepare a will and/or a trust, for a peaceful and smooth transfer of maximum wealth. If you need help with managing your finances and your estate plans, reach out to a professional financial advisor who can further assist you.
Legacy planning blends with estate planning to give you and your heirs the maximum benefit. This article delves into both the concepts and explains them in detail, so you know what services you need at the right time for efficient planning of your wealth.
What is legacy planning?
Legacy planning is a long-drawn process of planning how your assets will be transferred to your heirs after your death. The act of legacy planning involves carving out a well-thought-out strategy that prepares a person to pass down their movable and immovable assets to their kin and/or other beneficiaries.
While legacy planning is often interchangeably used with estate planning by many, financial advisors argue that legacy planning is a more detailed and a new-age requirement than estate planning. Legacy planning needs specialized strategies and use of technical tools as an approach. The scope of work is wider in legacy planning.
With a large scale of assets and several heirs, the process of legacy planning can become complicated, requiring the assistance of a qualified financial fiduciary to smoothen the edges. You will need to hire an advisor for legacy planning to ensure that you have a will in place. Having a will helps avoid conflict in the family after a person’s death. However, financial advisors will work with you and develop strategies to help smoothen out this process.
Note that legacy planning need not only be restricted to passing down materialistic assets. Your legacy includes your thoughts, ideas, values, and morals that you would ideally want your heirs to inherit. Therefore, legacy planning has a more holistic approach and underlines the family values that need to be passed alongside financial possessions. It could include non-monetary factors like beliefs, family values, and even history. It could also involve passing on materialistic articles that may not have a considerable economic value but are treasured family heirlooms.
In other words, legacy planning adds a non-financial and emotional aspect to the process of passing assets down to your heirs.
Why is legacy planning important?
Legacy planning helps avoid risk of conflicts in the family. For many people from prominent families, dividing assets can be challenging and may lead to family feuds when the will is realized. Some grudges may take a nasty turn and lead to a legal fight which may ultimately cause loss of family name and in some cases, significant erosion of wealth. The peace you upheld during your lifetime may shatter because of a misinterpretation of your will or a loophole in your plan. With proper legacy planning, you can decide well in advance how you want your legacy to be carried forward.
Legacy planning is also essential as it requires you to make all the important and tough decisions during your lifetime, and not leave them to your heirs to sort out. Once you have made the decision, it will have to be accepted by all the stakeholders.
Preparing a plan well in advance to ensure that your legacy keeps living is a prudent measure due to the unpredictable nature of life. If you have a legacy plan in place, your family can turn to the plan in case of emergencies.
In addition to this, you may also be able to block some portion of your assets and put them in a charitable trust or donate them to an organization of your choice as your final act of philanthropy.
What is estate planning?
Estate planning involves planning for your estate to protect your family, secure their future, and leave a legacy behind for generations to remember. Herein, the division of a person’s wealth, property, and assets is carried out to be later passed on to their heirs. With the help of proper estate planning, individuals can make sure that their assets are divided in the manner they want before the next generation inherits them. Estate planning before one’s death is crucial since it lays out a detailed plan for health and wealth decisions at the end of a person’s life. For instance, if a person becomes medically unfit to make decisions themselves anymore, the estate planning document prepared in advance would help them convey their wishes to their heirs.
Estate planning also mainly addresses how a person/family’s assets will be managed and divided after the death of the person holding them. Apart from dispersing the wealth and assets to the respective heirs, estate planning also underlines who manages the person’s assets and wealth if the person becomes medically unfit or disabled to make the right decision.
For proper estate planning, financial advisors take into account their clients’ goals and come up with a plan to protect the overall estate of their clients. It also includes making critical decisions like who will manage the property/assets, designating a person to make decisions on their behalf, dividing the ratio of assets, determining who inherits what and mentioning any funeral preferences to be duly followed.
It is also important to note that estate planning is not limited only to the ultra-rich; it is meant for all individuals who plan to pass their wealth to their children or heirs.
Why is estate planning important?
Estate planning entails how the settlor’s estate will be managed after death. You would not want the government or non-family members to usurp your estate. This is why estate planning is essential – it puts the asset division protocol in clear terms for the reference of the beneficiaries.
With proper estate planning, assets can be transferred to the beneficiaries faster, along with a roadmap of managing them in the absence of the settlor. Most importantly, estate planning helps avoid conflict in families (huge families with a large-scale business). With a plan in advance, the scope of disputes in the family is minimal.
Not to mention, the act also lets you minimize the amount of taxes your heirs will have to pay on the inherited assets. Estate planning also allows the settlor to use estate planning devices like payable on death bank accounts or living trusts that only come into play after the settlor’s death.
You can also make the tough decision of taking or refusing prolonged medical care in the estate plan. Not only can you protect your assets using the right estate planning strategy, but you can also make sure that your wishes and decisions are fulfilled even after your death when you are no longer around to execute them yourself.
What are the differences between estate planning and legacy planning?
While it is true that both estate planning and legacy planning address the same problem of how a person’s assets are handled after their death, they have several fundamental differences. Some of them are explained below:
1. Legacy planning is more holistic than estate planning
Unlike estate planning, legacy planning takes a more holistic route. Estate planning focuses more on how assets are divided, what beneficiary gets what portion of the estate, how wealth is transferred, etc. Legacy planning brings human emotions into the picture. It dictates what family values, morals, and ideals are to pass down to children and grandchildren, how family heirlooms are treasured, etc.
Legacy planning includes more than just the monetary aspect. It focuses more on the importance of intangible assets a person holds.
2. Estate planning is simple; legacy planning is instructional
Estate planning encompases a business succession plan after the death of the primary owner, collated in a concise document. The inputs, however, are generally crisp and dictational. There is scope for interpretation here. On the other hand, legacy planning is a very descriptive plan with each component detailed and explained painstakingly, leaving no scope for misinterpretation.
3. Legacy planning focuses more heavily on charitable gifting compared to estate planning
Leaving a legacy translates into making sure that people remember you for the social good you did in your lifetime. This need may not be restricted to familial boundaries. Therefore, in a legacy plan, you can list out organizations or people you would like to benefit from your estate by setting up a charitable trust in their name or making a generous contribution. Some choose to give to a church or to any other religious institute based on their religious affiliation or to environmental causes. This can be done through either direct gifts or setting up a charitable trust or foundation to ensure your wishes are carried out as per your desires.
Incorporating legacy planning with estate planning
Incorporating legacy planning and estate planning is the best way to pass down your assets to your heirs. This way, they understand the importance of both wealth, morals, and principles. However, before incorporating both aspects of bequeathing wealth, you need to identify and finalize the narrative of your legacy. After all, money is not the only thing that is going to make your children wealthy. You need to imbibe good character traits and teach your children how to build and uphold moral values to leave a lasting legacy behind you that will live on in your heirs.
Wills and trusts are an excellent tool for incorporating legacy and estate planning. For example, you can put funds in a trust and create a mandate that it be used for your grandchildren’s business expansion or higher education purposes only. Having a will in place can help you make wealth allocations among your next of kin and charitable organizations so you can rest assured that your legacy continues even after you pass on.
Similarly, a letter of instruction is another tool that helps combine estate planning and legacy planning by carefully jotting down how you expect your estate and legacy to be passed on.
While estate planning and legacy planning might seem a little different from one another, they go hand in hand in your financial planning process. They coexist and must be used in conjunction to pass on wholesome benefits to your heirs and beneficiaries. While estate planning takes care of the financials, legacy planning equips your heirs for better handling of your estate.
To get in touch with a fiduciary advisor who may provide you with wise financial strategies for managing and growing your finances, use Paladin Registry’s Free Advisor Match Tool. Answer a few basic questions about yourself and get matched with 2-3 financial advisors who may be able to help you with your unique financial requirements.
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