No matter what your individual beliefs are, we can all agree that after we die a part of us lives on through the legacy we created. Our memory will continue on in the relationships we've had, the people we've cared for and those who have cared for us. We also live on through the investments we have made during our lifetime. Legacy planning is an important part of estate planning and gives you the opportunity to bequeath your assets to your loved ones or next of kin. And contrary to a common misconception, legacy planning is not just for the super wealthy, anyone can pass on their assets no matter how large or small.
As we help clients consider their legacy plan, we often brainstorm with them about where they would like to see their values live on past their death. And while a great degree of this comes down to providing some asset to their children and grandchildren, in many cases, our client’s wishes extend more broadly than that. Perhaps they would like to leave money to certain organizations or charities that have resonated with them, for example, a church, museum, school or research organization. This is the strategy called planned giving. In some cases, it represents a gift of a particular dollar amount, but more often it is defined by the ear-marking of a particular account (like an IRA) for gifting, no matter what the value of the asset is at the time of passage.
Regardless of which is your situation, planned giving may be a smart legacy planning strategy for you. Should you wish to consider this kind of plan, a few steps to consider:
- Consult your financial planner: Before you make any decisions about what kind of planned gift you want to put into your estate plan, you should understand the journey your assets will take through retirement. Ask your advisor which assets will be spent down first and in what way. Given certain spending assumptions, your advisor should be able to project at various points which assets will be more likely to have larger balances than others. You can use this as a gauge for which assets may be a better for the gift you wish to make.
- 2. Consider your life insurance options: Permanent forms of life insurance like whole and/or universal life can be a powerful legacy planning tool. In certain situations, you may find that by using an existing asset to fund life insurance you may find that you can double or triple the impact of your gift.
- 3. Meet with an estate attorney: There are a variety of ways to structure planned giving, in particular, gifts of a larger size. It’s important for your estate attorney and your financial advisor to work together to help you find the right structure for you. There may be ways to make a gift more tax efficient for you now rather than simply considering the taxable effects upon your eventual estate.
- 4. Communicate your gift to the beneficiary: Planned giving can be a substantial part of the budget and cash flow planning of many large non-profit organizations. By communicating with them in advance you do them the favor, of (1) being able to thank you and recognize your contribution while you are still living and (2) consider where—if anywhere—they should be conscious of the impact of your gift on future planning or fundraising.
- 5. Communicate your gift to your family: We have seen too many situations where a generous patriarch or matriarch created a plan to bequeath large portions of their wealth to charity, yet never communicated their plan to their children. While you may have your own personal reasons for doing this, we generally encourage our clients to keep the lines of communication open. While you would never want your children to be “counting on” their inheritance, the fact is that most of the time the knowledge of a future inheritance affects planning of the eventual beneficiary.
While planned giving is not for everyone, when structured correctly it can be a way for individuals and families to help their values carry on long past their lifetimes. By taking these steps seriously and engaging the correct tools and professionals, you may find you have more to give than you realized.