What is Legacy Planning?
Legacy planning is a multigenerational financial planning strategy that focuses on smooth wealth transitions, less family discord, and the effective transition of family values and leadership. A legacy is much more than the money left behind; legacy covers all aspects of an individual’s life, from family traditions, history, values and wishes.
In a study conducted by Harris Interactive for the Allianz Life Insurance Company in 2005 (“Discoveries of the American Legacies White Paper”) seven discoveries helped advisors and clients understand how to achieve their legacy goals.
Discovery #1. Today’s legacy is unlike any other generation’s. We are on the front end of a great wealth transfer. Every year for the next 50 years, $1 trillion will pass from one generation to the next resulting in the greatest wealth transfer in the history of the United States, according to Paul G. Shervish, a professor of sociology and director of the Center on Wealth and Philanthropy at Boston College.
"What you leave behind is not what is engraved in stone monuments, but what is woven into the lives of others."
Discovery #2. Inheritance is not the name of the game. Legacy is about passing on facts, stories, unique works of one’s life to family members, and tangible reminders that may make them smile. Legacy uses a language of hope and immortality, as opposed to inheritance or estate planning which often meets with inertia, anxiety and resistance. Legacy planning is motivating and looks at creating a living connection between the generations, which opens up opportunities for greatness.
Discovery #3. Money is not the most important legacy. Despite steoreotypes to the contrary, research shows that money and real estate are the least important legacy to baby boomers. Unfortunately many financial professionals approach their clients’ needs and wishes only from a financial perspective. The real draw for most clients is discovering how to effectively pass on values and life lessons.
Discovery #4. Money is not the biggest source of conflict. Fulfilling last wishes and distributing personal possessions are five times as likely to be the greatest source of conflict during a legacy transfer as the distribution of finances. The best advice we can offer is to make sure there are conversations between clients and their heirs about possessions of emotional value – it may surprise you what children value.
"As you go through life, no matter what you do, or how you do it, you leave a little footprint, and that’s your legacy."
Discovery #5. Families don’t talk about their legacy plans. A legacy transfer is one of the most complex and important undertakings for any family. It’s a process that requires discussion, understanding and communication among all family members. Most families don’t recognize this and avoid planning ahead for their legacies. In the Allianz study, 40 percent of boomers said that knowing their parents’ inheritance intentions made it much easier to plan for their own future.
Discovery #6. All children are not equal. When it comes to planning and leaving a legacy, all children are not necessarily equal in the eyes of their parents. One-third of parents say that making decisions about inheritance is an important part of power and control. Key factors prompting an unequal distribution are if one child provides more care for the parent, has greater financial needs, is more financially responsible or has caused conflict in the family.
Discovery #7. Families want more than financial guidance when planning their legacies. Families are looking for more than just financial guidance when they seek to plan their legacy. They’re looking for someone who will listen to and understand the difficulties they face, and explain things in a human and understandable way. They want someone who can help steer the family through potential conflicts and is sensitive to the dynamics of family emotions.