The Importance and Value of Legacy Planning

Most people understand the concept of retirement planning, or setting aside assets for expenses after retirement age is reached. Fewer people know that legacy planning is an important part of the picture, preserving assets for use by family members long after we’re gone, according to Greg W. Anderson, the founder of Balanced Financial, Inc.

There is tremendous value in legacy planning, and in this guide, we will illustrate how this critical process can help to ensure a safe and comfortable financial future for the people you love most.

What is Legacy Planning?

In simple terms, legacy planning is the process by which an individual identifies his or her financial assets and possessions of value, then prepares a plan by which those assets will be distributed to surviving family members or other beneficiaries. Legacy planning is much more than preparing finances for the future; a good plan also takes into account such important aspects as family traditions, memories, and those possessions that have meaning to the individual members of a given family. Finally, a legacy plan also includes provisions for end-of-life decisions, healthcare, and funeral arrangements. Together, the legacy plan forms a roadmap for the survivors of a person, ensuring that any final wishes are carried out as desired.

Why is Legacy Planning Important?

After we die, certain legal aspects come into play regarding our financial assets. Before those assets can be distributed according to our wishes, our estates (assets and personal possessions) can go into probate, or a court hearing that determines whether our final wishes are accurate and valid. During the probate process, any creditors have the opportunity to recoup any debts, and taxes are paid according to various state and federal estate taxing laws. Legacy planning prepares for this process, helping to ensure that our assets retain their value and to avoid the expenses and taxes associated with our passing. Without a plan in place, our assets are distributed according to applicable laws, which may run counter to our own final wishes.

Wills and Trusts: The Foundation of a Legacy Plan

Certain legal instruments form the core of a legacy plan. Most people understand what a will is; this legal document clearly spells out our wishes, naming those who are to receive assets after we die. Wills are part of the probate process, when the court determines whether the wishes contained in the will are valid. Without a will, our assets may be forfeited to the state in which we live and distributed according to that state’s estate laws.

In order to avoid the time-consuming and expensive probate process, says Mr. Anderson, it is possible to use another legal instrument instead of a will. Called a trust, this method creates a third-party fiduciary relationship where assets are in effect “owned” by the trust and can be accessed by trustees (the beneficiaries) after the trustor (the creator/owner of the trust) passes away. By establishing a trust for one’s family, more of the financial assets are shielded from estate taxes as well. In some cases, certain taxes will be required to be paid, but in general, the tax burden is far less for survivors named as trustees. Trusts are created with the assistance of an estate attorney, who will carefully inventory all items of value in the estate, then transfer ownership of those items into the trust itself. Items of value may include:

  • Retirement savings accounts
  • Pension benefits
  • Stocks and bonds
  • Collectibles
  • Items of sentimental or family value
  • Vehicles
  • Real Estate
  • Cash-based assets

In legacy planning, the professionals who assist individuals with this critical process will determine which path is right for a given person’s needs. Some may benefit from a simple will, while others — particularly those individuals with a high net worth — may opt to create a trust.

Getting Started on a Legacy Plan

The legacy planning process is complex, and there are many variables and considerations to take into account when thinking about the future when we are no longer around to make decisions. It is never too early to start thinking about the legacy plan — a critical component of our financial lives, yet one often overlooked by many people. Estate planning professionals are prepared to help. These experts in financial planning and taxation can develop a plan that meets your goals and your desires, ensuring that your loved ones will have a comfortable and secure financial future after you’re gone.