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  • Writer's pictureAndrew Cremé

What is Legacy Planning? A New Way to Think of Legacy Planning

Updated: Apr 13, 2023

Quotes from Vitor Belfort and Jim Stengel on legacy planning

The word “legacy” has many connotations in life, but most regular people equate it with inheritances. What you leave others can be a part of your legacy, but it can be much more. In this overview, we will examine the different ways that you can consider creating a legacy through the three legacy stages in life.

Vitor Belfort once said, “Legacy is not what I did for myself. It’s what I’m doing for the next generation.” Jim Stengel was quoted as saying “Our legacy is how we spend our time and who we spend it with.” - Two very different thoughts about legacy that go hand in hand.

The first legacy stage starts with a family. It is true that children are sometimes referred to as a person’s legacy, but it can also be argued that the parents’ influence during those years weigh heavily on how the kids view their parents when they are gone. Some of the ways that parents have imparted a legacy on their children are:

- Teaching their faith and set of beliefs

- Imparting a work ethic

- Emphasizing education or a particular educational institution

- Encouraging military service

- Sharing experiences such as annual camping trips

A common way that a financial legacy is prepared for in the first legacy stage is through life insurance. By securing life insurance on both a husband and a wife, it ensures that the family will have a better chance of surviving or thriving after the insured passes.

There are four common ways to determine the amount of term life insurance death benefit you should have. The first way we can call a liability-based approach. This is when someone adds up all their existing liabilities and future liabilities to come up with a dollar amount of need. For example, if someone had $100,000 in student loans, a $300,000 mortgage, and two children that they wanted to send to a $25,000 per year school, they might need, at minimum, a $600,000 death benefit.

The second way to determine the amount of life insurance one may need is an income-replacement approach. If you earned $50,000 per year and you wanted your family to receive that amount for the rest of your spouse’s life, you would need $1,000,000 of life insurance, which you could invest in something that could pay $50,000 regularly.

The third way to determine the amount of life insurance one may need is a time limited approach. When you passed away, if you wanted to provide your spouse a 10 year runway to get their career further ahead, you could take your hypothetical $50,000 salary and multiply that by 10 to offer an approximate number. This can be coupled with the liability-based approach.

The fourth way to determine the amount of life insurance one may need is simply a multiple of their income. For example, you might consider 12x an income as a baseline number. This is the least scientific method; however, it can be a quick and easy calculation method to get a policy in place.

In addition to life insurance, another way that someone can pass on a financial legacy is through an estate plan. A well-executed estate plan can offer heirs and loved ones support and confidence to follow through with the deceased’s wishes. Things that are commonly included are things like a will that specifies who will watch over the children both physically and financially; end of life wishes on treatment; a predetermined path of where belongings will go; and any restrictions on how the belongings are to be used.

The second legacy stage to consider is the period after the children have left and started their own families. While this legacy stage is different than the first stage, there are a few ways we see clients impart a legacy during this time, including:

- Supporting grandchildren financially through school

- Sharing experiences such as annual family reunion

- Providing monetary gifts to family members

This stage can feel as if you can’t make the same impact as before, but there are significant opportunities to make a lasting impact. Many people have the opinion that the family can do with the money whatever they want once they are long gone, but that is not always the best approach. There are numerous people who get immense joy seeing the money they worked hard for being used while still alive.

The third legacy stage occurs post-mortem and is the most thought of when thinking about legacies. What the third stage most often looks like is the executor of the will settles the estate and makes sure that people listed in the will get the belongings earmarked for them. In addition, a funeral is planned and loved ones gather to reminisce about shared experience surrounding the recently departed.

A grandmother sitting at her laptop with a mic, recording a podcast.

One way that people can add to their legacy in this stage is to consider starting a journal or making video recordings. Loved ones can enjoy the experience of sharing additional memories as they view the recordings or hear about stories elaborated on in more detail. This is also a great way for the people recording to remember some fond memories of the past.

Another way that people create a legacy post-mortem is through estate planning. Often, considering a revocable living trust can be a way to extend wishes beyond the grave. Belongings such as a vacation home can remain in the trust and function as a family asset. In addition, funds can be paid out over time as opposed to giving them away immediately, so minor grandchildren and spendthrift children can both be given time to mature.

The third and final way to consider creating a legacy is through charitable giving. There are numerous ways to make an impact through charities, including:

- Creating a scholarship fund at your alma matter

- Gifting funds into a donor advised fund for your beneficiary to donate

- Including a charity to receive a portion upon death

- Adding a charitable gifting desire in a trust

While many people focus on leaving their legacy in the form of belongings and assets, there are certainly many ways to expand upon that notion. It’s important to consider legacy in your planning at all stages of life. Our firm specializes in empowering clients to keep more of their earnings while making money make sense. Reach out today for your complementary legacy assessment.

Any opinions are those of Andrew Creme and not necessarily those of Raymond James. This material is being provided for informational purposes only and is not a complete description, nor is it a recommendation. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct. Investing involves risk and you may incur a profit or a loss regardless of strategy selected. Prior to making an investment decision, please consult with your financial advisor about your individual situation.

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