With a bit of foresight and planning, values on everything from family history to the meaning of money can endure for generations.
In an age marked by rapid technological change, global political unrest, and a 24/7 news cycle, the enduring power of family lends solidity, values, and a sense of permanence to an uncertain world. For many families, shared values and traditions form the basis of a formal legacy that can be handed down from one generation to the next.
“Modern families experience challenges and opportunities of all sorts: emotional, social, and economic,” says Keith Whitaker, President of Wise Counsel Research, a nonprofit think tank for families of wealth, and co-author of The Cycle of the Gift: Family Wealth and Wisdom and The Voice of the Rising Generation. “In the face of all this change, it’s natural that people come together and seek to establish a legacy that connects themselves with those who’ve gone before and those who will come after them.”
And while the very term “legacy” might once have called up images of old age and extreme wealth, younger families, and those of all asset levels, are celebrating ties that bind across generations. Says Whitaker, “A family’s real wealth is in sharing stories about events that contributed to a family member’s character formation or life choices.”
Legacy and money
From a financial perspective, “legacy” implies viewing money not just in terms of what it can buy, but what it says about values. A family that believes in giving back may encourage every family member to volunteer and to make annual gifts to charity. If education is a top priority for your family, you may decide to fund college savings plans for this generation and the next.
For many, a key aspect of a financial legacy is teaching principles of careful money management to last a lifetime. Phillip Furlong, Wealth Advisor for Regions Private Wealth Management, cites one client, a successful real estate investor, whose gifts of money to his son require that the son research and evaluate properties to purchase. Thus, a gift serves as a way to teach self-reliance. “Part of this father’s legacy is to pass down his knowledge and to guide his son instead of letting him fend for himself later with an inheritance,” Furlong says.
Another Regions client, eager to encourage his kids to work hard and earn a living, decided to create trusts that can supplement their income—not replace it. “The trusts he established include a provision to match the annual income of each child,” says Furlong. “If they earned nothing one year, they received nothing from the trust.” (See “3 Questions to Ask About Trusts,” page 12.)
Involving all family members
There’s no one-size-fits-all when it comes to legacies. The important thing is to carefully think about and record your goals and priorities. “We encourage all our clients to write down the values, hopes, and dreams that they want to be the foundation of their legacy in a family legacy document or family constitution,” says Jerry White, East Regional Executive for Regions Private Wealth Management. That document can be as brief or as detailed as you choose. Keep in mind that a family legacy—like life—will continue to evolve and grow. “Having a plan in writing allows you to share and amend it during family meetings,” White adds. (See “Tips for a Family Legacy Meeting That Works,” page 9.)
Be sure to involve your kids not just as recipients, but also as individuals with values and ambitions of their own to contribute. They may bring ideas to the table that you haven’t considered. And knowing what’s most important to your kids or grandkids can help you help them follow their dreams, Whitaker notes. “Maybe the dream doesn’t require cash, but education or connections instead. Seek to understand your children and grandchildren, and incorporate those desires in your plan.”
When a legacy means business
A family’s legacy can be enhanced and enriched—yet complicated—if it revolves around a family-run business. While some members of the next generation may be eager to keep the tradition alive, “one or all of your kids may have other dreams for their careers,” says Furlong. When one couple came to Furlong for help in equitably dividing their business among their four children, he advised them to ask each of their kids how they wanted their inheritance—in company stock or in cash. The oldest child was already an owner and another wanted to be, but the third was content to work as an employee in the business, and the fourth was a pilot. As a solution, the business purchased a life insurance policy on the parents, including an annuity guaranteeing them income for retirement. For their inheritance, two kids received company stock, while the two who did not want to become owners received cash gifts from the insurance policy. (Read more about passing on leadership in “Choosing Your Company’s Successor,” page 10.)
Preparing your assets
Planning a legacy is one thing—fulfilling it requires careful preparation to make sure your priorities align with your financial resources, White notes. Say, for example, you’ve committed to making an annual gift to a certain charity for the next 20 years. It’s important to consider which assets you’ll draw from and how you’ll invest them, White says. “If your investment strategy is too aggressive or too conservative, you could risk being unable to fulfill that promise,” White warns. Your Wealth Advisor can help you plan and financially prepare for your legacy.
Over time, you may want to modify your legacy objectives as your family or resources change. Funding the next generation’s college education may be a reasonable goal when you have four grandchildren. “But as more grandchildren and even great-grandchildren come into the family, you may have to calibrate and rethink your overall gifting strategies,” says White.
The legacy you pass on to your kids has to fit comfortably with your own future needs for a long and fulfilling retirement, says White. A good financial plan also takes into account the possibility of unexpected events, such as the 2008 financial crisis.
When it all comes together, the beauty of a legacy plan is that you get to create a unique family story that respects the past and supports the future, says Whitaker. “A family that works together around a financial legacy or succession of a family business can strengthen relationships, demonstrate that they care about each other, and create a future for children and grandchildren that can be better than what happened in the past.”
