Key takeaways
- A "legacy plan" is a rebranded term for an "estate plan."
- It makes it easier for your heirs to follow your final wishes once you've passed away.
- Legacy planning lets you—not your state—dictate how your affairs will be handled.
When transferring your assets to the next generation of loved ones after your death, you'll want to have a plan in place. COVID-19 brought our mortality into greater focus and created a sense of urgency for being prepared. This means planning how all of your assets and property—aka your estate—will be passed along.
Until recently, creating a plan for resolving your affairs often only carried one name: "estate planning." Now, many have come to rebrand it as "legacy planning." Either way, it means carefully planning how you'd like to transfer your assets—and how to minimize the tax impact when that happens.
This can mean a simple legacy plan, something very complex, or something in between. The difference depends on the assets and property held in your estate.
Here's what you should know about legacy planning, why it's important and how to get started.
What is legacy planning?
Legacy planning is the process of deciding how exactly you'd like your assets bequeathed to your loved ones after you die. Essentially, it's the same as "estate planning," but you can also pass on less tangible items, such as imparting certain values to loved ones or establishing a focus on charitable giving.
The size of your estate will determine whether you need to consider tax planning—the federal and some state estate tax kicks in above certain estate sizes. Legacy planning can also include setting up trusts in order to skip probate—the court's review and certification of your will—a process that can take months or even years.
Whatever strategy you choose, it's a good idea to consult an estate planning professional for additional support.
Why it's important to plan
According to a recent survey by Caring.com, 2 out of 3 Americans do not have an estate planning document in place. Not having a will can leave important decisions in the hands of your state. This can undermine how you would like your assets passed on to your heirs.
Proper legacy planning includes drafting (and, when necessary, updating) a will and making sure all your assets will be distributed exactly as you wish. While a will can accomplish this, legacy planning includes more than merely distributing your assets according to your wishes. It also involves protecting your loved ones from financial risk.
Life insurance can provide extra financial protection for your loved ones. This is especially true if you have children or other dependents who rely on you for support, or if you will leave behind a lot of debt like a home mortgage. If your death would present financial difficulties for your heirs, consider purchasing enough life insurance coverage to protect them.
How to get started
Legacy planning begins with gathering information. This means listing your assets and where you keep them. Your list might include bank accounts, investment accounts, real estate, insurance policies, and much more.
Next, consider to whom you wish to leave these assets, along with any desire to donate your property to charity. You'll also need to decide who will execute your will after you die. Begin having discussions with your family early so tough decisions can be weighed and made appropriately.
Third, you'll likely need to seek help from an expert. Even if your estate is simple, everyone faces a unique financial situation. This means being subject to different local, state, and federal laws related to probate, taxes, and more. An expert can help you navigate them and explore legacy planning strategies in an informed manner.
Finally, no matter how complex your estate, it's important to leave your exact instructions to an executor you trust. Often, the value of the estate is less important than knowing you've appointed someone you can trust to oversee that your assets are distributed according to your wishes.
What you can do next
Start thinking about how you'd like all of your assets to be transferred upon your death. Then, make plans to meet with a professional who's familiar with the laws of your state. Even if you only have a general idea of your wishes, they'll be able to steer you in the right direction and help you with the details.
Please consult your tax and legal advisors regarding your particular circumstances.
Riley Adams, CPA, is a senior financial analyst at Google with over a decade of professional experience. He has written for MarketWatch, Kiplinger, MSN, Yahoo Finance, Morningstar and TDAmeritrade, as well as his own personal finance website.
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