3 Differences: Do you have an Estate Plan or a Legacy Plan?

3 Differences: Do you have an Estate Plan or a Legacy Plan?

Do these two terms mean something different? We happen to think that an Estate Plan might not have nearly the same intergenerational impact as a Legacy Plan that is fully realized. Read more below on what we see as the differences between the two. Whatever you call your plan, we hope it is prepared to serve your family’s best interest and give you peace of mind.

Structures & Documents

Estate Planning

The foundation of an estate plan is the structure created by documents such as a will, an enduring power of attorney and a representation agreement.

  • A will details how you want your assets to be distributed at your passing. If you have minor children, you may name a substitute caregiver for them. It names an executor who is charged with winding up your affairs. Deciding who could perform this role can be one of the most challenging parts of putting it together.
  • The enduring power of attorney is a document that names someone to make financial decisions on your behalf if you are unable due to being unconscious or mentally incompetent. Without this, your family would have to go through an expensive and complicated court process.
  • A representation agreement names someone similarly to the power of attorney but for health and personal care decisions. You can also add some detail on your instructions for the type of care you might want.
  • There are other important tools in estate planning like trusts and life insurance. Depending on your situation you may also need to consider implications in Shareholder or Partnership Agreements or Trust Documents.

While these are important and foundational documents, they are incomplete in our view since they are focused primarily on who does what and when.

Legacy Planning

To set up structures that go beyond just an estate plan, we want to be sure to include elements that speak to what matters to you and why. A Family Wealth Philosophy is one of the most important documents that we look to add to the ones mentioned above. It is a collection of your family vision, values, and goals. Preparing this Philosophy in advance of updating your estate documents gives additional clarity and purpose to those structures. The process of collaborating with your family to create it and communicating the intention behind your decisions will pay huge dividends.

Wealth Preservation

Estate Planning

Some of the decisions that drive traditional estate planning can be the minimization of taxes and fees. Where possible, many folks prefer to minimize the amount of tax they pay, ensuring more can pass along to their family. Techniques considered here can be the naming of beneficiaries, moving assets into joint title, corporate transactions like estate freezes, and allocating wealth to insurance. While these are important elements to consider, letting a relatively small fee like fees charged to probate a will can result in unintended consequences elsewhere in your estate. This sort of planning often stops with considerations of minimizing the effect of taxes and fees on the first generation.

Legacy Planning

A true legacy plan considers the impacts of your planning on the next generation and beyond. We want to help you create a plan to ensure that your wealth is preserved and multiplied across generations. This means, for example, considering how an estate freeze can simply transfer the tax liability onto the second generation. By looking to the effects on subsequent generations, we can improve your family’s chances for an enduring legacy. We also help create a decision-making blueprint for decisions regarding family wealth during your lifetime and after. Setting up these structures to evaluate opportunities and challenges can ensure consistency across all your wealth management strategies today and for the future.

Wealth Distribution

Estate Planning

Last of all, when it comes time for your wealth to be distributed, hopefully you have chosen your executor wisely. They will gather your assets, pay your debts & taxes, and allocate what is left to your beneficiaries. This is, of course, an oversimplification and many executors don’t realize quite what they have signed up for until they’re deep in the weeds of a project that can take huge amounts of time away from their working or evening hours. Many estate plans consider the use of a corporate executor when the estate is more complex or when it is difficult to choose an executor. Even when things go smoothly, it often takes a year or more to settle an estate.

Legacy Planning

A key part of legacy planning is to ensure that the wealth transition from one generation to the next proceeds smoothly. The key here is the foundational work done in creating and sharing your Family Wealth Philosophy. By having an open discussion about your plans, you ensure the transition of not just the financial wealth but also the wisdom and values that helped your family succeed. You may also decide to use your Philosophy to guide living gifts to your family while you are around to evaluate the results, change course if necessary, and enjoy the impact of your involvement.

Saving the big reveal of your estate wishes to the reading of a will can create huge family rifts. Why not help avoid delays in estate distribution, especially the costly destruction of estate litigation by getting on the same page while you are around to be part of the discussion?

Wrapping Up

Hopefully, this post helped explain why we prefer to work with our clients to maximize their impact through a Legacy Plan. When you consider the planning you have done, have you done everything you can for your peace of mind the long-term success of your family? Not sure? 

This article also appeared at Evolution Strategies.

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