How to leave a legacy for your heirs beyond the financial

Eighty percent of high net worth individuals today didn’t grow up with wealth. They can’t follow the example set by their parents and grandparents, and they may not know the right questions to ask financial advisers.

“This segment of the population — these ‘self-made’ millionaires — wants to help their kids but, for the most part, they don’t want them to be dependent on trust funds. They prefer their children to have a good work ethic and contribute to society,” says Deborah F. Graver, CFP®, CLU®, senior vice president of Advanced Planning at Fragasso Financial Advisors. “Although they are willing to give some money to their children, they also want to give back.”

Using tools like a charitable trust or family foundation, people are able to support their core values while teaching their heirs how to manage money and give back to society.

Smart Business spoke with Graver about some effective estate planning vehicles that allow you to leave a legacy behind.

What does it mean to ‘leave a legacy’?

To leave a legacy is to transfer your core values, along with your assets, to benefit family or society as a whole. Some people choose to establish family trusts to ensure their name and assets last for future generations. Others are more interested in creating a family philanthropy that helps create a positive social change. It’s more far-reaching than simply estate planning; it’s multi-generation planning.

Does that mean some people need to think more broadly about estate planning?

It’s hard to cast a net over everyone. But if you work with professional advisers who take time to understand who you are and what you care about, they can help you create a thoughtful and effective estate plan, which may include charitable giving. Some clients establish charitable entities to last a lifetime and beyond to support causes that help those with special needs, companion animals and faith-based organizations, to name a few.

It’s also noteworthy that baby boomers are expected to transfer $30 trillion over the next 30 to 40 years. Statistically, however, 70 percent of inherited wealth is lost by the first generation, and 90 percent by the second. So, if these baby boomers leave money outright to their kids, it’s going to be gone.

What are some tools to pass on your legacy?

Always take a holistic approach. Try to incorporate charitable giving strategies in high tax years, which may occur when selling your business or exercising company stock or stock options. In addition to the altruistic and goodwill benefits of charitable giving, it can also have significant tax advantages.

You can establish a charitable trust or create a family foundation and transfer assets on a tax-deductible basis to provide income to you or to the charities of your choice for years and possibly generations to come. For example, if a couple has stock with a zero cost basis, they’d have to pay capital gains tax on the entire amount when it’s sold. Instead, they can gift the stock to a charitable trust that provides income for life. It could be used as supplemental income or to buy life insurance to replace the assets gifted away. At the end of their lives, the trust’s remaining principle is given to named charities and any insurance proceeds flow to their heirs.

What’s the timing for this kind of planning?

First, get young children involved in volunteering so they learn the value and importance of why you want to help others less fortunate than yourself. Then, when your kids are old enough to understand the benefits of charitable giving, start talking to them about your desire to leave a legacy.

Is there anything else you recommend?

You need to educate and communicate your family’s values to the next generation to help ensure — and there are no guarantees — that the money lasts. A financial adviser who focuses on legacy planning can facilitate family communication while the elders are alive and document core family values. Your heirs need to be part of the process so they understand your wishes. It will help them take the responsibility more seriously, and they will be better equipped to manage their inheritance and family philanthropies.

If you’re not working with someone who specializes in legacy planning or includes it as part of their services, get a second opinion on any planning to ensure what you want to accomplish will, in fact, happen.

Insights Wealth Management is brought to you by Fragasso