What does the perfect legacy look like? The answer likely depends on your family, as each is very unique. Imagine, for a moment, your legacy already in motion—would your loved ones feel they were treated fairly… or equally? And would those two things mean the same thing?
What if there is a family business involved, special real estate holdings, or a special needs beneficiary? What if the financial circumstances of your heirs are different and you want to treat your loved ones in an equitable fashion rather than equally? Second marriages can also add an additional layer of complexity. In this article, we’ll briefly explore how family history, needs, and relationships may affect your legacy plans and your decision about setting up your legacy equally versus equitably.
First and foremost, it’s important for spouses to outline their goals and values and make sure that this is what their legacy reflects. For some, this may be empowering the next generation with an emphasis on philanthropy and giving back. But what if you want to help your loved ones while living? Many families today are choosing to “live their legacy” by supporting children and grandchildren in meaningful ways while they can still see the impact.
Today, the annual gift tax exclusion amount is $19,000 per person, and that may include friends or family with an unlimited number of gifts. This can be used for simple gifting strategies such as cash gifts or education planning for grandchildren, or for more advanced strategies, like leveraging life insurance to create an estate- and income-tax-free asset to offset estate taxes and provide liquidity for future generations. These smaller gifts can also serve as a “dress rehearsal” to help understand how beneficiaries may respond to or manage more significant gifts in the future.
Transparency and communication may also be an important cornerstone for your plan. For instance, if you have a family business, you may want to ensure there’s a clear plan for how it will be handled. You may have specific heirs inherit the business, but then want to equalize and offset with other assets going to your other heirs. For example, one child may have spent years helping to grow the business, while another pursued a different path—equal may not always feel equitable in those situations. Equalization may or may not be important depending on the historical involvement of your heirs over time with a family business.
With special needs beneficiaries, careful planning and communication is especially important to ensure these beneficiaries have continuity of planning while you are living and that other key family members understand what their roles will be after you pass. Equitable planning is often the preferred course of action in these situations, as earnings potential and long-term needs may differ significantly from other beneficiaries.
Strained relationships can also present opportunities for careful planning. For some, this may mean an unequal share of the legacy or perhaps, in some cases, a total disinheritance. These decisions carry significant emotional weight and can shape family relationships for years to come. Communication is critical when handling strained relationships. Disinheriting a child can cause discord for surviving family members and, in some cases, end relationships that were in existence before you passed. These are difficult conversations, but very valuable and important conversations to have with all parties involved.
For many, legacy planning is a work in progress. It’s rare for families not to make updates to their plan over time—some small and others more significant. As your family’s situation changes, whether through the birth of a child or grandchild, a change in health, a move, the sale of a business, a significant change in net worth, or changes in estate laws, these are all natural opportunities to revisit your legacy plan and evaluate for updates.
Lastly, legacy planning is often compared to “planting seeds in a garden” that you will never see. In many ways, it is less about simply dividing assets and more about shaping outcomes—decisions made today that will impact your family for generations. For some families, an equitable approach allows you to take care of your heirs in a thoughtful manner that reflects your goals and values; whereas for others, an equal approach is more appropriate and achieves your legacy planning objectives. What “seeds” are important for you and your spouse to be planting, and what would you like your “garden” to look like for your family’s legacy?
If your family’s situation is changing or you’ve recently experienced a meaningful life event, this may be an appropriate time to revisit your legacy plan. Please reach out to your advisor team at CAS—we welcome the opportunity to think through these decisions with you.