How do you want others to remember you?
A legacy is a heritage passed on from generation to generation, like a spirit of charitable giving. This enduring impact on your loved ones can last even beyond your lifetime.
Leaving a financial legacy for your loved ones is one of the most powerful ways to show your affection and support. And you don’t need to be a billionaire to do it.
Here’s what you need to know about leaving a legacy for your family and the estate planning considerations to help make it happen.
What is an Estate Plan?
Your estate plan names the people, organizations, and other entities you want to take ownership of your things after you pass, like a home, real estate, family business, personal possessions, savings accounts, investments, insurance policies, etc.
The idea behind estate planning is to take proactive steps now to make it easier for your loved ones to carry out your plans after you’re gone and ensure they follow your wishes.
The Key Components of Estate Planning
Your estate plan can be as straightforward or complex as you need. However, there are a few key components that you’ll always want to consider.
#1 The Will
One of the most well-known components of an estate plan is a will.
Your will is a legal document that highlights your wishes and goals for your assets and possessions after you pass, and this document carries out two essential directives.
- You can assign your personal representative or executor to take care of bills, asset distributions, etc.
- You outline how your executor should fulfill your wishes, like if you want to split your assets evenly among your children or who you want to receive your china set.
There is a common misconception that only retirees need wills. But that is simply not the case. Many individuals and families can benefit from a will throughout their lives, especially if they have minor or dependent children, as you can name a guardian (personal caretaker) and trustee (financial steward).
Without a will, the state decides how to distribute your assets, who the personal representative will be, etc. You don’t want these important financial decisions left to chance, so have your will prepared in advance and updated to always protect your loved ones.
#2 Power of Attorney
A power of attorney is a legal document that assigns someone, such as a child or spouse, to represent or act on your behalf if you become incapacitated. This person would make critical decisions for you, like keeping up with bills and taxes, managing investments, and more.
Again, it’s imperative to assign someone this role. Otherwise, a court could decide the appointee, and it might not be your chosen person.
#3 Health Care Directive
An advance healthcare directive is a legal document where you specify what actions you want to be taken for your health if you can no longer make decisions for yourself.
Similar to power of attorney, this document specifies who makes health care decisions on your behalf. It also sets forth your wishes as to the extent of measures you’d like someone to take to keep you alive given a grave illness or injury.
Keep in mind that health care directive and power of attorney documents become void at death.
A beneficiary is a person or entity that receives assets from another person or entity. Beneficiary designations are rather powerful, albeit seemingly simple, estate planning tools. You can find official beneficiary designations on retirement accounts and insurance documents, but you can also add them to other assets like bank accounts, real estate, and other property.
It’s often beneficial to review beneficiary designations every few years or after a significant life change, like a death, divorce, remarriage, child, move, job change, retirement, etc. Most documents also allow you to select primary and contingent beneficiaries in case the primary one passes first.
Keep in mind that beneficiary designations may override the distributions outlined in your will. For example, if your will leaves everything you own to your spouse, but your $1 million life insurance policy lists your children as beneficiaries, then the life insurance passes on to your children, not your spouse.
#5 Assigning Document Locations
Now that you have your estate plan outlined, it’s crucial to keep all important documents in a safe and accessible space.
Share the location with your family so that they know where to go in the event of an emergency. Having this safe space prepared ahead of time will save your loved ones stress and worry later down the road.
Don’t forget about your digital assets as well! Keep a running list of digital collateral, like investment accounts, email addresses, social media profiles, etc., with updated passwords and login details.
Keep in mind that there are several other estate planning documents and designations that may be helpful to you through the process, like establishing a trust. Work with your financial and legal team to decide which tools will help you achieve your estate goals.
What is a Legacy?
You can think about your legacy as having a life of its own or a form of immortality, if you will.
Consider your legacy a gift and another chapter of your life story. It’s both a way to hand off assets (investments, property, or event businesses) to loved ones after death and pass along memories, habits, values and more.
For example, say you own a family business. Your legacy goal may be to pass it on to a child, grandchild, or other loved one to help the company grow and establish a deeper family connection.
You may also want to pass on your love of giving back and supporting others. Perhaps you do that by leaving some of your estate to a charity that means a lot to you, or one of your final wishes is for your family to commit to a volunteer outing together.
There are so many ways to personalize your legacy based on your goals and values.
Defining Your Legacy
Thinking of something as big as defining your legacy can be daunting. It’s helpful to break it up into smaller categories to make it easier to wrap your mind around.
Here are a few exercises to help you determine what your legacy is now, and what kind of legacy you want to leave behind.
Establish What Values Define Your Life Decisions and the Person You Want to Represent
Are you practical? Charitable? Compassionate?
Understanding what principles are important to you is a simple way to guide your legacy planning. If you value education, for example, maybe you want to donate to a university or ensure your children have enough funds for college by setting up 529 Plans.
Evaluate the Key Relationships in Your Life
Do you have young children, sick parents, or other loved ones depending on you? Keep these faces in mind as you plan out your estate and decide how you want to continue to take care of them through your legacy.
Identifying Your Personal Mission
Answering this question will help you prioritize your asset distributions and set the tone for your legacy. Do you want to leave things to your family? Charity? For a specific cause?
There’s no right or wrong answer. Your personal mission should be a reflection of your life and the values you wish to continue to support in your legacy.
How Your Financial Advisor Can Help
Legacy and estate planning can be complicated! Your financial advisor can help.
Don’t let frustration or overwhelm prevent you from protecting your legacy. Our experienced financial advisors at Goepper Burkhardt Wealth Management can walk you through the estate planning process step by step. We can help you minimize estate taxes while maximizing what you can leave for your family.
Reach out to us to get started.