Creating Clarity in Legacy Planning

Derek Ferriera and Martin Johnson
Posted: 6/14/2010

Preserving wealth and eventually passing it on to future generations is an important consideration for most affluent individuals. Making gifts to a favorite charity may be another. Whatever your financial objectives are, incorporating them into a written document called a legacy plan helps ensure that they’ll be carried out in accordance with your wishes.

A number of strategies and tools exist for preserving or transferring wealth. While many of these tools can be useful, their real value lies in helping you execute a plan that makes sense for you and your family.

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Sound decision-making is essential when drawing up a legacy plan that attempts to accomplish your financial goals, but you may not know exactly what those goals are. Deciding how to divide your wealth among your heirs and/or to charities after you’re gone is no small decision, and few affluent individuals have a clear idea of all that they want to accomplish. That’s where a good advisor becomes critical.

Families can determine what’s most important to them through a series of evocative discussions. For example, the discussions may concern providing for the college educations of grandchildren and great-grandchildren. Or perhaps the talks will center on ensuring that appropriate succession planning is in place for a family business. Because no two families have the exact same goals, no two legacy plans are identical.

In order to make appropriate decisions about wealth distribution, it may be useful to perform a comprehensive inquiry into the events and insights that have led you to where you are today financially. So before you get to the specific goals you want to accomplish, it’s helpful to take a step back and look at where you’ve been so you can get a clearer picture of where you want you to go with your wealth. You can identify some of the values and principles that help define your life. This process can enable you to draft a statement outlining your family’s philosophy regarding their finances.

Based on this, you can create a statement that serves as a “mission statement” for your wealth. It should encompass attitudes and beliefs that shape your views on work, education, philanthropy and anything else that relates to interaction between wealth and character. Using this as a foundation, specific financial planning will flow much more easily. Documents, trusts and financial plans can be drawn up to match the outlined desires.

When you take the time to share your personal histories and what shaped your success, it may act as a powerful force to guide the behavior of your children and help them to understand the decisions you have made regarding your wealth. Family meetings are a big part of the planning process.

Keep in mind that a legacy plan is NOT a legal document for the transfer of tangible assets. Its sole purpose is to communicate ones personal values to family and loved ones.

Some affluent families fear their children could become irresponsible or dysfunctional if they receive a large amount of wealth without adequate preparation. Creating a wealth mission statement is a big step toward preparation, as is financial education.

To address this need, it is important to provide instruction in personal-finance basics to your children. With a foundation in financial literacy – such as how to balance a checkbook and managing debt – children will be better prepared for their future roles as stewards of wealth. If you take a child without a vision and give him a lot of money, you’ll be headed for disaster. But if you gift your child with strong values and a family mission statement, he or she can use the money to help change the world.

Examining the “why” of legacy planning is just as important as articulating the “how.” Before making a decision that could affect you as well as future generations, it’s advisable to meet with an advisor to offer some clarity into what you may wish to accomplish with your wealth.

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Derek Ferriera CFP(r), CLU, CHFC, REBC and Martin Johnson are registered representatives of Lincoln Financial Advisors Corp., a broker/dealer, member SIPC, and they offer investment advisory service through Sagemark Consulting, a division of Lincoln Financial Advisors Corp.