What Is Legacy Planning and Why Is It Important?

Legacy planning is the process of deciding what you want to leave behind and how you want it passed on. Like estate planning, it can involve wills, trusts, beneficiary designations and strategies for transferring property to heirs. But legacy planning may also extend to charitable giving, family values, business interests and other goals that are not strictly financial. Creating a plan in advance can help you organize those priorities and give your family clearer instructions for carrying them out.

Do you have questions about legacy and estate planning? Consult working with a financial advisor.

What Is Legacy Planning?

Legacy planning is the act of preparing how you will bequeath your property and assets to your loved ones after your death. It’s more or less estate planning, but the term has gained popularity among financial advisors in recent years. This is perhaps because “estate planning” has come to evoke death, or perhaps because “estate” is associated with the wealthy.

As with estate planning, the typical legacy planning strategy centers around planning the transfer of wealth and assets from you to your heirs. Depending on the size of your estate, this plan may be very simple or very complex.

Some also ascribe more abstract elements to legacy planning. This might include discussing the values you’d like to impart on your heirs, or crafting a family narrative that encompasses more than simply real estate or cash assets. It might also place a heavy emphasis on charitable giving.

Ultimately, though, there are no hard and fast requirements that clearly distinguish the process as legacy planning rather than estate planning. The process entails anything and everything that ensures you’re happy with the legacy you leave behind.

How to Start Legacy Planning

A couple playing with their grandchild, having included the grandchild in their legacy planning.

Broadly speaking, the first step in any legacy planning process is to gather information. You’ll want to have a list of all your assets and where they’re kept. That can include everything from investment accounts to real estate to insurance policies.

You’ll also want to think through your answers to several questions:

Do you want to leave your property and other assets to someone specific?
Are you interested in donating anything to charity?
Do you have any specific preferences regarding your medical care that you want to record in an advance directive?

Having a rough idea of these things at the start of the process will help to streamline things.

Next, you will most likely need to seek help from an expert. Everyone wants different things out of their life and their legacy, so no two legacy plans will be exactly the same. Everyone has a unique financial situation. You’re also subject to distinct laws and tax rules depending on where you live, if you’re married or have children, and how much wealth you have. Be sure you understand the local, state and federal laws pertaining to probate, taxation and more.

These reasons are why it’s important to get professional help, just as you would to draft a will or start tax planning for next year. To find specific expertise and advice on what your first steps should be, your best bet is to talk things over with a financial advisor who’s familiar with the laws of your state. Some lawyers might also be able to help you out in drafting a plan, but financial advisors can help you with your financial picture.

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What Should a Legacy Plan Include?

A legacy plan can include both financial and personal instructions for what should happen to your assets and responsibilities after your death. The exact documents and strategies you need will depend on your family, finances and goals, but common elements can include:

A will: Specifies how certain property should be distributed and can name guardians for minor children.
Trusts: Can help manage assets, control when beneficiaries receive property and, when properly funded, potentially keep those assets out of probate.
Beneficiary designations: Retirement accounts, life insurance policies and certain financial accounts may pass directly to named beneficiaries, making it important to keep these designations up to date.
Powers of attorney: Allow someone you choose to handle financial or other matters if you become unable to manage them yourself.
Advance healthcare directives: Record your medical preferences and identify who can make healthcare decisions on your behalf if necessary.
Life insurance: Can provide beneficiaries with cash for living expenses, debts, taxes or other financial needs after your death.
Retirement and investment accounts: A legacy plan can coordinate how assets in IRAs, 401(k)s, brokerage accounts and other investments may eventually pass to heirs.
Real estate and business interests: Property ownership and business succession may require additional planning to determine who receives or manages those assets.
Charitable giving: Gifts to charities, foundations or other causes can be incorporated into a legacy plan during your lifetime or at death.
Digital assets: Online financial accounts, digital records, cryptocurrency and other digital property may need instructions for access and management.
Personal wishes and family legacy: Some people also include letters, family histories, charitable goals or other guidance about the values and priorities they want to pass on.

Not every legacy plan needs all of these components. The goal is to identify what you own, who you want to benefit and what instructions or legal documents may be needed to carry out those wishes.

Why Is Legacy Planning Important?

Whether you call it estate planning or legacy planning, transferring wealth from estate to beneficiary is often far from simple. Just dealing with the probate process alone can take months, sometimes years. Many legacy, or estate, plans will therefore rely on trusts to avoid the probate process altogether. You can address more specific needs in your plan using different types of trusts.

Whatever strategy you employ, it’s smart to work with a financial professional. For a typical estate plan, you can work with an estate planning attorney, who can help you prepare documents such as wills and trusts. As legacy planning is purportedly a more holistic process, it may be smart to also find a financial advisor. An advisor can help you arrange your investments and build a financial plan that helps ensure a strong financial legacy for your children and grandchildren.

You’ll also want to ensure that when you pass away, you’re maximizing what you can leave for your family. Usually, this means minimizing what goes to taxes. A sound legacy planning strategy, built with the help of a financial professional, can ensure that you accomplish this goal.

Bottom Line

Legacy planning can help you decide not only who receives your assets, but also how you want your wealth, charitable goals and personal priorities carried forward. A plan may include wills, trusts, beneficiary designations, insurance, retirement accounts and instructions for managing property or family responsibilities after your death. The right structure depends on your assets, family situation, state laws and tax considerations. Reviewing the plan periodically can also help make sure beneficiary designations, legal documents and financial strategies continue to reflect what you want to leave behind.

Tips for Planning Your Legacy

Working with a financial advisor can be helpful if you’re starting the legacy planning process. SmartAsset’s free tool matches you with financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
You can’t pass on a legacy of financial security unless you first grow your own wealth. Use SmartAsset’s asset allocation calculator to determine the best blend of assets that grow your money without taking on too much risk.