In this two-part series, we’re exploring the topic of legacy planning.
Why is this overlooked practice so important? And how do we make it about more than finances?
If you missed part one, you can find it here.
So, how does the process of legacy planning unfold at Christy Capital?
Oftentimes we’ll be sitting in a financial review with a client and discussing beneficiary structures. Typically, the way it works is a spouse dies and leaves everything to the other spouse. Then, when that spouse passes, everything flows to the children equally. That’s how the vast majority of Americans pass on their wealth. So, we say something like…
“You have enough money to take care of you and your spouse. But when you’re both gone, here’s the simple question you need to consider: Are your children prepared to receive that wealth?
It’s amazing what this one question generates. For the sake of illustration, let’s say a couple has a $3 million dollar estate and three adult children–I’ll just make up some names. Generally, parents respond like this:
“Johnny, yes, he’ll be fine. He saved his first dollar! He’ll take this inheritance and do great things with it. And Mary–she’ll do okay too. She’s been through a painful divorce and is a single, working mom. So, she struggles. She’ll probably need to spend much of it.
“Then there’s our youngest. What would he do with a million dollars? Lord, that’s a little scary. It might hurt him more than help him!”
So many aging parents tell us things like that. “I have one child, and she would blow through it in a few months. Just absolutely waste it.”
Because some adult children have histories of bad financial decisions or battle addictions, it forces us to ask questions. In legacy planning are we obligated to share and share alike? Do we have to disburse our wealth in a one-size-fits-all way?
One of my mentors, Ron Blue, makes a great statement in his book Splitting Heirs. “We are to love our children equally, but treat them uniquely.” Love our children equally, treat them uniquely. I think that is a powerful statement.
The fact is that children from the same home (and with the same genetic code) often handle money differently. That means you have to treat them appropriately and case by case..
So, that question–How will this affect them?–is the place we like to start.
So, it’s really an issue of what amount would be a blessing and not a burden?
Yes, and often that number is far less than what the child would otherwise receive if you just split everything equally.
That fact prompts another question: What do I do with the rest of it?
So, with clients, we get busy thinking and working through that. Some families decide, “We want to be philanthropic. We want to give to a charity, or establish a fund that will allow our family to bless nonprofits, organizations, or ministries that are doing work we feel is worthy of support.”
This approach opens up a lot of important conversations–which can be very healing. It’s more than “Oh, let’s just change the beneficiary form on that insurance policy and get our attorney to rewrite our will.”
You’re dealing with hearts and souls here. You’re trying to decide what action to take that will benefit your children most–not just financially, but spiritually, emotionally, and relationally. What’s the plan that will bring blessings to future generations?
Can you give some real-life examples?
Sure. We have a family that recently went through this process. The parents decided how much they were going to need for retirement and the amounts they wanted to give to their children and their family members.
So, then we asked this question, “Did you know you don’t have to wait until you’ve passed away–you can go ahead and do that now?” This caught them by surprise. They had no idea this was even an option.
Here’s why that’s a valuable question: The vast majority of wealth is transferred to the next generation after those heirs need it. Typically, you inherit money from your parents in your 50s or 60s. But you really could have used that money in your 30s and 40s when you had a big mortgage and were paying for things like college tuition.
So, what do many of those heirs do? They stick that inheritance in their portfolio and let it grow. Then, when they die, they leave it to their children who are by then in their 50s and 60s, and the cycle continues.
We ask our clients, “What if you went ahead and gave them at least some of their inheritance now instead of waiting?”
We’ve had some pay off mortgages for their adult children. (Again, we’re not talking here about loading up a 25-year-old with an extra million dollars and creating an entitlement problem. We’re talking about being a blessing to your family after much careful consideration.)
They might write a letter saying, “We love you and want to give this to you now to give you more options.” Later, there may be more communication along the lines of: “Understand that we have no expectations regarding that early inheritance. But we do have some hopes. One hope is that our family would always be marked by generosity and wisdom when it comes to money. Those values are a big part of the legacy we want to leave.”
For some parents, this approach has worked great. The children really flourished and managed those finances in wise ways. For others, it didn’t work out so well. (After all, it’s not like you can pay off a child’s mortgage and, by that act, magically transform them into fiscally responsible people.
But it is a step in the direction of helping them learn to be responsible with money. And again, life is full of failing forward, is it not? Few of us succeed the first time we do something.
So, the question again is –Do you want to wait and let them fail financially after you’ve passed? Or, do you give them some of the resources now and let them succeed or fail while you’re still around to provide guidance and wisdom?
This legacy planning doesn’t sound “easy.”
Nothing about legacy planning is “easy.”
The easy path is the standard boilerplate approach that just leaves everything equally to your children. What I’m advocating is much more complicated. It demands more of you in every respect.
If you want to see your children become good stewards of what they receive, you have to engage them in that process. You’ll need to have hard conversations. You may decide to give them part of their inheritance early as a kind of training exercise. If they blow it, you can’t beat them up. Instead, you’ll need to help them get back up and move forward. Remember: they’re adults; they’re not two-year-olds who are trying to stick their tongues in a light socket! They’re adults you can still influence. But it takes intentionality and hard work to do that.
The same is true if you want to be charitable. That’s hard work too. To give wisely, you have to ask questions. You have to do research. Maybe you even visit several organizations or nonprofits firsthand.
In the same way that a large sum of money can mess up a child, so can it mess up an organization or ministry that isn’t ready to handle that infusion of capital. And so it becomes necessary to spend time and energy talking with each group’s leaders. The whole family can get involved with this.
It’s good to remember that you don’t have to give huge amounts to a charity all at once. You can use instruments like a donor-advised fund where you–and later, your heirs–can distribute money to the nonprofits of your choosing over time.
It isn’t easy–it’s work. But it’s a worthy work. I think of two examples from the Bible.
The first is Job. He was a very prosperous man. And the scripture says that Job would “search out the cause of the needy.” I love that. There’s a guy who isn’t sitting back passively. He’s working, doing the research, trying to find out who he can help.
The other passage that challenges me is in Psalm 78. It speaks of leaving a legacy, the importance of passing on certain beliefs and values. It says, in part, “The next generation might know them, the children yet unborn, and arise to tell them to their children.”
When you unpack that sentence, you see that it refers to five generations.
So, clearly we’re not to be self-absorbed. Rather, we’ve been given insights and wisdom and abilities and wealth. And we should be generous with all that…use all these things to make an impact on our children, grandchildren, and great-grandchildren.
The goal isn’t just to set them up to have a comfortable life financially, but to also help them find a life that is spiritually and emotionally meaningful.
When we talk about legacy planning at Christy Capital, it’s those kinds of things we help clients with.
Which reminds me…if you don’t yet have a financial planner, consider this my invitation to visit our website, christycapital.com. There–in the top right corner of the page–you’ll see a green TALK WITH AN ADVISOR button. Click it, and leave us a short message. We’ll be in touch right away.
