Some people scoff at the notion that there is a fundamental difference between estate planning and legacy planning. After all, both refer to a plan for distributing your assets after your death, plus related concerns like end-of-life issues. In addition, both types of planning usually involve preserving wealth, sharing good fortune with your heirs, and possibly safeguarding family keepsakes.
However, while an estate plan will focus on tangible assets like money, property, and investments, a legacy plan will likely involve consideration for their personal or family values and philosophy. For example, one person may prioritize supporting their heirs as much as possible and will direct their assets entirely to their descendants. In contrast, another person might want to emphasize philanthropy and divide their wealth between heirs and charity. The legacy is in the philosophy and values that the person bequeaths along with the tangible possessions.
Whether the individual is focused on preserving and fostering family wealth or taking a more holistic approach that hopes to support other goals, planning for the distribution of your financial assets requires good planning. The legacy planner may want to employ the formation of trusts to advance their values. For example, suppose that the individual holds education as a high priority. That person may want to establish a trust to pay for their descendants' education rather than directly allocating funds to them.
Another example would be the benefactor who leaves gifts for their heirs, but with strings attached. For example, a legacy planner could stipulate that a potential beneficiary must complete college before receiving the bequest, work for the family business, or refrain from being arrested before the distribution. On the other hand, probate courts have voided requirements that prospective heirs divorce a spouse that the deceased disliked and won't uphold illegal requirements.
Perhaps an even more ambitious illustration would be the person who creates a foundation to support organizations that share their values. This person could simply bequeath their assets to their favorite charity. But suppose they care about a range of causes. They might prefer to create an organization that can maintain control over the assets and distribute income or capital over a more extended period. That might work better with a trust. However, since the trustor would be deceased when these gifts are made, the trustee handles the gift decisions.
Another option that can support estate planning, legacy planning, and tax management is the creation of a charitable remainder trust. This is a trust that the trustor establishes while still living. It’s a tax-exempt irrevocable living trust that can generate income for the grantor while they are alive, for one or more beneficiaries for a set time, and then provides assets to the designated charities. Either the grantor or the beneficiaries can receive income for a pre-set time of up to twenty years before the gift is fully consummated. In addition, the donor receives a partial tax deduction when they create the trust, although the income recipient will pay taxes on the amount the trust pays out.