• 5-Minute Article
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  • Jul 27, 2018

5 Ways a Legacy Plan Protects Your Family

Millions of Americans don’t have a legacy plan. Learn why it’s important to put one in place.

Concerned retired couple featured in an article about building a legacy plan in retirement

A legacy plan – also known as an estate plan – can help protect a family’s financial security and answer key questions during a major transition. By including specific directions about how to distribute assets, identifying who is authorized to make important decisions about medical needs and who will take care of children and other beneficiaries, a legacy plan can help provide peace of mind that you’ve left fewer unanswered questions for surviving family members. It can also potentially reduce taxes and other expenses related to settling an estate.

Despite these important benefits, only 32% of Americans have prepared critical documents, such as a will or a living trust.1 The reasons range from believing that they don’t have enough money to simply not knowing how to prepare a plan. But the number one reason people cite for their lack of planning is that they simply haven’t gotten around to it.

Reasons Why People Don't Have A Legacy Plan

Reasons Why People Don’t Have a Legacy Plan

People who do not have a plan established leave these important decisions in the hands of the state they live in. By contrast, answering those questions in a legacy plan provides an important element of control for families. Here are five ways a legacy plan can help support long-term financial security:


1. Continue to Take Care of Your Family

Most people care deeply about providing for their family after they’re gone, which is one of the primary benefits of legacy planning. A plan can provide income for a surviving spouse and offer financial support for children and grandchildren. When you take into account healthcare, education, and other support, the average cost to raise a child to age 18 is $233,610.2 Parents without a plan risk passing that financial burden to family with little assistance.


2. Reduce Taxes

Some families can owe a large tax bill on the assets they inherit. The federal estate tax exclusion was recently raised to $10 million – meaning that only estates valued above that amount will be taxed.3 But many states have their own estate or inheritance taxes with lower limits, which can affect families with smaller estates. In these cases, a legacy plan can include strategies that help keep the value of an estate below taxation thresholds, such as gifting assets to heirs before death or using trusts and other financial planning tools to remove assets from a taxable estate.


3. Create a Business Succession Plan

Roughly 30 million Americans own a small business.4 For this group, including business succession planning as part of their legacy considerations can help a business survive beyond the life of the owner.

A business succession plan outlines strategies and a timeline for handing over management of the business without disrupting operations. Plans also include strategies for transferring ownership of the company to heirs or new buyers in ways that can potentially reduce taxes. For example, a business owner might choose to sell or gift small portions of the business to children over several years to gradually remove the value of the company from his or her estate. That consideration is especially important because the estate tax rate can be up to 40%.5


4. Avoid Probate

Probate is the legal process that transfers ownership of your property. It can take months or even years and comes with fees that average 2% to 7% of an estate’s value.6 A legacy plan can help you avoid delays and fees by naming beneficiaries on specific accounts or using tools such as trusts that determine how your property will be managed. This planning can avoid certain assets being distributed through the probate process.


5. Make Your Estate Last

It’s difficult to maintain a family’s assets over multiple generations. One decades-long study found that 70% of families lost the value of an inherited estate by the end of a second generation, and 90% lost it by the end of a third generation.7 A big reason for these dwindling assets is lack of proper legacy planning. A well-crafted plan can help ensure that assets last for generations to come.

How Long Does An Estate Last?


Next Steps

Legacy planning is a special service offered by qualified financial and legal experts. A financial professional can help with this process by connecting clients with resources like estate planning attorneys. Also, consider including family members in planning conversations so that children and other loved ones understand your goals and wishes. This combination of expert assistance and family communication can help ensure you establish the legacy that you’ve envisioned.