What is “Legacy” Planning?

Posted by Matthew McClintock

We often underestimate the impact we have on the people who are most important to us. This picture is easily one of my favorites, because it captures a bit of the fun we’ve been intentional to build into our family. As silly as it is, it’s a reminder to me that we are all products of the lives that come before us, and we have a duty to shape the lives we leave behind.

My grandfather was a hard worker. Growing up in Arkansas during the Great Depression, he learned the importance of frugal living and the value of hard work and saving. He served in the Navy during WWII and he came home to raise three daughters, including my mom.

He and I were very close. We lived in the same small Oklahoma town so I spent many years by his side. He taught me how to drive a car, how to fish, how to work with my hands… and he taught me about responsibility and good stewardship, and the importance of providing for my family. In many ways he was the most influential figure in my life well into my adulthood.

In 2005, he died. He and my grandmother, who died a few years before him, had created a living trust, and they had been careful to make sure all their property was titled in the name of the trust. That part of their plan worked like a charm. There were no court proceedings necessary when my grandparents died so my mom, the trustee, could handle everything privately and efficiently without having to go to court. This is the first big benefit to having a well-structured trust: it keeps the family’s affairs out of the courtroom and keeps them in the living room.

Unfortunately, there was a bigger problem looming…

My Grandfather’s “Simple Estate Plan” caused Complex Problems

My grandfather’s trust was very old fashioned. Upon his death, the trust was designed to be distributed “outright, free of trust” to my mom and her two sisters. After final expenses were handled, the trust would terminate and my mom would write three checks: one to herself and one to each of my aunts. My grandfather (and more likely, his attorney) figured that the grown daughters could handle receiving money “…with no strings attached.”

His trust didn’t contemplate protecting his children from surprises.

Less than a month before my grandfather died, my aunt (his second daughter) sustained a terrible head injury in a horseback riding accident. She was in a coma when my grandfather died. She remained in a coma for a few months and spent a few more years regaining her ability to manage her own affairs.

The inheritance my grandfather’s trust created for my now-disabled aunt was at risk. With medical bills piling up, that “simple” outright gift was exposed to her creditors. Unable to work, the inheritance represented my aunt’s only source of money for the foreseeable future. If that was gone, she’d be left destitute.

A “legacy” plan maximizes the impact an
inheritance can mean for your family — however vast or modest.

My grandfather’s trust highlights the difference between simple “estate planning” and what I call “legacy planning.” His trust did fine to keep things out of court and avoid probate, but it did virtually nothing to protect his daughters when the unexpected happened. That experience marked a turning point in how I practice law.

There’s a fairly reliable recipe to ensure a family’s legacy is protected without making things overly complicated. A proper legacy plan protects loved ones, encourages responsibility, and reduces the likelihood that children squander an inheritance or have it taken away by someone else. It also provides flexibility over time as things change.

Here are the essential elements:

Start with a trust. It can help you avoid conservatorship proceedings if you become disabled. After you die, it can let your loved ones to handle everything privately and efficiently outside of probate court. But make sure your property is correctly titled to allow your trust to work when it matters most.

There is no “one-size-fits-all” solution. The best plan is one that is tailored to your particular needs. As an example, if you’re married…

  • Are you and your spouse close in age, or is there an age gap between you?
  • Do you earn the same amount of money, or is there a significant income gap between you?
  • Do you and your partner have similar financial savvy, or is one of you the primary decision maker?
  • Do you have kids or property from before your marriage? If so, that will have a major impact on your planning.

The vast majority of widowed spouses will remarry. How will your spouse’s remarriage impact your legacy? You must proactively plan to make sure you don’t accidentally disinherit your kids.

Regardless of whether you’re married or single, a legacy plan is essential to provide for your loved ones.

Protect the people you love the most. Bad stuff happens even in the healthiest families.

  • If you have a child, parent, or a partner with a disability, design the plan appropriately from the beginning.
  • What if a healthy person later becomes disabled (like my aunt did)? Make sure your plan considers that possibility.
  • If your child’s marriage doesn’t work out, make sure their inheritance doesn’t get divided with your ex-son- or daughter-in-law.
  • If your child is involved in a crash or if their business fails and they get sued, protect their inheritance from those future creditors.
  • Bad stuff happens all the time. You can often plan around it.

Everything relevant in your plan is going to change.

“Simple” Outright Gifts Often Do More Harm Than Good.

“Found money” in irresponsible hands usually makes bad problems worse, and unprotected wealth doesn’t last. A legacy plan maximizes the impact an inheritance can mean for your loved ones.

Be proactive. To quote the Greek philosopher, Heraclitus, “The only thing constant is change.” Over time, everything that impacts your plan is going to change. As life goes on your priorities will change. Laws will evolve. People will come and go through your life. Kids will grow up and move, and their careers, lives, and needs are dynamic. With a cue from my daughter’s hat in the picture, a good legacy plan prevents your family from “surrendering the booty” if things ever take a turn for the worse.

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