Where do ideas come from? “What’s the difference between estate planning and legacy planning” was an article idea that recently came in my direction from a LinkedIn connection. They sound similar. Agents and advisors recognize they have a role in both? What’s the difference?
Now artificial intelligence enters the picture. (Isn’t AI in every conversation today?) When I asked Google that question, the AI generated answer indicated estate planning involves “managing and distributing tangible assets” while legacy planning involves “passing down intangible assets.” I wasn’t very satisfied with that.
Here is how I see the distinction: Estate planning focuses on the distribution of your assets when you are no longer in the picture. Since hard assets like jewelry are often involved, it answers the question “who gets what.” Estate planning is also focused on minimizing taxes. Agents and advisors are familiar with tax deferred accounts like IRAs. The US government is OK with the concept “pay me now or pay me later.” Most people would prefer “pay me now or pay me never.” They want the government to get as little as possible, preferably nothing while the entirety of their wealth flows to their heirs.
A will is the primary document associated with estate planning. You can specify who gets what. How much money is given to charity. What happens to hard assets like jewelry and real estate. A living will is a health care directive, which provides guidance on delicate issues like end of life care.
Additional legal vehicles like trusts provide ways to shelter assets from getting fully taxed as part of your estate. A key element is the “one way door” aspect of a trust. You might succeed in sheltering an asset, but it moves out of your name and direct control.
Ig estate planning looks at what happens in the weeks and months after your death, legacy planning looks at what happens in the years that follow. The Shakespeare play Julius Caesar includes the immortal line “The evil that men do lives on after them. The good is oft interred with their bones.” Many people seek immortality. One aspect is life after death. Another is having their name remembered when they are no longer in the picture. John F. Kennedy is a great example. New York’s Idelewild Airport became John F. Kennedy International Airport in 1963. According to AI, 400+ schools, parks and roads are named after JFK.
Everyone has heard of the Ford Foundation and the Gates Foundation. There are many people who would like their name to live on after them. If they spent their later life doing good, they don’t want the process to stop after they have gone. They want to leave a legacy.
Setting up a charitable trust (foundation) is one way a donor’s name will live on after they have gone. The Ford Foundation was started in 1936 by Edsel Ford. The Rockefeller Foundation was started in 1913 by John D. Rockefeller Sr.
Legacy planning also extends to businesses. A privately held business can run into problems if the dynamic founder dies without a succession plan in place. This can be a serious problems if there is an void is created. It can also be a problem if there are family members competing for the position, as the HBO series Succession portrays. Putting a plan in place while the patriarch is still alive is a form of succession planning.
Both estate planning and succession planning involve accounting and legal considerations. The objective is to pass on the largest amount with the smallest tax burden. It might be to immediate heirs or to an entity that will continue into the distant future.