How legacy planning helps you pass on more than your wealth 

Estate planning vs. legacy planning

Contrary to popular belief, estate planning and legacy planning are not the same thing. Estate planning is the legal and financial process of distributing assets after you’re gone. In contrast, legacy planning is broader and more aspirational. While it uses many of the same wealth transfer tools, it helps put things into context by explaining why you made certain decisions, what you hope they will accomplish, and how you’d like to be remembered by the people and organizations you care about most.

Getting started: how to build a legacy plan

Building a legacy plan begins with a clear understanding of what matters most to you and the impact you would like to have on future generations. Whether your goals include caring for loved ones, supporting causes you believe in, or helping preserve the wealth you’ve built, it all starts with defining those priorities. From there, a financial professional can help identify various legacy planning strategies, and explain how tools like life insurance, trusts, and charitable giving work together to make a comprehensive plan.

Life insurance lays the foundation

Whether you’ve accumulated substantial wealth or are just getting started, life insurance can play a vital role in the legacy you leave behind. That’s because the death benefit is generally income-fax-free to beneficiaries and can be paid without going through the time-consuming probate process. For families who are still building wealth, it can create financial stability for the next generation. For those with considerable assets, it can provide liquidity, balance inheritances, fund estate taxes, and reduce the likelihood that loved ones will need to sell cherished assets like a family home or business.

Beneficiary designations keep it simple

Many financial instruments, such as investment accounts, retirement accounts, and life insurance policies, can be passed directly to your beneficiaries —without being documented in a will or having to go through probate. In most cases, you will need to use a transfer-on-death (TOD) or payable-on-death (POD) designation, which means that the assets will be assigned to the named individual(s) as soon as your death certificate is received. Be sure to take advantage of these designations—and review them regularly—to make sure they are accurate and consistent with other legacy documents you have created.

Common beneficiary designation mistakes

When reviewing your beneficiary designations, watch for these frequent issues:

Not updating legal names – If your beneficiaries get married, divorced, or change their names for any reason, your designations will be invalid.

Failing to name a contingent beneficiary – A contingent beneficiary receives assets if the primary beneficiary dies before you. Without one, the transfer process may become more complicated and could be subject to probate.

Naming minor children directly – Depending on state law, a court may need to appoint someone to manage those assets until the child reaches adulthood. A trust may provide greater flexibility and control.

Trusts help control and protect assets

Trusts can be a valuable legacy planning tool because they give you a high degree of control, flexibility, and protection. Unlike a simple will, a trust lets you specify how and when assets are distributed, helping ensure that wealth is managed according to your wishes. They can span multiple generations, protect assets from creditors, care for family members with special needs, support charitable causes, and potentially avoid probate.

Various types of trusts

Trusts come in many forms, each designed to help individuals achieve specific estate planning, financial, and family goals. Common examples include:

Revocable Living Trust – Allows you to maintain control of assets during your lifetime and make changes as needed. Assets held in the trust generally avoid probate, helping streamline the transfer of wealth upon death.

Irrevocable Trust – Once established, this type of trust generally cannot be modified or revoked. It may provide asset protection and can be used as part of certain estate and tax planning strategies.

Special Needs Trust – Provides financial support for a beneficiary with disabilities while preserving their eligibility for government assistance.

Charitable Trust – Allows you to support charitable causes while potentially receiving tax benefits and creating a lasting philanthropic legacy.

Charitable giving helps you make a lasting impact

For many people, legacy planning includes supporting causes that reflect their values. Charitable giving allows you to make a lasting impact, while potentially reducing the taxable value of your estate.

Some frequently used charitable donation tools

There are a number of tax-efficient ways to incorporate charitable giving into your legacy plan. Here’s a quick look at just a few:

Direct bequests – One of the easiest ways to leave money to a charitable organization is to specify the amount you would like to donate in your will or trust. You can designate a specific dollar amount or a percentage of your total estate—whichever you prefer.

Beneficiary designation – For certain assets—such as an IRA, 401(k), or life insurance policy—you can simply name the charity as a beneficiary. That way, your money is passed directly to the organization when you die.

Charitable Remainder Trust – This type of trust is set up using an annuity so that you will receive a steady stream of income for a period of time, with the remainder eventually going to your chosen charity.

Charitable Lead Trust – In this case, the trust uses an annuity to pay the charity for a specific number of years. After that, the remaining funds are distributed to your heirs.

Legacy planning makes your gifts more meaningful

The financial tools of legacy planning—insurance, trusts, and beneficiary designations--are designed to transfer assets. But the values, intentions, and history behind those assets deserve to be shared as well. Take some time to create a legacy letter or ethical will. These are non-binding documents that explain why you made certain decisions, which items have sentimental value, and what you hope your loved ones will do with the assets they’ve been given. This is the heart and soul of legacy planning and something that can be just as meaningful as the assets themselves.

How New York Life can help

Legacy planning can be as simple—or detailed—as you need it to be. Our financial professionals can help you get started, guide you through the process, and help make sure all the tools and strategies are working toward the same goal.

Legacy planning FAQs

RELATED CONTENT