When advising clients on what will happen to their estate after their death, the natural inclination is to talk strictly finance: trusts, wills, life insurance, and inheritance. But while these factors are essential components of estate planning, there is another aspect, and that revolves around the notion of legacy planning.
Coined by Dr. Ken Dychtwald, president of Age Wave, the term “legacy planning” involves four components of a client’s life that they would like to pass along to their heirs: values and life lessons, instructions and wishes to be fulfilled, personal possessions of emotional value, and financial assets and real estate.
You may think you know which is most important to your clients and their heirs — money — but when Age Wave asked 2,657 boomers and elders how important, in percentages, it was to receive or provide financial assets or real estate as an inheritance, the truth came out a bit differently.
While the average response from elders was 39 percent, finances ranked just 10 percent on the scale for baby boomers — and values and life lessons came in at 77 percent for both groups.
“It became obvious that those in the field of trusts and inheritance transfer and insurance largely go about their business with the belief that people are primarily focused on finances and real estate, but stories about life lessons, instructions, and wishes to be fulfilled are actually more important to these people,” said Dychtwald.
So indicate the results of the Allianz American Legacies Study, conducted in partnership with Age Wave and Harris Interactive. When crafting the study, said Dychtwald, focus groups were extremely turned off by the use of the word “inheritance,” which conjured up for them visions of greed and familial debate. Simply replacing “inheritance” with “legacy,” however, completely changed the tone of the study. And while finances should never be neglected in a legacy plan, neither should the more emotional layers of a client’s estate.
Getting into this field, said Tom Burns, chief distribution officer for Allianz Life, is a perfect way for agents to set themselves apart, especially in the increasingly crowded estate planning market.
“It’s such a competitive environment out there for the advisor, and people are looking for ways to deepen their relationships with current clients and get new ones,” Burns said. “These introductions are the best way to build your practice.”
The financial side
One way to help clients express their values to their heirs does involve their financial assets — charitable remainder trusts (CRTs) created with the proceeds of a liquidity event such as the sale of a building, land, or business. In this case, the trust provide a lifetime income to the client. Then, once they pass, the trust goes to a named charity or foundation.
On the other hand, charitable lead trusts (CLTs) distribute payments to a charity during the trustees’ lifetime, then provide an income stream to any beneficiaries after the owner’s death.
According to Gary Altman, founder of the Maryland-based estate planning law firm Altman & Associates and chairman of the National Capital Area Financial Planning Association, this can be an excellent way for clients to illustrate to children and grandchildren what is most important to them.
“One thing I always suggest is, when there is a large liquidity event, why not take $30 million or $40 million of it and put it into charitable lead trust so the income can fund a private foundation which, at their death, the children control so they can learn there are other people in the world who are less fortunate than them?” said Altman. “Then, the money goes to grandchildren after a number of years, so you’ve created a legacy in terms of the foundation and a legacy in terms of your grandchildren.”
Those clients worth at least $20 million are good candidates for CLTs, said Altman, but any client who has gone through a financial liquidity event will benefit from this type of financial legacy planning.
Unless a client already has a strong charitable inclination, however, he said, it can be difficult to get them to irrevocably part with their money. Advisors looking to involve themselves with financial legacy planning, then, should be aware that this is not a quick sale — it takes time and much relationship-building before it can bear fruit.
The benefit for agents is not only a strong client-advisor relationship, but also the great sense of accomplishment that comes along with it. One advisor, for example, has pledged to help pass a total of $200 million of wealth to charity.