Sometimes individuals or couples who have traditional wills and estate planning documents, like trusts and powers of attorney, wish to pass on something that conveys their personal values, traditions or experiences to subsequent generations. A legacy will or trust may be appropriate in such circumstances.
Legacy Wills
Instruments exemplifying legacy wills have existed in one form or another for decades. These documents allow the creator to share things that gave meaning to his life with surviving children, grandchildren, friends and extended family.
Legacy wills can vary as broadly as one’s imagination and may include such things as cherished moments, advice, mistakes, personal commitments, personal stories and private knowledge.
Legacy wills are drafted to embrace the creator’s life lessons regarding work, marriage, child rearing and, perhaps, to reflect a person’s inner soul for posterity.
A legacy will should be kept with a testator’s traditional will. And, as is the case with most declarations,
periodic review by the creator is advisable.
Legacy (Incentive) Trusts
While legacy wills are generally suggestive in nature, legacy trusts, also called incentive trusts, generally impose requirements on beneficiaries in order to receive trust distributions. More than a few wealthy seniors have concerns that their self-earned wealth will be the ruination of their children and grandchildren’s characters and that their descendants will suffer from what is humorously referred to as “affluenza.”
A Common Scenario: Your client is well off financially, perhaps downright wealthy, and she is respected within your community. Perpetuation of certain personal qualities through generations to follow would be the greatest gift and finest legacy the client could leave. Yet, she recognizes that respect has to be earned rather than gifted or bought. From her perspective, her efforts made her appreciate what she has and what she has achieved. She believes that taking the tough road made her learn to manage life and money. It gave her confidence, values, standards and self-esteem.
Your client loves her children and grandchildren and can afford to lavish them with all sorts of money and privileges that were unavailable to her when she was young. She has, however, noticed signs that the kids take the good life for granted.
She’s worried. Will her money undermine her heirs’ personal growth, potential and chances for success? She doesn’t want her achievements to cause them to lead destructive, irresponsible lives.
The client is in a quandary: She’s looking for a way to instill a work ethic, promote self-reliance, develop a sense of responsibility and reinforce love, yet continue to provide assistance to her descendants.
The answer to her problem may be found in a “personal philosophies” type of legacy trust. This trust, if creatively drafted, can encourage the most treasured personal characteristics and family values in the grantor’s descendants.
The underpinnings of legacy trusts are quite different from the garden-variety trust that is premised on the avoidance of gift and estate taxes, and mandates distributions of income and corpus at predetermined beneficiary ages.
A legacy trust may instead provide for distributions of income and corpus when beneficiaries have earned them in accordance with the creator’s personal philosophies. Should trust conditions and desired
qualities not be met, the trust instructions could instead pass the money to charity or to the next generation.
Flexibility can be incorporated into the trust terms by considering many factors such as changes in the economy and personal lives, emergency situations, hardships, extraordinary circumstances and so forth. If a trust is too rigid, it may thwart the very purpose for which it was originally created. The creation of a values-oriented trust can be time consuming and require a fair amount of ingenuity — guidance of and caring for others usually does. Understanding the grantor’s intentions, concepts and reasoning may be enhanced by a family gathering to discuss the trust’s provisions.
Legacy wills and trusts are not without some criticism and are not necessarily for everyone. Primary criticisms have included claims that these types of documents may:
After consideration of the circumstances involved in each particular situation, a legacy will or trust that encourages children and grandchildren to reach their potential and establish sound values may be an excellent way a client can be remembered and perpetuate family traditions.
*Originally printed in Wealth and Retirement Planner magazine.