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Leaving a Legacy

What does it mean to leave a financial legacy?  What really goes into it?  Leaving a legacy goes well beyond having money left over once you pass away.  The objective of this article is to outline some key considerations to structure a successful and long-lasting legacy for both family and meaningful causes.

The first step in multigenerational success is defining what you want your family legacy to be. It involves articulating the essence of your family’s values, telling your family's story, or establishing guidelines that will impact decisions made along the way to benefit future generations. Typically, a legacy plan encompasses three key components: proper planning rooted in family values, wealth management, and philanthropic goals. Failing to have a legacy plan in place can result in unintended consequences, which may undermine your long-term legacy. Developing a well-thought-out set of standards enables you to align advisors, whether they be wealth managers, CPAs or attorneys that can help to position the plan for multigenerational success.

Administration:  Successful administration plays a vital role once you have clearly defined your goals and objectives within your family legacy plan. It serves as the essential guiding force, or North Star. Articulating control and oversight in a careful manner is necessary to maintain focus on your long-term goals and prevent unintended problems along the way. It is important to communicate with family members or close friends, clearly outlining your objectives to everyone involved.

Begin with the end in mind: To achieve the best outcome, envision what future success looks like and then work backward from there. Working through a closely aligned team of advisors, and proper monitoring can ensure that everyone involved has a comprehensive understanding of your investments, philanthropic plans, and family values even years down the line. Experience has shown that your game plan will require ongoing attention, review, and appropriate updates over time. Without this discipline, your original intentions may fade, your philanthropy goals may go awry, and your investment plan may cease to reflect your beliefs and values.

Assembling a Team: Building the right team to execute the plan is crucial. For most families, a small team with a high level of skill and integrity will suffice. Having trust in the team that you select is imperative. Engage in focused discussions with each advisor to understand their role, compensation, and how they will collaborate with other advisors. An effective team provides checks and balances and eventually becomes your advocates and  will help to identify and will speak up if any problems arise within your agenda. When selecting a firm with broad advisory capabilities, ensure you have a team of experts, get to know each member individually, and maintain regular updates as part of your own checks and balances.

Find advisors whose interests and strategies align with yours. Incompatible strategies can be detrimental to the plan, as some advisors’ incentive structures will not align with your goals. Inquire about all forms of compensation, both monetary or otherwise, generated by the advisor's business across its platform, including direct and indirect revenue streams. Advisors who are not transparent about their business model may not be worth considering. Understanding investment structures, models, and the motivations behind them will provide you with an important perspective when shaping your policies.

Investment management:  Selecting an investment strategy requires understanding and articulating your risk goals before considering returns. Clearly defined guidelines should be implemented to prevent unintended outcomes and the inclination to pursue greater investment complexity. It is possible that having too many good ideas can lead to diluting investment returns, inflexibility, high costs, and inefficiency in asset allocation over time. It is essential not to invest in ways that you do not understand. Assessing your portfolio will help you understand your overall exposures. Worthwhile investment choices will present themselves over time, allowing you to be selective, take your time, and exercise patience.

The model for an investment advisor should include significant skill, experience, aligned principles, and clearly articulated conflicts, if any exist. They should provide thoughtful counsel and conduct rigorous research, due diligence, and demonstrate a repeatable process. Firm size, depth of planning and a business continuity plan are also critical factors for enduring success.

Taxes: Taxes are a silent killer of investment returns. Looking through the tax lens to function as a check and balance on the investments will help you to actually keep more of the growth of your investments over time.  Managing taxes within portfolio allocations, maintaining a separate tax accounting of yearly transactions can help ensure compliance with your plans. However, it is crucial not to let taxes drive your investment plan. A well-functioning team should collaborate throughout the year and provide appropriate recommendations for gifting, realizing gains or losses, and analyzing income tax efficiency.

Estate Plan: Your estate plan represents your legal legacy, and it is essential to get it to represent your true goals. Your estate plan governs the transfer of assets across multiple generations and will be essential to accomplishing all of your charitable ambitions. You should determine the optimal structure for your capital to align with your legacy plan. Consider leveraging a family foundation or establishing separate trusts for future generations with longer time horizons if appropriate. Reviewing this plan every 3-4 years is advisable. Your investment manager and estate planner should collaborate to ensure implementation and the most suitable registrations for holding different investments.

Philanthropy: Philanthropy may be a significant factor in your long-term legacy. Many families seek to strengthen family unity and leave a lasting impact through philanthropy. Determine if existing programs align with your goals or if it is necessary to build your own. In today's philanthropy landscape, there are innovative structures and sophisticated data analytics available to achieve higher levels of impact. Apply the same alignment of values, rigor, and diligence to your philanthropic endeavors as you would to your investment management program.

In conclusion, leaving a legacy is a profound endeavor that goes far beyond the simple accumulation of wealth. This article has shed light on the various aspects involved in structuring a successful and enduring legacy for one's family and causes they hold dear. By developing a well-thought-out set of standards and engaging the expertise of advisors, individuals can position their legacy for multigenerational success. Ultimately, leaving a legacy is about making a lasting impact, ensuring that the values and aspirations of one's family and the causes they champion continue to thrive for generations to come.

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