How Does Legacy Planning Differ From Estate Planning? - The Oakley Law Group (2024)

There are two different ways to plan your estate. You can take a basic approach and cover the necessary components. This is a responsible step, but there is another possibility. Legacy planning is a more complete, comprehensive form of estate planning. Let’s take a look at the details.

Conscious Asset Transfers

One of the main differences between a legacy plan and an estate plan will be the way the assets are transferred. Generally speaking, if you have a will in a simple estate plan, the beneficiaries receive their inheritances all at once. There is no asset protection, and there are no spending safeguards.

For some people, this is potentially problematic. For example, let’s say that you leave an inheritance for your youngest son who has never been good with money. He could burn through his bequest quickly, and he will have nowhere to turn later on if times get tough.

Providing for a person with a disability is another circ*mstance. Many people with disabilities rely on Medicaid for health insurance, and they receive Supplemental Security Income. Since these are need-based programs, a windfall could cause a loss of eligibility.

When you craft your legacy plan, you consider the potential challenges, and you act accordingly. You can leave assets to your loved ones in different ways, and the optimal course of action will depend on the circ*mstances.

For example, to respond to the former scenario, you could use a revocable living trust with a spendthrift provision. Resources can be provide for a person with special needs if you establish a special needs trust. There are incentive trusts that guide beneficiaries toward preferred behavior.

Estate Tax Efficiency

High net worth individuals should be concerned about the potential impact of the federal estate tax and its 40 percent top rate. It is applicable on the portion of an estate that exceeds the exclusion. For the rest of 2022, the exclusion is $12.06 million.

This level will remain in place indexed for inflation through 2025. In 2026, it will be reduced to the $5.49 million level that was in place in 2017 indexed for inflation.

There is a federal gift tax that is unified with the estate tax. With this in mind, there is a limited window of opportunity until 2026. You could give gifts or use the gift tax exclusion to fund certain types of trusts while the estate tax exclusion is at a record high level.

A generation-skipping trust is a legacy preservation vehicle that is often utilized. Other trusts that provide estate tax efficiency include the charitable lead trust, grantor retained annuity trust, and qualified personal residence trust.

We should point out the fact that there are 12 states with state-level estate taxes. California is not among them, but there is an estate tax in Oregon, and there is one in Hawaii. The exclusion in Oregon is just $1 million. If you own valuable property in a state with an estate tax, it will apply to your estate if its value exceeds the exclusion amount.

Charitable Giving

Providing resources for charitable organizations can be a meaningful act when you are creating your legacy plan. A private foundation is a possibility for some people, and donor advised funds are quite effective. Another option is a charitable trust, and all of these methods provide tax advantages.

Family History and Ethical Will

A lot of people become interested in their roots at some point in time. As an elder, you have memories that others are not privy to, and you have heard stories about your family. When you are creating your legacy plan, you can pass along information about your family tree.

Another document that could be included in your legacy plan is an ethical will. Traditionally, this document was used to share moral and spiritual values. During the modern era, the possibilities have been expanded. Experts people to convey any feelings or thoughts that they would like to share.

We Are Here to Help!

Our doors are open if you are ready to work with a Burbank, CA legacy planning attorney to put a plan in place. You can send us a message to request a consultation appointment, and we can be reached by phone at 818-937-2335.