Much of the work we do at East Franklin Capital is to help clients make decisions that lead to financial success and a fulfilling, well-funded retirement—with enough left over to make a lasting impact. Clients can achieve this in many ways—through planning, goal-setting, saving, quality risk-adjusted investment returns, and more. But beyond financial success or security, there’s a broader question: what else should we be thinking about? For us, the answer is legacy. While “legacy” may mean different things to different people, we see it as the natural outcome of goal-setting, much like planning for retirement.
The point I want to emphasize is twofold. First, a legacy is not just what you leave to someone or an organization at your death; it’s the work you do and the gifts you give, whether during your lifetime or after. Second, a legacy can be intentional or unintentional. An unintentional legacy often arises from our actions—many of which we may not even be aware of. An intentional legacy, on the other hand, results from careful planning and deliberate actions. This is not to say that an unintentional legacy cannot be great. For example, the positivity and optimism of a grandparent can be a beautiful gift. The grandparent may not consciously set out to be a positive role model, but it becomes a legacy nonetheless. And, while those types of legacies are special indeed, in our world of planning and goal-setting, we help our clients focus on creating intentional legacies.
Early in this process of creating an intentional legacy is the question of gifting during life (now) or at the end of life (later). Let me touch on the advantages of each as we see them.
Advantages of Gifting Now:
- Immediate Impact: A current gift to your children or grandchildren can help cover major expenses or cash outflows that are immediate, such as college costs, a wedding, or a down payment on a home. After all, will your gift recipients have the same need for your funds when they’re in their 60s?
- Motivation for Others: If your favorite charity is launching a capital campaign, making legacy gifts today could inspire others to give. This multiplier effect can have a huge, long-term impact.
- Control and Flexibility: You can determine the size, timing, and purpose of the gift more easily while you’re alive. For example, if you have multiple children or grandchildren, each might expect equal treatment regarding inheritance. However, their needs, talents, and resources may differ. It’s easier to address those differences discreetly while you’re alive.
- Tax Advantages: If you’re considering leaving a financial legacy during your lifetime, you can give up to the annual exclusion amount ($18,000 per individual, $36,000 for couples splitting gifts) to an unlimited number of people without paying a gift tax. Recipients don’t pay taxes on the gift, and if you donate to qualified charitable organizations, you may qualify for a tax deduction of up to 50% of your income. There are also advantages to donating investments that have appreciated in value.
- Personal Satisfaction: It can be incredibly rewarding to see the impact of your gift firsthand—something you won’t experience if you gift at your death.
Advantages of Gifting After You’re Gone:
- Flexibility: In my experience, the most significant advantage of gifting at death is the ability to adjust your planned giving if circumstances change. If you encounter unexpected major expenses in retirement, you’ll have more financial flexibility if you haven’t already given away the money.
- Life Insurance Benefits: If permanent life insurance is part of your financial plan, the death benefit paid to your heirs or chosen charity will generally exceed the amount you paid in premiums, allowing you to transfer a substantial legacy after death.
- Tax Advantages: Consult your CPA here, but there may be tax advantages to gifting after death. For example, waiting until death to transfer highly appreciating assets, such as stocks or real estate, allows your beneficiaries to receive a “step up” in basis, enabling them to sell the assets without paying capital gains tax. This rule may change, but as it stands, it could result in meaningful tax savings if your assets have appreciated significantly during your lifetime.
All of the above are reasons for giving and leaving a financial legacy. Whether in life or in death, making gifting a deliberate part of your overall financial plan is crucial in our view. And while the process is ongoing and dynamic, setting an intentional course will give you time to identify the most efficient way to fund your legacy—whatever form that legacy takes!
