How to Define and Prioritize Your Financial Legacy

Are you going to spend all your savings in your lifetime? Most families will. Some will update their plans and discover that they are likely to have more than they need. If your family is fortunate to have excess financial assets, would you change any of your spending plans?

You have many choices: kids, philanthropy or pursuing a lifelong dream. These major categories will help you prioritize.

SPEND IT

You may have focused more on making money and saving it or simply too busy to spend it. Lifelong dreams – collecting art, sailing around the world, learning a language – may finally be able to be funded.

GIVE IT TO THE KIDS

If you have kids, and possibly grandchildren, you may want some of your wealth to go to them. Would you like to help purchase their first home or pay for school and medical expenses?

KEEP IT IN THE FAMILY BUSINESS

For families with businesses, there may be desire to reinvest the profits in the company to fund growth. The additional cash may protect the business from seeking external financing at an inopportune time. Reinvesting though will increase your risk exposure to an asset which already is a significant percentage of your balance sheet.

SUPPORT YOUR PHILANTHROPY

Do you worry that an inheritance may diminish your kids’ drive to succeed? The term “trust fund baby” is seldom a compliment so you may prefer to direct excess assets to your favorite philanthropies. Some choose to donate during their lifetimes, others as part of their estate. Done right, charitable giving can boost happiness and save taxes.

WORK WORTH DOING

How you divide the wealth should be consistent with your values. Do you know your spouse’s view on the topic and is it the same as yours?

A true story: husband and wife came into my office to review their portfolio. Wanting to get to know them better, I asked them how much of the portfolio did they plan on leaving to their kids. Both answered at the same time, but gave opposite answers!

Deciding how you would like to share your wealth will save money. You may find that you no longer need that second-to-die life insurance policy since the kids will get enough without it. Direct payments of education and medical expenses for family members often avoid gift taxes. Charitable gifts funded with appreciated securities is tax efficient.

TAXES AND KING TUT

There are two other uses of your wealth. One is taxes. With no planning, you may incur unnecessary capital gains taxes or estate taxes. The other is trying to take it with you. King Tut did by placing great wealth in his pyramid to support him in the afterlife. Personally, I believe supporting lifestyle, family, philanthropy or the family business are better choices.

Lex Zaharoff, CFA

Lex joined HTG in 2014. With over 30 years of experience advising wealthy families at four major private banks, Lex provides clients with a unique perspective on the art and the science of investing to achieve one’s financial goals.

As Adjunct Professor of Finance at NYU’s Stern School of Business, Lex teaches the MBA course on wealth management. He has a BSE from Princeton University and an MBA from Harvard Business School.