Estate Planning: Understanding Estate Taxes and Legacy Planning

Estate Planning: Understanding Estate Taxes and Legacy Planning

Estate Planning is Not The Same as Legacy Planning

Although they have many overlapping qualities and many refer to them synonymously, traditional estate planning is not the same as legacy planning. So what is the difference between legacy planning and estate planning?

Creating a legacy plan doesn’t replace an estate plan, it adds to it. Legacy planning is about expanding the breadth of your estate plan, allowing you to leave behind more than just your material possessions – your loved ones will also receive a part of yourself.

Yes, they’re both still about transferring wealth to your heirs, but legacy planning takes it a step further by making you take a step back. It makes you ask yourself “Why?” and “How?”.


What is Traditional Estate Planning?

Traditional estate planning is the preparation one does to manage their asset base in the event of their ultimate demise (sorry, it’s coming whether we plan for it or not). 

It focuses on your material wealth by protecting, growing, and eventually distributing the assets you acquire over your lifetime. This includes writing a will, creating trusts, making charitable donations, and setting up funeral arrangements.

The catalyst for estate planning is the combination of the only two inevitables of our lives: Death and taxes. Federal and state taxes are an instant liability upon death. These taxes can considerably reduce the value of an estate before it is distributed to beneficiaries. 

Fortunately, individuals with large estates can be proactive in reducing the pending tax burden by meeting with an estate attorney and developing an estate plan (much to the dismay of the IRS).

Assets that are included in an estate are houses, cars, artwork, paper assets, businesses, properties, pensions, and debt. Reasons for planning an estate, outside of reducing the tax burden, include preserving family wealth, providing for a surviving spouse and/or children, leaving a legacy behind to a charitable organization, or funding grandchildren’s education.

Beyond creating a will, some of the other common tasks in estate planning are:

  • Setting up a trust (or trusts)
  • Establishing a guardian
  • Updating beneficiaries on life insurance, IRAs, 401(k)s, or other plans
  • Naming an executor to oversee the terms of the will
  • Earmarking funds to be donated annually to qualifying charities and non-profit organizations

Although estate planning is fairly all-encompassing, it has its limitations. Though your tangible possessions are passed down, the values, morals, and beliefs – who you are – may be lost in the transfer. Since these intangibles are what helped you reach your personal and financial success, it may be as important (if not more so) that you pass on these qualities as well.


Contact our team today to learn more about how we can help you develop a comprehensive estate and legacy plan.


What is Legacy Planning?

As mentioned above, the goal of legacy planning is not to replace your estate plan, but to be woven into and through it. It’s estate planning plus some abstract elements that reflect who you are. This is accomplished by determining your core values and designing specific portions of your estate to reflect those values.

The first step is to determine what intangible qualities you’d like to pass on. What has shaped you into the person you are today? What philosophies have you used to save, invest, and build your businesses? 

What core beliefs guided you through your hard times? What do you hope future generations learn from you? (If you’re like me, you’ll take this once-in-a-lifetime opportunity to dramatically embellish all of your good qualities and generally altruistic nature!)

The answers to these questions drive the legacy planning process. This is the “Why?” aspect.


How to Incorporate Legacy Planning into Your Estate Plan

By definition, legacy planning is a unique and personal experience. What’s important for you to pass on will be different from what your neighbor wants to pass on. That’s why it’s important to hire the right legacy planning attorney – the one that understands you and your goals and can offer strategies that best accomplish those ends.

Identifying the tools that best meet your objectives is the “How?” aspect of legacy planning. You’re not using different tools than when you’re estate planning – you’re using the tools differently. 

For example, if you are a strong believer in the importance of higher education, you could establish an education trust that funds specific beneficiaries based on a predetermined set of criteria. If your faith is fundamental to who you are, you may want to create a trust to continually contribute to a religious organization.

Legacy planning is about a shift in mindset more than anything else. It forces you to take a step back and, by doing so, stretches the impact of your estate longer and drives it deeper than it otherwise would.


A Letter of Instruction

A Letter of Instruction (also known as a Letter of Intent) is an estate planning tool to leave guidance to loved ones and trustees. As the name implies, the letter can be an excellent way to let future generations know what is important to you so they can use your estate in a way they believe you would approve of.

Although not legally binding, the letter can remind your loved ones of your presence and values long after you’re gone, and can bring them closer together as they work to distribute the estate in your honor.


The Bottom Line

Regardless of what you call it, transferring wealth is far from a simple process. You want to maximize what you leave behind for your family and minimize the amount that goes to Uncle Sam (he’s already taken more than his fair share). Whatever strategies and tools you choose to employ, it’s always best to work with a financial professional to ensure you’re fulfilling all of your goals as efficiently as possible. Tax and estate laws are complex – there’s no need to try to tackle them alone.

You’ve spent a lifetime creating the estate you now enjoy. Estate planning will give you confidence that it will nurture and grow, even after you’ve passed. 

But, if you want to pass on more than just your material wealth, ask your financial advisor or estate attorney about legacy planning. Many feel more fulfilled knowing that they will not only be leaving behind an estate, but also the philosophies, beliefs, and values that led to its creation.

Establishing the basics of estate planning is vital, but the rewards for you and your beneficiaries will last that much longer if you take the time to consider the intentional, holistic approach of legacy planning.



TRAC Advisor Group Inc. is a full-service, fee-based financial advisory firm in Norman, OK. We offer independent investment advice and help people withstand any type of market volatility with confidence. 

As an independent investment advisor, we can offer alternative investments like numismatics and precious metals to diversify and hedge against uncertain times. With a straightforward and direct planning style, you can trust that we’ll keep you on track towards your financial goals. 

Explore our new website and Contact Us today to schedule a consultation today. 

This blog contains general information that is not suitable for everyone. The information contained herein should not be construed as personalized investment advice. Past performance is no guarantee of future results. There is no guarantee that the views and opinions expressed in this newsletter will come to pass. 
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TRAC Advisor Group does not offer legal or tax advice. Please consult the appropriate professional regarding your individual circumstance.

More about the author: Tracy McCary

Tracy has been a financial advisor for 30 years, focusing on helping clients reach their financial goals. He is Series 65 and Oklahoma insurance licensed.