Step Nine – Legacy Planning

According to Williams Group Wealth Consultancy 70% of rich families lose their wealth by the second (2^nd) generation.  That figure jump to 90% by the third (3^rd) generation.  This is often because those who struggled to create the wealth fail to discuss openly with their offspring what wealth and money means to the family.  Often those who grew up with the wealth do not appreciate the struggles that those who created the wealth went through.  We spent steps number 1 thru 8 building, expanding and preserving our financial mansion.  Step #9, which we will now explore, will show how we go about preserving this mansion so that future generations of your family can also enjoy, preserve and build upon your financial mansion.

 

Step #9 – Legacy Planning

 

What is a Legacy? – A Legacy can be an inheritance, especially by means of a will, such as money, real estate and business etc.  More broadly, Legacy also involves learning from the past and adhering to certain principles that sets guidelines on how to comport yourself in the future.

What is a Plan? – A Plan is deciding or making arrangements for something in advance. It is a written or otherwise recorded course of action that is aimed at achieving a specific goal or objective that may include timelines, dates as well as other specifics.

What is Legacy Planning? – In this article Legacy Planning will mean more than just deciding what to do with the money or other assets you acquired, when you move on.  It will also involve ensuring the survival of wealth for generations to come.  It will also involve ensuring that the family history and values live on.

 

Why do we need to actually plan if we want to leave a lasting legacy? – Well for starters, if we fail to plan then we plan to fail.  If left up to chance then we will more than likely fall victim to the statistics of the seventy to ninety percent of rich families that lose their wealth by the second or third generation.  Without a proper plan in place the family may be torn apart fighting for a piece of the pie at best.  At worst, if you die without a will you leave it up to the government to decide how to divvy up the assets.  After fees, penalties and taxes, your family will be lucky if they have 50% of the inheritance left.  In Jamaica if you die without a will it can take up to two to four years for the government to administer the account, and you have no say in who gets what.  If you had a will or better yet a legacy plan in place, then that process would be reduced to mere months. We would stand a better chance of keeping and passing on more of our wealth that we worked so hard for, to our future generations.

 

What should we do? – Below I will highlight some of the things we should do when planning our legacy.  This will not be a panacea of the things we can do but it will give you good guidance and the best strategies to protect and bequeath your wealth.

1. Get a will – Whether you are at step one or step ten of TWSG a basic thing everyone should do is write a will.  Even though you may not be where you want financially you may have assets that you don’t want to simply fall into the hands of the government or for the government to give it to relatives you did not intend it to go to.  Doing a will is not just for elderly folks and it does not mean you are going to die tomorrow.  However it does ensure that the people who matter to you and who will already be suffering and grieving from losing you will not also have to suffer from having to fight for and possible lose that which you would have left in their care.

 

2. Get Insurance – In ancient times the families of Roman soldiers would pool some funds together as the soldiers go out to war. They realized that not every soldier would make it back from the battlefield, so the funds that were pooled together would be divided up among the families whose husband or brother or son did not return from the battlefield. Some would say that this was the birth of insurance in its raw form.  Insurance today operates on the same premise where policy holders would pay premiums that go into a pool, monies would be paid out to an individual policy holder if the unexpected should happen.  In this step TWSG is suggesting that you get insurance on your income generating assets as well as life and health insurance.

 

3. Communicate – One of the most important part of legacy planning and often times the most neglected part is communication. We need to have the seemingly awkward conversation about money and wealth and what it means for the family.  Teach our family financial education.  We must seek to pass on the know-how to our loved ones. Write a family ‘bible’ if you will, so that the wisdom acquired throughout the years will be preserved and pass down from generation to generation.  In communicating we must state our family mission statement, what impact we would like to have on our community, country, the world and our fellow human beings. Based on these values we will see the bigger picture of how we should operate the individual assets in the estate.

 

4. Unity is Strength – A common mistake in doing a will or in estate planning is dividing assets that were once united into many fragments to the various beneficiaries. Studies show that this is one of the common reasons for the collapse of wealth by the second or third generation.  A previous asset or business that was once a force to recon with when it was whole is now fragmented into different parts and bequeathed to different beneficiaries.  These individual beneficiaries have different ideas of where to take their side of the business and some have no ideas at all but squander the inheritance like the prodigal son in the Bible. In Legacy Planning it is best to let the business remain as a whole and managed as a whole by worthy successor(s).  What persons inherit on an individual basis should not be affected by the legacy business assets.

 

5. Trust Funds – Trust funds are designed to allow a person’s wealth to continue to be useful well after they have passed away. You want your savings to help your loved ones and even generations to come.  You may be concerned about some of your loved ones that may not be financially wise.  A trust fund can be set up to disburse funds over a period of time and also over many generations.  It can be set to disburse funds when certain conditions are met.  You may be very specific and detailed on how you want the funds to be disbursed.  You can even specify what you want the funds to do and to be invested in.  An advantage of Trust Funds are that you pay less in tax when funds are being transferred to beneficiaries. And you don’t have to pay income tax on funds put in the trust funds.  Many persons think trust funds are for high net worth individuals but the truth is you don’t have to be high net worth to set up a Trust Fund.

 

6. Gifting and Loans – by giving excess income to loved ones you can avoid taxes that can eat away a significant portion of beneficiaries inheritance. You can also give loans with very favourable terms which may be beneficial to avoid limitations on gifting and taxes.  These are very situation specific, so I would encourage you to seek professional help in these areas.

 

 

To wrap it all up – You and I could have likely, in the recent and distant past have had relatives that were very wealthy.  However neither we nor our parents benefited because more than likely there was no Legacy Planning.  The best example of family Legacy are the Monarchs in the various countries that still have Kings and Queens.  That’s family history that can be traced for centuries past.  Tuscany, a region in Italy has generational wealth that spans over 600 years a study shows.  That is over 25 generations of wealth.  It was shown that the same families that were wealthy 600 years ago are the same families that are wealthy now in Tuscany.  They are mostly in the same family business of wine making that has been passed down for centuries and vision and Legacy preserved.  Another reason for wealth loss is that many individuals hide their wealth ‘too well’.  There are currently billions of dollars in unclaimed monies in dormant accounts around the world.  All these unclaimed monies will eventually end up in governments’ pockets and not in the hands of the owner’s rightful descendants. Legacy Planning is not just about writing a will but preparing so that no one with your last name will ever suffer again financially in the future.

 

Type ‘Legacy’ in the comments if you have read all the way to the end.  It shows who are really ready to do the hard work and learn what is necessary to become a TWS.  Also please share with a friend or family member who you wish to see succeed.

Stay tuned next week as I will publish step Ten of the ten steps on how to make it in the third world.

Our actions now will determine future results.

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