April 19, 2024
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Multi-Generational Legacies with Life Insurance

The formal definition of a legacy is either: “a gift by will, especially of money or other

personal property” or “something transmitted by or received from an ancestor or predecessor or from the past.” Informally, a legacy is often defined as “whatever I want to be remembered for.”

In the torrent of financial information that rains constantly on consumers, the topic of legacy planning doesn’t get much front-page attention, but well-executed legacy plans are powerful financial events. They not only enhance the memory of the providers, but can be catalysts for generations of future prosperity. American culture may idealize the virtues of the self-made men or women who start with nothing and accumulate great fortunes, but all things being equal, recipients of financial legacies have a decided long-term advantage when it comes to stability and prosperity.

When exposed to the idea, most people respond favorably to the legacy concept; we can readily see the value and satisfaction that comes from giving to loved ones or charities. The real challenge in legacy planning is not convincing individuals to give, rather the issue is making sure there is something left to pass on.

Although some legacy transfers may take place while the owner of the assets is still alive, most legacies are transacted at the death of the giver–because the owner is done using them! Yet so many things can happen from the time someone declares an intention to leave a legacy to when the transfer is scheduled to occur, i.e., the assets might lose value or be destroyed. If the donor experiences financial difficulties, assets designated to a legacy may have to be liquidated. When expenses from one’s final illness or medical condition consume a lifetime of savings, it is all too easy for heirs and charity to receive nothing. Legacies with no assets become disappointments; they are hopes that die, for the giver and recipient.

Considering these challenges to taking a legacy from idea to reality, life insurance can be a very effective financial tool. For a proportionally minimal fixed cost, a specific benefit will be delivered at precisely the right time. These features, inherent in life insurance, provide a much higher level of financial certainty for both legacy donors and recipients. The giver knows the legacy is funded, freeing him/her to spend other assets if necessary–there is no concern that spending today is shortchanging a future gift. For recipients, the certainty of a future asset provides immediate benefits, in that today’s financial decisions can be integrated with specific expectations for the future (i.e., “because we know there is a legacy on the horizon, we can confidently take this action today”).

The next step: Insuring future generations

If one understands the power of life insurance to fund financial legacies, ambitious future-oriented donors may want to multiply the benefits by purchasing life insurance for successor generations. Financially secure parents can obtain life insurance on themselves, and also on children and grandchildren, extending financial certainty across several generations. Not only will there be a legacy transfer when the first generation passes, but also when children and grandchildren are gone.

The financial ripple effect of this approach is mind-bending. A decision today can conceivably deliver returns 70 or 80 years into the future. If the current generation is constantly securing life insurance for future generations, the result is a perpetual legacy machine, providing future generations with valuable financial capital.

Successful execution of this type of life insurance program requires considerable planning. Policies may need shortened premium schedules, in which all premiums are paid in a 10- or 20-year period. Proper titling of the policies for ownership, beneficiary, and tax purposes may require the establishment of trusts or other legal agreements. And because the benefits are staggered over a long period, review and ongoing adjustment should be expected.

While attempting a multi-generational legacy plan is an ambitious undertaking, it is certainly doable–even for families with modest financial resources. Premiums and policy benefits can be adjusted to match circumstances; even policies with modest death benefits can have a big legacy impact. And when it comes to selecting a financial vehicle that can last long enough to deliver these far-in-the-future benefits, life insurance companies have a strong track record; many modern-day insurers have been in existence for more than a century.

The majority of financial commentary regarding life insurance focuses on providing benefits to immediate family members–a surviving spouse, children–and rightly so. In that context, life insurance provides essential financial protection. But when it comes to delivering material blessings to future generations, life insurance can also be a powerful financial vehicle.

Elozor Preil, RICP®, CLTC is Managing Director at Wealth Advisory Group and Registered Representative and Financial Advisor of Park Avenue Securities LLC (PAS). He can be reached at [email protected].

See www.wagroupllc.com/epreil for full disclosures and disclaimers. Guardian, its subsidiaries, agents, or employees do not give tax or legal advice. You should consult your tax or legal advisor regarding your individual situation.

By Elozor M. Preil

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