How to leave a meaningful legacy

Annual lifetime giving helps your heirs when they need it most

10 Jan 2020

Inheritance sits at the intersection of two taboo subjects, money and death, so it’s little surprise that many families choose to put it off as long as possible. According to “Begin before the end”—a UBS Investor Watch survey of nearly 3,000 US investors—only 54% of benefactors have discussed their inheritance plans with their heirs and just 34% have disclosed the size of their estates.

The most-cited reason for putting off the conversation was a lack of urgency, followed closely by the potential negative influences of inherited wealth.

Our data on inheritance suggests another pattern of procrastination: annual lifetime gifting is a less commonly used tool than end-of-life bequests. But contrary to the popular image of heirs and heiresses as “trust-fund babies” in their 20s and 30s, the bulk of wealthy families’ inherited assets go to heirs in their 50s or 60s.

Setting aside estate and tax planning considerations, are end-of-life bequests the ideal distribution schedule for benefactors, or for their heirs? Said another way, would you choose this end-of-life bequest model for leaving wealth to your family?

Key takeaways

  • Nearly half of benefactors have yet to discuss their inheritance plans with their heirs, according to a UBS survey of almost 3,000 American investors.
  • Contrary to the popular image of “trust-fund babies,” most heirs receive their inheritances as a lump sum in their 50s or 60s.
  • Annual lifetime giving—giving in smaller increments, at important milestones, while you’re still alive—can have the greatest impact on your heirs.

Identifying your Legacy goals

The Liquidity. Longevity. Legacy. (3L) framework helps us sort out how much we need to fund our lifetime goals (the Liquidity and Longevity strategies), which in turn helps us identify which assets we can safely earmark for improving the lives of others (the Legacy strategy).

While the dollar amount is helpful, we still need to decide what we want to accomplish with this wealth—making sure that we pass along as much as possible to our loved ones and as little as possible to the IRS.

Before solidifying your Legacy strategy, it’s important to ask yourself four questions (and, ideally, discuss them with a trusted financial advisor):

  1. How much do I want to give?
  2. When should I make the gifts?
  3. How transparent should I be with my heirs?
  4. How can I make my gift more meaningful?

Making gifts more meaningful

Although the word “meaningful” can sometimes refer to size, it’s important to note that bigger isn’t necessarily better.

First, economic theory tells us that multiple small gifts are better than a single large gift (of equivalent value) due to “diminishing marginal utility” (e.g., the first doughnut is far tastier than the twelfth).

Second, though delaying your gift will allow you to give more without risking your retirement plans, the truth is that giving money to adult children in their 50s or 60s is unlikely to make a significant difference in their lives. Perhaps it would allow them to shave a year or two off their working years, or provide them with a little wiggle room in retirement—but that’s hardly the most meaningful impact your hard-earned savings can have on your heirs.

On the flip side, giving money to children when they’re too young can be “life-changing” in all the wrong ways. Most parents thus want to give their kids the tools and freedom to take risks, but not so much wealth, so early, that it becomes counterproductive to achieving their goals. 

The answer: Give while you live

Taking the financial and nonfinancial elements together, it makes more sense to view inheritance as a lifetime exercise, rather than something to bequeath with death.

Perhaps most importantly, giving while you’re still alive allows you and your family members to enjoy the impact of your wealth. It’s not only a boon for you, but also for your family, because it gives you the opportunity to direct your hard-earned wealth to making your family’s life a little easier—helping them buy their first home, pay for their kids’ education and many more opportunities that provide a greater benefit than waiting until you’re no longer around.

To learn more about leaving a meaningful legacy, download our UBS Investor Watch report: Begin before the end.

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Learn more about the benefits of annual lifetime gifting