Showing Some Legacy
These days you don't have to be rich to leave a legacy.
(MONEY Magazine) – This November a movie called The Ultimate Gift will hit theaters. It's an adaptation of the best-selling book about a billionaire, to be played by James Garner, who forces his grandson to learn the value of helping others before he can claim his inheritance. Along the way the young man learns that there's more to life than money, and other truths his gramps wants to be remembered for.
Maybe it'll be just another three-hankie weeper. Maybe it'll win an Oscar. But for now, the most interesting thing about the movie is that it is endorsed by the Financial Planning Association. The group's sponsorship reflects Americans' growing interest in legacy planning, in which you set aside some money in your will for a cause that's important to you.
Garner's character did what more and more Americans are doing: making sure the money they leave behind does more than pad their progeny's bank accounts. Instead they want their bequests to become a force for good, in their kids' lives or in the world.
Rich folks aren't the only ones doing this, says James Barnash, the chairman of the FPA. According to the Giving USA Foundation, charitable gifts received through bequests grew to $19.8 billion in 2004 (the latest year for which figures were available), a 6.4% jump from the previous year, and more and more upper-middle-class folks got their feet wet. "A lot of nonprofits have been very aggressive about letting people know that everyone has some assets they can leave," says Stacy Palmer, editor of The Chronicle of Philanthropy. "And it's paying off."
One reason that this trend--setting a higher goal for one's inheritance--has reached the middle class, I believe, is that in a time when many people have made a lot of money very quickly, they're looking for a way to find fulfillment through giving. "We live in this age of abundance," says Ross Levin, a financial adviser in Edina, Minn. who has done legacy planning for many of his clients. "The problem is, even though people have a lot, they aren't any happier. So they're trying to find meaning in their lives, and one way to do that is by doing something for others."
These days it's not just how much money you give but why. Ethical wills, for example, are on the rise. While a traditional will tells your loved ones (and the legal world) what you want them to have, an ethical will (which is not a legal document) tells them what you want them to know, explains Susan Turnbull, founder of Yourethicalwill.com. There are no rules on length--it can be anything from a letter to a memoir. Often it provides a personal history (a series of important stories, not a dry list of events), messages to your loved ones about the values that you want them to carry on, information about where the money you're passing on comes from and your hopes for what it will accomplish. If you're having trouble, says Turnbull, speak your wishes into a tape recorder as if you're talking to a friend or a child. (Your child, for example.)
As I learned a few years back, giving doesn't just feed the organization you're supporting. It feeds your financial soul. In MONEY's 2002 survey on money and happiness, conducted by Roper ASW for my book The 10 Commandments of Financial Happiness, we found that people who regularly make charitable contributions are happier, more confident and more content than those who do not. And a legacy, rather than sporadic donations, is one of the best and most meaningful ways to be generous. So what do you need to do to leave a legacy of your own?
• Explain Yourself. Your kids might assume they're getting everything--an assumption that is, to be fair, probably based on common practice. If you decide to leave some money to charity instead, it's important for them to understand your reasons. Don't leave them wondering what you were thinking. Talk to them now. To drive home your point, invite your kids to share your cause. Bring them to a benefit or a board meeting, or on a tour of a hospital where you want to help raise funds for a new wing. When they see your passion, they'll understand. (If they don't, you'll be even more certain you've made the right decision.)
• Do the Math. You could, in fact, begin your legacy while you're still alive by simply giving money to charity. But first you have to establish that you--and your heirs--don't need those funds to live, says Levin. The Retirement Planner at cnnmoney.com/tools shows how much you can expect to need. Levin says you should be able to comfortably live off 5% of your assets for 30 to 40 years. So if, for example, you figured that you need $50,000 annually to live during your retirement, you'll need $1 million in investments (barring other sources of income). Anything above and beyond that you can think about putting toward your charity of choice.
• Pick a Cause. This is the fun part. Sit down with your spouse or siblings and talk about the values and beliefs you want to preserve, says Pamela York Klainer, a Rochester, N.Y. financial adviser who specializes in legacy planning. Then match it with an organization. It could be a museum, a school, a group for which you volunteer--whatever captures the way you want to be remembered.
Editor-at-large Jean Chatzky appears regularly on NBC's Today. Contact her at email@example.com.
HOW TO AVOID THE HILTON SYNDROME
Three tools for supporting a cause other than your kids' lifestyle
Charitable Remainder Trust
• What it lets you do: Begin charitable giving while still drawing an income
• How it works: You decide how much you want to give, how long you want to receive the income and what percentage of the investment you want as income. For example, you could set up a charitable remainder trust for $500,000 and arrange for it to pay you 8% a year for 20 years. After that, the remainder belongs to the charity. Bonus: You get a sizable one-time tax deduction.
Charitable Lead Trust
• What it lets you do: Give to charity and leave an inheritance to your kids
• How it works: You invest a certain sum, with the income stream going to charity today. When you die, the remainder goes to your heirs. The contribution you make can be significant: Set up a $500,000 trust, for example, and arrange a 5% annual annuity payment to a charity for 20 years. You'll get a fat one-time charitable deduction; for tax purposes, the value of the gift to your heirs will total much less than the initial sum.
• What it lets you do: Set aside money earmarked for charity even before you're absolutely sure where you want to donate it.
• How it works: Donor-advised funds, which are typically run by major mutual fund companies or community foundations, allow you to make large gifts to the fund--and take the large tax write-off--in a particular year, all at once, rather than over the life of the gift. Then you can disburse the money over a period of years, once you've decided what your mission is.