Living Longer, Giving Smarter: How to Leave a Legacy Without Sacrificing Security

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5 minute read time.

What does it mean to leave a legacy? For some, it might mean supporting your children as they look to purchase a first home. For others, it might mean making a meaningful impact on a cause close to your heart. But, for all of us, one thing is important – and that’s striking the right balance between generosity and your own financial security.

Nearly 80% of pre-retirees and retirees say they want to prioritize charitable giving in retirement, but with rising longevity and concerns about outliving savings, how do you figure out how much you can truly afford to give without putting your own future at risk?

Enter Russell James, J.D., Ph.D., CFP, a nationally recognized expert on charitable giving and legacy planning. Dr. James is a professor in the Department of Personal Financial Planning at Texas Tech University, where he leads the graduate program in Charitable Financial Planning. He recently joined Your Money Map to discuss why giving back matters so much to retirees – and how to do it with confidence.

THE GIVING LANDSCAPE: WHAT’S CHANGED…AND WHAT HASN’T

Over the years, James has watched giving trends shift in response to demographic changes. One of the big ones? Family dynamics. “The new generation of those who are at or approaching retirement age is dramatically more likely to be childless as compared to previous generations,” says James.

Other giving-related habits have remained steady. Many people still make what James calls “pat on the head” donations – small gifts to organizations they’ve long supported. When it comes to larger, more significant gifts, they tend to share three qualities: they’re meaningful, visualizable, and permanent.

James notes this isn’t new. “There was one study of wills in the 1800s that found that the large gifts were the ones that would come with more instructions. What specifically were they going to be used for? What specifically were they going to accomplish?” He explains that donors continue to be more likely to give generously when they can clearly envision the impact, such as funding a scholarship or establishing a lasting endowment.

Russell James, J.D., Ph.D., CFP®, Professor of Charitable Financial Planning at Texas Tech University

AVOIDING PLANNING? YOU’RE NOT ALONE

Despite the desire to give, many people delay legacy planning. “Anything that reminds people of their own mortality, the most common reaction you get is to just avoid it,” James explains. “The problem is that those kinds of reactions then lead to, essentially, people not engaging in any planning.”

As James shares, hundreds of experiments have demonstrated that when people are reminded of their own mortality, they exhibit two distinct responses. The first is avoidance. The second is pursuing “symbolic immortality.” That’s when a person realizes they won’t be here forever, but wants to create an impact that will outlive them.

FINDING THE MOTIVATION TO START

For many, the idea of lasting impact can be the push they need to begin. “Through planning, we can make an impact that can continue on for an extended period of time, whether that be through charitable causes or the impact that we might have on our family and heirs,” shares James. “That’s where we really get the motivation to try to engage in that planning.”

But motivations differ. For some, it’s about avoiding taxes. “The idea of if you don’t plan, then the government’s going to take a big chunk of what you’ve got…there are a lot of people who are highly motivated by that reality, and so they’ll go ahead and get past the desire not to plan,” says James, explaining that even smaller estates aren’t immune to the tax bite.

Others are motivated by checking a big task off their to-do list. As James puts it, “[For some it’s] just wanting to have that peace of mind that comes when you know it’s all done,” says James. “Even if it’s unpleasant, boy, it’s going to feel better when it’s all in place.”

Major life events – like the birth of a child or grandchild, a family change, or a serious diagnosis – can also spur people into action.

STRATEGIES TO MAKE THE MOST OF YOUR GIVING

When it comes to legacy planning, James encourages people to shift their perspective. Instead of asking how much wealth you want to leave behind, ask what impact you want your wealth to have. “If we begin to think of our goal in terms of impact on the heirs…that’s a goal that we may be able to reach, and in fact, we may be able to reach that with our current level of wealth and still have more left over,” he shares. “That frees us to look at some charitable impact, some impact on causes that have been important in our lives.”

A strong financial plan is also essential. You want confidence that you can thrive in retirement while still having resources to share. “Once they get to that place, then that means part of their wealth becomes extra, and when part of your wealth becomes extra, it makes it so much more fun to use in sharing and having an impact with the family right now, in having a charitable impact and doing something for yourself, consumption-wise,” says James.

One way to create that confidence is through guaranteed lifetime income. “If you’re not protecting your asset against sort of excess of longevity, you might burn through everything and have nothing to leave for the heirs,” shares James. “If I’ve got this protection from what we would say is living too long, then that means I know that I’m going to have an amount that will be left over, whether that’s for my heirs or to accomplish charitable goals.”

And when it comes to giving to heirs, James stresses the importance of not waiting until death. Lump sums left behind are often spent quickly, especially when paired with grief. “When you leave them all the money as one lump sum right at the end of life, right when you just had the funeral, and here’s your lump sum of money, it tends to be dissipated very quickly,” he explains

THE BOTTOM LINE

For anyone ready to start legacy planning, James offers these key pieces of advice:

  • Get motivated: Whether it’s reducing taxes, checking a task off your list, or securing some peace of mind, find the driver that gets you moving. “Use whatever trick helps you to make this a priority,” shares James.
  • Leverage tax-smart giving: “One of the first things we recommend to people is, instead of giving cash, if you have appreciated securities, give those old securities to charity and use the cash to buy brand new, identical shares of stock in the same companies. It doesn’t change your portfolio at all, but what it has done is it has wiped out that capital gain from the portfolio through the giving,” James suggests.
  • Work with a pro: Legacy planning is complex, and professional guidance can help you align your generosity with your retirement security. “Financial planners can get involved with and say, Alright, let’s make that happen…here’s the way to structure this out,” adds James.

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