When you hear the phrase ‘legacy protection’ discussed in the financial services industry, the advice areas that come to mind tend to be estate planning and inheritance tax (IHT) mitigation. And that’s perfectly reasonable given the primary dictionary definition of legacy is:
"Money or property which someone leaves to you when they die."
While I’m not denying the value of IHT and estate planning services, these tend to be more of a problem for the wealthiest in our society. Indeed, only 4% of estates are subject to IHT each year according to a recent research paper by the Government1.
So, I believe the concept of legacy for most people is something far different. I’ve researched countless quotations about legacy, and the one that resonates the most for me was said by Warren Buffett:
"Someone is sitting in the shade today because someone planted a tree a long time ago."
Business leaders will talk of wanting to create a legacy within their company. This might not necessarily mean bequeathing funds or assets, but instead creating the infrastructure and opportunity for their business to grow and enabling succession opportunities for their people along the way.
Sporting greats will also have a different perspective on what legacy means. It’s likely to be the sum of their achievements over their career, like breaking world records, or obtaining titles and setting new standards. They’ll hope that their legacy will drive inspiration for the next generation, but also that their efforts stand the test of time.
But let’s face it, most of us are not going to be running multi-national businesses or breaking the 100m sprint record. When considering the meaning of legacy, I think all parents would share a common desire for their legacy to be one which has enabled their children to succeed in life. Ensuring they’re protected from the major risks, giving them the best possible education and the necessary foundations to develop a happy, prosperous and healthy life.
Indeed, many parents will completely dedicate their working lives to earning the income they need to make these provisions for their children. But the big question is, what happens to these dreams and goals if something goes wrong during this period of income generation for the parent?
For example, take someone with 3 young children, who in their early 40s is diagnosed with a terminal illness. Just imagine how their perception of their own legacy will differ depending on whether they had the sense to adequately protect themselves with life insurance.
If they have no life insurance – and shockingly about 50% of parents don’t2 – then I would expect the final few months of their life are going to be filled with regret, disappointment and angst. Not only will their children have to deal with the grief and sadness of losing a parent, there will be a very real fear that the family will be left in a perilous state. Just think how you would feel in this situation.
The illness has not only destroyed the unfortunate parent’s life, it’s also going to have a very significant impact on the lives of the children. Perhaps the life plan is now unattainable. The ideal upbringing, education and lifestyle are all now in jeopardy. The family home might need to be sold at the very worst possible time. The legacy that has been created is almost certainly going to be negative. Instead of trying to make the most of their final few months, the parent is now is going to be massively concerned about what the future might bring for the children.
Contrast this with the parent who had the sense to ensure their life was adequately protected. It’s still going to be an awful period for the family, but there will at least be some peace of mind in knowing that there will be funds there to ensure that the life plan for the kids can still be carried out.
The parent can now spend their final few months reconfirming their hopes and dreams for their children. They might even have the opportunity to share some special moments and create everlasting memories. There’s no guilt, no shame, just disappointment that they won’t be around to see their children grow and fulfil their dreams. Their legacy will be that despite passing away earlier than they would have hoped, their children will continue to have the same opportunities in life.
So, while only 4% of families need IHT planning, I would argue that 100% of families need a different sort of legacy planning. They all have a personal legacy that needs protected. However, they might just need an adviser to educate them around this need and to convince them of the importance.
This takes me back to the quotation from Warren Buffet; by planting a tree today, or perhaps by taking out some life insurance, you can ensure your children are shaded from any harm later in life.