What ‘Leaving a Legacy’ Really Means

Recently, the financial services industry has focused attention on people “leaving a legacy”, and the term has become a popular topic of media content and conversations with consumers. It’s easy to think of “leaving a legacy” as leaving an inheritance for your children, but it’s far wider than that and, in some respects, has little to do with money at all.

High-net-worth families have particular concerns about how wealth is transferred from one generation to the next because, in many cases, the wealth is squandered – one study shows that in 90% of cases the family fortune is depleted after three generations. In these families, the assets are diverse and the finances complex, necessitating the input of legal and fiduciary professionals and establishing structures such as companies and trusts.

But what of the more average, middle-class family, whose finances are less complex, where a couple may have made adequate provision for retirement but whose assets may be limited beyond serving their retirement needs?

“Leaving a legacy” for your children – and this applies to all families, rich and poor – should be less about transferring material assets than transferring intangible assets, such as knowledge and values.

Mariska Redelinghuys, legal specialist at PSG Wealth, says planning a legacy for your children is not limited to financial matters. “It is an intentional act to shape the future and ensure that the values, resources and wisdom cultivated throughout a lifetime continue to benefit generations to come,” she says.

Estate planning versus legacy planning

Redelinghuys says estate planning deals with the efficient protection and transfer of family assets from one generation to the next. “Estate planning refers to growing and protecting your assets over your lifetime and encompasses how those assets are managed and transferred after you pass away. This includes ensuring that there is enough liquidity in your estate to settle debts and to cover estate expenses, such as executor’s fees and estate duty. It also entails planning for the maintenance needs of your surviving partner, spouse or children, as well as the transfer of wealth from one generation to the next. Without a proper estate plan, you have no guarantee that your wishes will be carried out or fulfilled,” Redelinghuys says.

Legacy planning, on the other hand, delves a level deeper. “While estate planning focuses on valuables, legacy planning focuses on values. More than simply the transfer of money and property, legacy planning is about transferring wisdom and priorities, while offering guidance and support to those who follow in our footsteps,” she says.

Education is key

When clients facing retirement or in retirement ask their financial planners about leaving a legacy for their children, a wise planner will tell them that, as long as they have provided their children with a solid educational foundation on which to build their own lives, their own financial needs should come first. In other words, leaving an inheritance for children who are self-sufficient is less important than your own financial security.

The educational foundation must necessarily incorporate your children’s formal schooling, but also involves instilling in them family values and wisdoms and, importantly, notes Redelinghuys, giving them a solid financial grounding.

“The most valuable legacy we can leave future generations is financial education to equip them with the skills to build a foundation for responsible money management,” she says.

Core lessons include:
• Identifying needs versus wants.
• Practising saving and setting savings goals.
• Learning delayed gratification.
• Budgeting and responsible money management.
• Understanding debt.
• Investing and the power of compound interest.  

“Leaving a legacy is about making choices today that will help others tomorrow,” Redelinghuys says.