What Are the Different Ways to Fund Your Legacy?

Funding a legacy involves planning the management and distribution of financial resources to achieve lasting personal or philanthropic objectives. This process establishes a financial or charitable impact for future generations or causes.

Estate Planning Tools for Asset Transfer

Estate planning tools direct asset transfer upon an individual’s passing. They ensure wealth distribution according to specific wishes, minimizing complications for beneficiaries.

A will

A will outlines how property and assets are distributed after death. It names an executor and can designate guardians for minor children. Without a valid will, assets are distributed according to state intestacy laws.

Trusts

Trusts allow a trustee to hold and manage assets for beneficiaries. A revocable living trust can be altered or canceled during the grantor’s lifetime, offering flexibility and often avoiding probate. An irrevocable trust, once established, cannot be modified or rescinded by the grantor, providing stronger asset protection and potential estate tax advantages.

A testamentary trust is created through a will. Trusts offer control over how and when assets are distributed, and help maintain privacy, as trust documents remain private, unlike wills that become public records during probate.

Beneficiary designations

Beneficiary designations transfer assets for accounts like retirement plans (e.g., 401(k)s, IRAs) and life insurance policies. They directly name who receives funds upon the account holder’s death, bypassing probate and often overriding a will. Review and update these designations to align with legacy goals.

Joint ownership with right of survivorship

Joint ownership with right of survivorship is a titling method for assets like real estate or bank accounts; property automatically passes to the surviving owner upon the death of one owner. This ownership avoids probate for the asset. It may not offer the same control or tax planning opportunities as other estate planning tools.

Financial Instruments for Legacy Creation

Beyond legal frameworks, financial products and asset types can build or augment resources for a legacy. These instruments contribute to the pool of funds transferred or utilized for designated purposes.

Permanent life insurance

Permanent life insurance serves as a tool for creating an immediate estate or enhancing wealth. These policies offer a death benefit payout to beneficiaries, providing liquidity for estate taxes or funding legacy goals. The cash value component can also grow over time on a tax-deferred basis, offering a living benefit.

Investment portfolios

Investment portfolios can be managed with a long-term legacy perspective, focusing on growth and income generation. A diversified portfolio designed for long-term appreciation can increase wealth for transfer to future generations. These assets can be passed directly to named beneficiaries or held within trusts.

Annuities

Annuities can play a role in legacy funding. Annuity structures can ensure an income stream for a surviving spouse or other beneficiaries, providing financial security. While primarily for retirement income, their death benefit features can ensure a portion of the contract value is transferred.

Gifting Strategies

Transferring wealth during one’s lifetime through gifting can be a component of legacy funding. This approach allows individuals to witness the impact of their generosity and potentially reduce their taxable estate. Gifting can also provide immediate financial support to family members or charities.

Annual gift tax exclusion

Individuals can utilize the annual gift tax exclusion to give money or property to as many recipients as desired each year without incurring gift tax or affecting their lifetime gift tax exemption. For 2025, this amount is $19,000 per recipient, allowing for tax-free transfers. A married couple can double this amount by combining their exclusions, gifting $38,000 per recipient annually.

Lifetime gift tax exemption

Larger gifts exceeding the annual exclusion can utilize an individual’s lifetime gift tax exemption. For 2025, this exemption is $13.61 million per individual, meaning gifts up to this amount can be made over a lifetime without federal gift tax. Any portion used during life reduces the amount available for the federal estate tax exemption at death.

Gifting appreciated assets

Gifting appreciated assets can offer tax advantages. When gifted to beneficiaries, the recipient receives the asset at the donor’s original cost basis. Gifting these assets to a qualified charity allows the donor to claim a charitable deduction for the fair market value and avoid capital gains tax on the appreciation.

529 plans

529 plans are designed for gifting for education, allowing contributions to grow tax-free when used for qualified education expenses. They can be front-loaded with up to five years of annual exclusion gifts in a single year without gift tax, totaling up to $95,000 for an individual in 2025. This strategy accelerates funding for education.

Direct payment of medical or tuition expenses

Direct payment of medical or tuition expenses is a gift tax-free method. These payments do not count against the annual gift tax exclusion or lifetime gift tax exemption. This provision allows for support of educational or health needs without gift tax implications for the donor or recipient.

Philanthropic Legacy Options

Individuals can fund a lasting legacy through charitable giving. These strategies enable donors to support causes they care about while potentially realizing tax benefits and contributing to the public good.

Donor-Advised Funds (DAFs)

Donor-Advised Funds (DAFs) are vehicles for charitable giving, offering flexibility and tax benefits. Individuals contribute assets to a DAF, receiving an income tax deduction. The donor then recommends grants from the fund to qualified public charities over time, allowing for giving without the administrative burden of a private foundation.

Charitable trusts

Charitable trusts provide options for philanthropic giving, balancing charitable intent with financial benefits for the donor or heirs. A Charitable Remainder Trust (CRT) involves placing assets into an irrevocable trust, which provides an income stream to the donor or other non-charitable beneficiaries. Upon the term’s end, remaining assets are distributed to a designated charity, and the donor receives an income tax deduction.

Conversely, a Charitable Lead Trust (CLT)

Conversely, a Charitable Lead Trust (CLT) provides income payments to a qualified charity for a set period, after which remaining assets revert to the donor or their non-charitable beneficiaries. This structure can reduce the taxable value of assets passed to heirs, as the value of the income stream paid to charity is subtracted from the total. CLTs are useful for transferring wealth to heirs with reduced gift or estate tax liability.

Direct bequests to charities

Direct bequests to charities represent a method of leaving a philanthropic legacy. Individuals can specify in their will or trust that assets be donated directly to one or more charitable organizations. This ensures a portion of the estate directly supports chosen causes without complex trust administration.

Private foundation

For those with philanthropic aspirations, establishing a private foundation offers control and involvement in charitable activities. A private foundation is a non-profit organization funded by a single source, such as an individual or family. While it involves more administrative complexity and regulatory requirements than other charitable vehicles, it allows for direct management of charitable programs and grantmaking decisions.