Matthew Davis, CFP®
If You Don't Fly First Class, Your Heirs Will
Updated: Dec 8, 2022
Co-founders Matt Davis and Hannah Boundy share why a legacy well lived is just as important as a legacy well left and how to build one.
Hannah: Hello, everyone. My name is Hannah Boundy, and I’m here with Matthew Davis today, talking about living legacies and the great wealth transfer. One of the things we talk about often with our clients is not only what type of legacy they’d like to leave, but what type of legacy they want to live, and to help illustrate that point, we like to make the joke that if you don’t fly first class, your heirs will.
What we mean by this is that often, individuals will spend a lifetime working hard, saving, being thrifty, investing well, and when it comes time to finally retire, they’re unable to change those really helpful habits, and they end up leaving all of their wealth to heirs who may be more than happy to live extravagantly and spend the money they inherited flying first class. Before we dig into what it might look like to fly first class yourself, Matthew, within the financial services industry, there’s a lot of talk right now about what people are calling the great wealth transfer. Would you share with us a little bit more about the great wealth transfer and why having a living legacy plan is so important to begin with?
Matthew: Of course. The Great Wealth Transfer is a term being used in the news and in the financial services industry to describe the movement of assets from the Baby Boomer generation to their heirs. By some estimates, that transfer of wealth may be anywhere between thirty to seventy trillion dollars in the coming decades. Now there are a lot of implications regarding such a large transfer of wealth. There are estate planning implications and tax implications and things that we, as advisors, want to be mindful of when it comes to how wealth is both passed on and inherited.
But more importantly, we think there should be a conversation about how that wealth can be enjoyed and best utilized first. It’s why we like to say a legacy well lived is just as important as a legacy well left.
Hannah: Exactly. And for us, what that really comes down to is defining your goals and then allocating your wealth to ensure that you can meet your goals, live financially secure, and freely enjoy the wealth you’ve worked so hard for. Matt, could you tell us a little bit more about that process?
Matthew: Absolutely. When we think about the Great Wealth Transfer and the benefits of legacy planning, what we’re really trying to do is help you allocate for your goals. A lot of the clients that we work with are really trying to answer this fundamental question: How much? How much do I set aside for my basic needs? How much do I leave to my kids? How much do I donate to this cause or to my donor-advised fund or family foundation? We want to help our clients create an allocation plan for their wealth that allows them to effectively meet their goals while giving them confidence in their financial stability and security. And for us, that conversation always begins with a financial plan. When it comes to prioritizing your goals, knowing that you have enough to cover your basic needs should be at the top of the list. So we always begin with that question first: how much do you need to live off of, and what does it look like for us to invest those assets with that goal in mind?
Once we know how much needs to be allocated to that need, we start to move to your other priorities. What are the ways that you want to enjoy your wealth? For some, that’s a vacation budget or maybe even a vacation home, and so we build that into the analysis. We start to look at how much needs to be allocated to your passions and hobbies and what’s the best way for you to access those assets in an efficient and effective manner. We talk about what kind of impact you want to have while you’re still alive and what the best options are for doing that.
Hannah: And that’s a really great point, Matt. A lot of time, people think their legacy is something that is left – it’s executed and enjoyed after the fact. But for us, legacies are something you build in the present, and especially for our charitably minded clients, not only is that something they get to enjoy and see the fruits of while they’re still able, but it’s also a great opportunity to be efficient.
Matthew: That’s right. One of our greatest planning tools when it comes to higher levels of net worth is charitable giving. We are very big on tax planning and tax efficiencies, but there does come a point when those strategies become more and more limited. One of the strategies though, that almost always remains on the table is the ability to leave a philanthropic legacy and do so while making the most of the tax advantages that go along with being generous. And so a big part of our analysis is looking for opportunities to make the most of those gifts when they occur and also making sure that those activities align with the rest of the plan – we want to make sure that we’re giving the right amounts and utilizing the right accounts.
And then, we finally shift our attention to the legacy you want to leave behind, and we turn our attention to questions like “who do you want to take care of? And what's the best way to do that?”
Hannah: Can you tell us a little more about that process?
Matthew: Definitely. At this point, we really need to make sure we understand the legal implications of your legacy, and so our estate review is really just that – it's a review of your existing estate documents in light of the estate laws that govern your state. Our team looks for gaps in the planning, areas that may be out of date and need to be updated, and then we make a recommendation with what we think needs to happen to ensure that your whole legacy plan is cohesive and will be effective.
Hannah: But that’s not where the process ends.
Matthew: No. You can have a really well-written plan, but if you don’t have the tools to implement it, it ends up being entirely ineffective. So once we’ve pulled together our analysis and recommendations, we walk you and whoever you’d like to be involved through the whole plan. This may entail a review with you and your spouse and then a family meeting where we walk your heirs through the plan as well – whatever you prefer. And then we have a conversation about your thoughts, what you’d like to see implemented, and what kind of timeline you want to have, and then we partner with you to implement the plan. Legacy planning is a very dynamic activity – something we want to be updating from year to year as your life changes and the economic environment changes – and so it’s something we want to be constantly tweaking and updating so that you can continue to enjoy “first class” so to speak and really lean into whatever it is you want your living legacy to be.
Hannah: Definitely. Thanks for walking us through that, Matt. It really is such a helpful process and one that we think everyone can benefit from. If it’s something you’re interested in, we invite you to schedule an introductory call with us. We would be happy to help you craft and execute your own living legacy. I’m Hannah Boundy with Matthew Davis here at Sherwood Financial Partners. Thanks for watching.