When most people think about legacy planning, they focus on estate documents, trusts, and tax strategies. While these elements are important, there’s another critical component that often receives less attention: how your investment strategy supports and enhances your legacy objectives.
As a Certified Financial Planner™ professional, I’ve observed that truly effective legacy planning requires thoughtful alignment between how assets are invested today and how you intend them to benefit others tomorrow. Your investment approach isn’t separate from your legacy plan—it’s an essential part of it.
The Legacy-Investment Connection
Your investment strategy and legacy goals share a fundamental relationship. The way you structure, grow, and manage your investments directly impacts:
- The assets available for inheritance and charitable giving
- The tax implications for your beneficiaries
- The sustainability of your legacy over time
- The ability to accomplish specific legacy objectives
Let’s explore how to intentionally design an investment approach that serves your unique legacy vision.
Tailoring Investments to Different Legacy Objectives
Different legacy goals often require different investment approaches:
Family Inheritance
If providing for future generations is your primary goal, consider these investment approaches:
- Growth-oriented portfolios for multi-generational wealth: For assets designated for grandchildren or later generations, a higher allocation to growth investments may be appropriate, as the longer time horizon can absorb market volatility.
- Tax-efficient investment selection: Investments generating qualified dividends or long-term capital gains can reduce tax burdens for inheritors, particularly in taxable accounts that will receive a step-up in basis.
Case Study: For a certain family in the Finger Lakes region looking to build wealth across multiple generations, we created a “legacy bucket” within their portfolio specifically designated for future generations. This portion emphasized growth investments with lower current income and higher appreciation potential.
Charitable Objectives
For those with philanthropic intentions:
- Appreciated securities strategy: Intentionally holding highly appreciated securities for charitable donation, avoiding capital gains taxes while maximizing the deduction.
- Income-focused investments for charitable remainder trusts: When establishing a charitable remainder trust, investment selections that generate reliable income can provide for both the income beneficiary and ultimate charitable beneficiary.
Case Study: For another client who was passionate about supporting a local university in upstate New York, we implemented a strategy of donating highly appreciated technology stocks to their donor-advised fund. This approach eliminated potential capital gains taxes and maximized their current tax deduction.
Special Needs Planning
For families with special needs dependents:
- Stability and income for near-term needs: Special needs trusts intended to provide ongoing support may emphasize stability and reliable income over maximum growth.
- Inflation protection: Since special needs support often extends for decades, incorporating investments with inflation-protection characteristics becomes crucial.
Case Study: For a young couple who just became parents of a child with special needs, we structured a two-pronged investment approach: a conservative allocation for expenses anticipated in the next decade, alongside a more growth-oriented strategy for assets intended to provide support in their child’s later years.
Strategic Investment Vehicles for Legacy Planning
Beyond traditional portfolio allocation, specific investment vehicles can enhance your legacy planning:
Life Insurance as an Investment Alternative
While not traditionally viewed as an investment, permanent life insurance can function as a powerful legacy planning tool with unique advantages, for those who have a primary need that includes insurance:
- Tax-free death benefit: Creates an immediate, income-tax-free legacy
- Protection from market volatility: Death benefit generally unaffected by market performance
- Simplified wealth transfer: Avoids probate and transfers directly to beneficiaries
For certain legacy objectives, allocating a portion of investment assets toward premium payments can produce more efficient results than traditional investment approaches.
Family Limited Partnerships and LLCs
These structures can serve dual investment and legacy purposes:
- Centralized investment management: Allows for professional management of family assets
- Educational opportunities: Creates a framework for involving the next generation in investment decisions
When structured properly, these entities can simultaneously serve as an investment vehicle and a legacy planning tool.
Balancing Current Needs with Legacy Goals
One of the most common challenges is balancing investments for current income needs against legacy objectives:
Time-Segmented Bucketing
This approach divides your portfolio into distinct time horizons:
- Current needs bucket (1-3 years): Conservative investments focused on stability and liquidity
- Intermediate bucket (4-10 years): Moderate growth with some income generation
- Legacy bucket (10+ years): Growth-oriented investments for long-term legacy objectives
This strategy allows for appropriate risk-taking for legacy assets while ensuring current needs are securely addressed.
Asset Location Optimization
Strategic placement of investments across account types:
- Tax-deferred accounts: Often best for assets generating ordinary income
- Roth accounts: Ideal for highest-growth investments with long-term legacy potential
- Taxable accounts: Typically best for tax-efficient investments that may benefit from step-up in basis
This approach can simultaneously support current income needs and legacy efficiency.
Legacy-Aligned Investment Governance
How investment decisions are made can be as important as the investments themselves, particularly for assets intended to benefit multiple generations:
Investment Policy Statements with Legacy Provisions
A comprehensive investment policy statement should include:
- Clear articulation of legacy objectives
- Guidelines for balancing growth, income, and preservation
- Frameworks for adjusting the strategy through different life stages
This documentation provides critical continuity for your legacy intentions.
Taking the Next Step
If you’re interested in better aligning your investment strategy with your legacy objectives, consider these actions:
- Clarify your legacy goals in specific, measurable terms
- Review your current investment approach through the lens of these goals
- Identify disconnects between investment strategies and legacy objectives
- Explore investment vehicles specifically designed for legacy purposes
At Heritage Lake Advisors, we specialize in creating integrated approaches where investment strategies and legacy planning work together seamlessly. By thoughtfully aligning these elements, you can create a more powerful, efficient, and meaningful legacy.
