What You Need to Know About Giving or Getting a Financial Legacy
Whether you expect to be on the giving or receiving end of a legacy, here’s what you need to know.
By: Jessica Levy for FirstWave Financial
There’s no wrong way to leave a financial legacy — at least in theory.
In practice, both giving and receiving a financial legacy can be a complex matter. With recent changes to tax laws and specific tax regulations varying by state, getting professional help to properly handle your legacy could be more important than ever.
Giving a financial legacy requires planning and forethought
When preparing to leave a legacy for your loved ones, you may want to spend some time thinking about what you want the money to accomplish. Are you looking to give your loved one complete financial freedom? Are you hoping to help them accomplish a specific goal? Do you want to give them a financial cushion without hampering their own incentive to succeed? Do you want to support a charity or social cause?
There are multiple ways to go about placing controls on legacy assets to achieve any of these goals. That’s why it’s so important to think carefully about them and to talk to a financial advisor who can walk you through all of the possibilities. An attorney can also provide clarity about your options.
A trust, for example, offers several options to place boundaries on the money you leave behind. One possibility is to choose to distribute funds at several stages instead of all at once. Those stages can be at predetermined ages — such as half when the recipient turns 25, half when he or she turns 35 — or at predetermined stages — such as after the recipient provides proof of employment.
A great first step to setting up your estate plan is to meet with a financial planner. They can review your current situation and investments and help prepare you to meet with your estate planning attorney.
Your financial advisor can also help you to address another one of the most common concerns regarding leaving your legacy: how to do so in the most tax advantageous way possible. For example, if you’re leaving money to a charity, is it best to leave it from your IRA or from another source?
Taking into consideration current tax laws, as well as laws that are expected to go into effect in 2026, there are several ways to optimize the legacy that your loved one or the charity of your choice will actually receive. A professional advisor can go over the most current guidance with you and fully explain your options.
These are important decisions and the WealthCoaches at FirstWave Financial help clients at all stages of their financial lives transform complexity and confusion into a confident financial future for themselves and their families.
When receiving a legacy, get outside help
Receiving a legacy can feel overwhelming, especially because many children don’t accurately estimate the value of a parent’s estate. On top of the emotional overload of dealing with a parent’s passing, finding out about a larger-than-expected legacy can almost feel like a burden instead of a gift. What should the recipient do with all of that money, especially if they are in no place emotionally to process a sudden windfall?
After a blur of making funeral arrangements and adjusting to a new reality without parents, grief and exhaustion can be debilitating. To add to the cocktail of emotions, feelings of guilt about “profiting” off of a loved one’s death can prevent the recipient of a legacy from doing anything with the money, other than letting it sit.
Too often, therefore, the answer to the question of what to do with the money defaults to the worst possible answer: nothing. Unsure of the best course of action and concerned about the possibility of investing at a market peak, recipients can be tempted to just let the money stay put.
Of course, on the other side of the spectrum from those who are overcautious are those who are overzealous. These are the people who react to the unexpected money by spending it almost immediately. In fact, one-third of people who received a legacy have negative savings just two years later.
While both reactions are understandable, they are not likely to provide optimal results. By doing nothing with the money, you could miss out on investment choices that may help grow its value. By spending it immediately, you’re most likely not honoring the wishes of the departed.
The best course of action, therefore, is to seek professional advice as soon as the legacy becomes yours.
While hiring a financial planner obviously can’t take away the grief, they can help take away some of the fear or uncertainty that a client has about the financial side of things. For example, many people receiving an inheritance may immediately have to answer questions about how they want to receive the money; depending on the specific assets being passed on, you may have to choose from receiving a lump sum payout or installments, or whether to leave the money in current investment vehicles or to sell them.
You’re not in it alone
An important thing to remember is that you don’t have to — and really shouldn’t — make any of these complicated decisions alone.
After all, there is no one-size-fits-all set of rules for the best way to leave, or receive, a legacy. What’s best for you will heavily depend on the context of your situation and your own personal goals. A financial planner can help you meet them.
To schedule a conversation with a WealthCoach today, visit firstwavefinancial.com