Does the other party know about adding a legacy contact?

In this case the other party will know.

After setting the other party as a legacy contact, you will send a text message to the other party, and then you can get a secret key. After your death, you can use the secret key to access the data in the phone.

The legacy contact can use the death certificate and the issued access key to initiate a request to access iCloud, obtain the information stored on it, and transfer the digital information through photos, videos, memos, documents, personal information, etc. Leave a legacy to your loved ones.