In general, I wouldn't post just a quote, but it so perfectly addressed the question...
From Hayom Yom (29th of first Adar), written/compiled by the Lubavitcher Rebbe:
In responding to L'chayim there are two versions:
- L'chayim Tovim Ul'Shalom, "for good life, and for peace." The reason for this blessing is that the first time drinking wine is mentioned in the Torah, there were undesirable results. "Noach began etc."1 also, the Tree of Knowledge was a grapevine.2 Therefore we extend the blessing that this wine be for a good life.
- The Maggid of Mezritch used to respond L'Chayim VeLivracha. Once at a Farbrengen, the Alter Rebbe responded L'Chayim VeLivracha. After the Farbrengen Chassidim discussed this expression, which they heard then for the first time.
One chassid proposed: Since "When wine enters, the secret comes out,"3 which in Avoda signifies that the emotions are revealed, we need a B'racha for this; the expression is L'Chayim VeLivracha, and "Livracha" may be read, Leiv Raka, a sensitive heart.
The Tzemach Tzedek commented: Such an interpretation could be proposed only by a Chassid who has Davened and labored in Avoda for thirty years.
1: Also translated as "Noach corrupted himself" or "profaned himself" or "degraded himself." Bereishit 9:20.
2: See Tikunei Zohar, Tikun 24.
3: Eiruvin 65a.