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Purposeful Estate Planning – An Eye on the True Target

When parents are asked “What is the last thing you want your child(ren) to do when they receive their inheritance”, the overwhelming response is “Buy a car”.

The average time an inheritance recipient waits before they buy a new car: 19 days
– The New Car Dealer Association

Clearly, that message is not getting through to their child(ren).  Why not?

A sudden influx of money, regardless of the amount,

does not build character, it reveals it.

Unfortunately, the vast majority of families focus on the transfer of their financial and material wealth, and spend little, if any, time consciously working on the transfer of their Human and Intellectual Wealth. It is precisely this Human and Intellectual wealth that creates the character required to be good stewards of the financial inheritance. Purposeful estate plans support a family’s efforts to build and endow future generations with Human and Intellectual wealth.

 The estate planning process as we know it fails almost every family that engages in it.

Can anyone truthfully consider the failure of 9 out of 10 families to sustain their wealth through 3 generations a success? The failure rate is so high because the typical estate planning process is almost entirely focused on minimizing the tax burden during a generational transition, the least important aspect of a family’s legacy. Purposeful estate planning supplants this inferior approach with a focus on facilitating an effective transition of Human and Intellectual capital from one generation to the next. In fact, in some cases, a purposeful estate plan might be the least efficient plan from a tax perspective. But,

What’s more important to you:
Minimum Tax Liability, or Maximum Benefit for Heirs?

The two are not the same, and in many cases, they are mutually exclusive. Andrew Carnegie wrote to a friend:

The parent who leaves his son enormous wealth generally deadens the talents and energies of the son,
and tempts him to lead a less useful and less worthy life than he otherwise would.

The truth is, there is no correlation between the ability of the founder to make the fortune and the ability of the child(ren) to develop a healthy relationship with it.

Consider this quote from William Vanderbilt, grandson of the Commodore, who, after spending his life in a manner that can only be described as excessively lavish, wrote to a cousin:

My life was never destined to be happy. Inherited wealth is a big handicap to happiness.
It is as certain death to ambition as cocaine is to morality.

Ironically, Vanderbilt’s team of professional advisors was entirely focused on preserving his vast fortune through legal and financial means. They had no concern for their client’s children, a shockingly familiar characteristic of today’s financial and legal advisory “professionals”.

What do we mean by Purposeful Estate Planning?

At its core, purposeful estate planning is values-based planning. It embraces a holistic approach to the legal planning process. But rather than focusing on the tax efficiency of a plan, it focuses on questions such as:

  • How do I establish a plan for the future, and therefore unknown, without handicapping the efforts we’ve already expended to build and cultivate our family’s human and intellectual capital? Establishing a flexible plan is a critical component to the purposeful planning process. This is due in large part because a family’s legacy is defined over multiple generations, which means the plan itself must be far-sighted, but at the same time, not overly rigid.
  • How do I encourage future generations to pursue entrepreneurial aspirations and provide for them if they so choose, without jeopardizing the family’s unity or financial security if an endeavor fails? Let’s face it, the majority of wealth in this country is created by entrepreneurs who take massive risks. They often espouse risk-taking values, such as overcoming long odds, working hard and ethically, and winning despite a highly competitive environment. These are experiences and values that mold them, and they generally want to provide the same opportunities for future generations. Moreover, one of the biggest hurdles to business formation is a lack of capital. But they also recognize that, despite being an asset to an individual’s growth, failure is a likely outcome that could cripple the family’s financial independence, and ferment animosity within the family. Striking that fine balance between passing on their values without destroying their family and their legacy in the process is no easy task.
  • Which philanthropic vehicles are going to simultaneously support my desire to give back, and my desire to use the vehicles for the benefit of my family? As we discuss in greater detail in Philanthropic Planning, philanthropy is one of the most common tools a legacy-minded family will use to develop, nurture, and perpetuate their Human and Intellectual wealth. But there are dozens of options, all of which have their own unique characteristics, and therefore, have their own unique relationship to a family’s estate planning goals.
  • How do we accommodate the inevitable conflicts that will arise over time? Conflict is a natural human experience, and should be anticipated, not ignored. In fact, conflict, when handled correctly, is a valuable and beneficial experience for the family. We know many families who are more closely united today as a result of conflicts they were able to overcome.

Purposeful Estate Planning is more than just the estate planning documents.

The estate planning documents are merely the written manifestation of the family’s overall estate planning process. In fact, purposeful estate planning typically includes some or all of the following components:

  • A Family Vision Statement. This might include the family’s history, culture, shared values inventory, and an effort to define how the family sees itself as individuals, a family unit, and as a member of their community in general.
  • A Family Constitution.  This might spell out how the family is governed, how it’s meant to operate and communicate, family members’ obligations and rights, and conflict management.
  • Family Meetings. Many families hold periodic (annual or bi-annual) meetings, during which they conduct family business. If these meetings are held, one of the most important aspects is social and recreational time together, which gives the family a chance to rebuild bonds, interact in a casual, non-threatening environment, and have fun in the process.

We are not attorneys, and therefore, do not prepare the estate planning documents. We do, however, have a tremendous amount of experience working with families to help them answer these questions, and develop a purposeful estate plan. We work with a number of like-minded attorneys, and are happy to have the opportunity to be part of a client’s team of advisors as they undertake this endeavor.

If you’re interested in learning more about the various components that go into the Purposeful Estate Planning process, we encourage you to review the following sections:

  • Values – A family’s values embody the foundation of the family’s wealth. Values give the family direction and support. Values are a family’s DNA. Extracting the underlying, often hidden, values requires a purposeful process that goes beyond a brief consideration and simple conversation. Family values are simultaneously the family’s values collectively, as well as the values of each individual within the family.
  • Human and Intellectual Wealth – Family legacies are often described in terms of a family’s material wealth, but they are established, nurtured, and sustained solely by their human and intellectual wealth. Legacies cannot be guaranteed or mandated, because the obstacles to creating a lasting legacy abound. But there is one obstacle that rises above the rest in terms of its ability to separate the 1 out of 10 family from the other 9: The transition of Human and Intellectual wealth from one generation to the next.
  • Philanthropic Planning – Philanthropic planning has a clear benefit for the community. But legacy-minded families also realize that philanthropic planning is one of the best tools a family can use to perpetuate both human and intellectual wealth within its own family. In most cases, when philanthropic planning is used to benefit both the family and the community, the benefit to both is even greater than it would be if the family was doing it purely for the benefit of the community. There is indeed a selfish side to philanthropy.

If you want to learn more about the importance of purposeful estate planning, find yourself asking any of the above questions, or have your own questions and would like answers, we encourage you to contact us only to answer your questions, not to sell you our services.

If you’re not ready to contact us but would like to learn more about the importance of purposeful estate planning, we encourage you to review the following resources:

Books

  • Your Legacy: Meaningful Estate Planning by Steven R. Owens, J.D.
  • Preserving Family Lands, by Stephen J. Small
  • The Legacy Family by Lee Hausner and Douglas Freeman
  • Wealth in Families by Charles Collier
  • Family Wealth: Keeping it in the Family by James E. Hughes Jr.
  • Preparing Heirs: Five Steps to a Successful Transition of Family Wealth and Values by Roy Williams and Vic Preisser
  • Strategic Giving by Peter Frumkin
  • Understanding Philanthropy: It’s Meaning and Mission by Robert Payton
  • Inspired Philanthropy: Your Step-by-Step Guide to Creating a Giving Plan and Leaving a Legacy by Tracy Gary
  • Raising Charitable Children by Carol Weisman

Websites

  • www.purposefulplanninginstitute.com – Promotes an estate planning process that focuses on the Human and Intellectual wealth that families possess.
  • National Center for Family Philanthropy – Promotes philanthropic values and excellence across generations of donors and donor families.
  • Wealth and Giving Forum – Organization of individuals and families of significant means created to promote greater generosity and serve as a resource for its members when making philanthropic decisions.
  • The Chronicle of Philanthropy – A leading subscription-based newspaper for the leaders of non-profit organizations, especially those that rely on external donors for funds.
  • Giving Institute – Educational resources for those providing counsel to non-profits, including research, advocacy, and best practices studies.
  • Foundation Source – Provider of outsourced support solutions for private foundations.