A true story … Father has passed. His intentions are read. His oldest, a materially successful attorney driven by a desire to be recognized and appreciated by her father, receives less than her brother, a respected teacher who was equally successful, just not in a material sense. No further explanation is given.
The result … daughter despises her father due to the disproportionate gift she received. Daughter also wants nothing to do with her brother, not because of anything her brother has done, but out of jealousy over the larger financial gift her brother received. The family is fractured beyond repair. Dad’s legacy is sadly established.
As Dad could have explained through what is known as a “Letter of Wishes” (or “Ethical Will” or “Legacy Letter”), Dad explains that his generation was not good at expressing their true feelings. Although he never had the courage or took the initiative to verbally express his pride or love for his children during their lifetime, he was extremely proud of both. He saw the success of his daughter and was very proud of her accomplishments. He was equally proud of his son and the impact he was having in educating our leaders of tomorrow. His estate structure was fueled by his deep love for both and his desire to equalize their care financially.
Although his kids may disagree with how his love was ultimately expressed, through the “Legacy Letter” each would have received what all ultimately desired … an understanding that they were loved and appreciated by their beloved family member who is now gone.
As a trustee, we have the privileged opportunity to oversee the financial legacies which people put in place for their loved ones. Surprisingly, and certainly disconcerting, is that almost all of the estate plans we oversee generally look the same, yet all of family’s we serve are so different. All too often we are left to search for the context and personal story behind the estate plan.
Consider another common scenario regarding multi-generational wealth transfer.
At some point G1 passes and likely leaves behind the material fruit of their business success to subsequent generations. Received in the context of a culture defined by material comforts, which G1 likely did not experience when growing up, the questions commonly introspectively asked when considering the transfer of meaningful wealth include:
- “Will the wealth adversely impact the personal ethic, drive and initiative which likely fueled and proved instrumental in the accumulation of the family wealth?”
- “Will the inherited wealth rob the recipient of self esteem which is commonly derived from personal accomplishment?”
Although questions like these are commonly contemplated by those with meaningful wealth, most all estate plans leave out the context, ethic, and story related to their family wealth.
When wealth suddenly appears by way of inheritance, all too often the stories, sacrifice, and values behind its creation are never told or lost. Without the context, story, or values, it is often difficult — if not impossible — for subsequent generations to appreciate the generous gift that has become their inheritance. Without an understanding or appreciation for their gift, a lack of accountability for the continued thoughtful stewardship of the wealth commonly follows. Out-of-control spending, depression fueled by lack of drive, initiative, and personal accomplishment, as well as substance abuse are symptoms, which can manifest in such situations.
Unfortunately, statistics on failed estate transfers reveal this lack of story and context behind the estate plan is a serious and dangerous issue. According to Roy Williams and Vic Presser (authors of Preparing Heirs: Five Steps to Successful Transition of Family Wealth) and recent studies conducted by The Economist and the Massachusetts Institute of Technology, the lack of successful wealth transfer is not because of the legal documents or structure being in place. Instead, 85% of failed wealth transfers are a direct result of the context, ethic and story behind the transfer not also being conveyed.
For many, a successful estate plan is one which encourages the beneficiaries to be all that they can be, to take advantage of the opportunities which the inherited wealth affords without losing their own personal identity, or completely quashing their personal desire make a meaningful difference in the world. As Warren Buffet said, to leave the next generation “enough money so that they would feel they could do anything, but not so much that they could do nothing.’’
So what can be done to help the odds of successful wealth transfer?
For each beneficiary, the estate holder should answer the following …
- What do I want to accomplish?
- What do I want to guard against?
And as addressed above, don’t stop with just the answers to these deep and personally probing questions. Providing the estate holder’s personal background and experience for the answers will provide the invaluable and much needed context for the estate design.
For example, commonly estate holders desire to withhold assets from their estate beneficiaries until they reach a certain age. In almost every such instance, the estate plan sets forth the age but no explanation as to why. This can leave the estate beneficiary to surmise that the holding back of the assets was because of a lack of trust or belief in their personal capabilities. An unfortunate negative spin on a generous and thoughtful gift.
For each beneficiary, the estate holder should answer the following …
- What do I want to accomplish?
- What do I want to guard against?
And as addressed above, don’t stop with just the answers to these deep and personally probing questions. Providing the estate holder’s personal background and experience for the answers will provide the invaluable and much needed context for the estate design.
For example, commonly estate holders desire to withhold assets from their estate beneficiaries until they reach a certain age. In almost every such instance, the estate plan sets forth the age but no explanation as to why. This can leave the estate beneficiary to surmise that the holding back of the assets was because of a lack of trust or belief in their personal capabilities. An unfortunate negative spin on a generous and thoughtful gift.
Instead, consider providing some context and explanation for the reason why the assets are being held in trust. For example, as could be explained by the estate creator …
“When I was young, I made a number of foolish mistakes in regard to my finances, mistakes which became clearer through life experience and personal maturity. When in high school and college, peer acceptance was of great importance to me, and was the fuel behind me getting into significant financial debt through my purchase of the coolest car that my limited wealth and questionable credit could afford. For years I was required to labor and pay off the debt, well after the glamour of the car had tarnished. This decision adversely affected my ability to enter into a much better investment, the purchase of my first home. Because of my personal experience, I have decided to protect you from the financial mistakes I made and have decided to hold the assets in trust until you reach the age of _____.”
Resources such as Laura Roser’s Your Meaning Legacy can stir the creative juices in this regard and provide some great ideas for practical application, while the “Personalized Estate Design” questionnaire from Trustee Services Group provides a methodical approach to a more individualized estate plan which is personally reflective of the uniqueness of you and your beloved beneficiaries.
It concludes with putting in place the right people to oversee your legacy as expressed through your estate.
Many have longstanding relationships with professional advisors who not only understand your assets and management preferences, but should also intimately understand your personal values and family story. Consider an estate structure which specifically includes the continued involvement of your trusted financial advisor who can help to fill in the personal gaps and provide the rich personal context for the estate plan which otherwise may be missing.
How to Choose A Trustee & Estate Executor
If this may be an issue, consider putting the trusted family member in the role of “Trust Protector,” which allows the family member to oversee the work of an independent third party trustee, while alleviating the family member of the onerous and legally important tasks associated with serving as trustee and estate executor, while also preserving their relationship amongst the family member beneficiaries.
If an independent third-party trustee or estate executor is needed or desired, look for a firm whose primary focus is to understand your intentions and serve your family. For the reasons set forth above, also look for a firm that will collaboratively work with the professional advisory team which knows and understands you and those your deeply care about. This “open architecture” approach to trust and estate fiduciary services will help your family avoid the unintended relational pitfalls which can later arise and undermine the best laid estate plans.
It’s your wealth. It’s your family. You have a lot at stake. The thoughtful design and construct of an estate plan which intimately reflects you, your story and your desires will give you the best chance to ensure the successful transfer of your wealth, while also establishing a transformational personal legacy which can have a positive impact for generations to come.