By Steve Marken
The general story is all too tragically familiar. The last statement and legacy of our loved ones is often found within the context of legal documents, defined largely by legal standards which have little meaning or comprehension to those left behind. The result can be disastrous.
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.
Consider instead what could have been.
In supplement to his legal documents, father puts some context and adds his personal story to his estate desires and provides what every beneficiary desires, a heartfelt expression of the love and appreciation the deceased had for those he has left behind.
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 multigenerational wealth transfer.
Fueled by the necessity to provide shelter and food for his family, Generation 1 (G1) risks all and starts a business. Because financial resources are scarce, Generation 2 (G2) is asked to forego other opportunities and is required to assist with the family business. Growing up in the context of having little, and understanding the necessity and benefits of hard work, G1 and begin to grow the business. Through time, the material success comes. G2 has their own children (G3). G3 begin to receive the benefits of wealth and are afforded opportunities which neither G1 or G2 likely never had.
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 hat 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?
It starts with the estate design. An intimate focus on the big picture desires of the estate holder and uniqueness of the estate beneficiaries will prove favorable in the construct of a more personalized estate plan.
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 _____.“
If your estate plan is already in place, the construct and inclusion of a Letter of Wishes, Ethical Will, or Legacy Letter can prove beneficial.
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 of Stewardship Counsel provides a methodical approach to a more individualized estate plan which is personally reflective of the uniqueness of you and your beloved beneficiaries. (Stewardship Counsel is a 501(c)(3) non-profit organization (EIN 81-4763230) focused upon assisting families, foundations, and the professional advisory community to proactively address the character and relational challenges often encountered with meaningful wealth, while simultaneously helping establish inspired and responsible stewards of the family legacy.)
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.
Finally, naming the wrong person to serve as the trustee and estate executor can have a disastrous impact on the family and can ruin what would otherwise be a welldesigned estate plan. Unfortunately, there are all too many stories of families being torn apart because a family member was placed in the middle of the family wealth. The relational impact of naming a family member to serve as trustee and/or estate executor should always be considered.
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 thirdparty 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
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Steve Marken, JD, CSPG is the Founding Principal, Professional Trustee, and Consultant of Trustee Services Group. An accomplished attorney and consultant to wealth managers throughout the country, Steve is a nationally recognized expert adept at overseeing estate plans that holistically and multigenerationally integrate a family’s financial (material), human (people) and social (philanthropic) capital. Recognized as a Certified Specialist in charitable tax planning by the American Institute of Philanthropic Studies, Steve intimately understands the role of philanthropy in the wealth equation and how such, when properly and intentionally embraced, can be a powerful antidote to the risk and challenge of “affluenza,” while also serving as a unparalleled means of uniting families around common values and interests in the building of a lasting family legacy. With an accomplished professional background in law, tax, finance, and philanthropy, Steve is privileged to share his diverse background and experience while serving families and their professional advisors across the country. For more information, visit trusteeservicesgroup.com.