Legacy Planning

January 12, 2016

Within the last year, my husband and I revisited our estate plan. In the end, we felt confident that we’d accomplished all the usual objectives—protecting and preserving financial assets for future generations, minimizing taxes, and so forth.

But recently a colleague introduced us to another concept we had not really addressed in planning for our family’s future, and that is “heritage design.” Whereas estate planning passes on your “valuables” to future generations, heritage design passes on your “values.” The goal of heritage design is to prepare your children and grandchildren to receive their inheritance.

Our colleague recommended that we read Beating the Midas Curse by Perry Cochell and Rod Zeeb, two of the leading experts in heritage design. Having just finished reading it, I recommend it to anyone who would like to ensure that, along with passing on material wealth, you pass on “who” you are: the values, stories, life lessons and experiences that you have absorbed from your parents, grandparents, and other important people in your life. Heritage design is for people who want to pass on an “emotional inheritance” alongside of a “financial inheritance,” with the end goal of transferring family unity and prosperity to successive generations. For many, the values and ethics that brought them success—such as hard work, sacrifice, and goal setting—are the most valuable assets they can transmit.

Also worthy of note is the authors’ repeated assertion that heritage design is for all families—not just the affluent. Their work is based on decades of work with families ranging from average income earners to billionaires.

The “Midas Curse” refers to the “shirtsleeves to shirtsleeves in three generations” paradigm that happens to 90 percent of families. The first generation creates wealth. By the end of the second generation, 7 out of 10 families have already blown through that wealth. By the third generation, 9 out of 10 families will have nothing left. That’s a 90% failure rate. The main culprit is not market misfortunes or bad luck, but a lack of preparation of future generations to receive the wealth and a lack of trust and communication amongst the family.

How many families do you know who have been torn apart by financial strife related to the transfer of wealth? How many stories have you heard of inheritors whose lives were destroyed by drugs, alcohol abuse, and broken relationships because they didn’t know how to handle the responsibilities (both financial and emotional) that accompanied their inheritances? The good news is that with proper planning and action, you can beat the “Midas Curse.” You can consciously prepare your children to receive their inheritances, create a pattern of communication amongst the family, and organize them for multi-generational success. Creating a family “vision statement,” identifying and recording values, agreeing on a family governance structure to deal with problems before they arise, having regular family meetings to communicate and build trust, and passing on the stories and experiences that have shaped your life, are all part of the heritage design toolkit. The authors of Beating the Midas Curse identified 12 elements for sustaining family wealth and unity:

1. Foster strong and effective communication and build trust between generations.

2. Develop, maintain, and regularly re-visit your visions for the present and the future.

3. Hold regular family meetings.

4. Promote a balanced definition of wealth (human capital, intellectual capital, social capital, financial capital).

5. Keep the family business separate from the business of being a family.

6. Identify the roles necessary for the family to be successful.

7. Inspire family members to participate for their own individual reasons (align individual goals with family goals).

8. Train and mentor each generation for success.

9. Facilitate the transfer of leadership from generation to generation.

10. Require collaboration among your advisory team and all team members.

11. Create mechanisms for ongoing family governance.

12. Take action now.

What resonated with me is that these are the same elements that are behind the successful generational transfer of any business. Effective communication, shared values and vision, alignment of group and individual goals, leadership mentoring, and collaboration among team members are among the hallmarks of any successful business, so why wouldn’t they apply equally to the business of being a family? I would also add that once an estate reaches a certain asset level (whether half a million or tens of millions), placing assets in trust—as opposed to outright distributions—encourages the successful transfer of prosperity and unity across multiple generations, and mitigates the probability of the shirtsleeves to shirtsleeves paradigm. Engaging a trusted advisor to quarterback the management and disposition of assets helps to keep all family members on the same page. A trust structure also institutionalizes the values by which the money is to be used as a tool to support and enhance the lives of multi-generational beneficiaries, and fosters ongoing communication amongst the family members. Integrating the heritage design process into the trust documents and trust administration facilitates the multi-generational dissemination of values and can go a long way to build trust and confidence amongst the family. Beating the Midas Curse offers 3 exercises to get you started on the heritage design process on your own:

1. Think about and write down the persons who have been a major influence in your life. Write their names down, then record what difference they made in your life, how they influenced you, what you learned from them and how. Would it benefit your children to hear these stories?

2. Imagine that you were run down by the proverbial bus tomorrow. Write your obituary, in 4 or 5 sentences, to sum up the highlights of your life. When you’re done, share your work with a few people, perhaps your spouse, children, and a close friend or two. Ask them if they would have written the same obituary? If they’re willing, get them to write one in their own words about you. “It is that human worth, built with values, lived through values, and evidenced as values in action, that will ultimately comprise your true obituary.”

3. Write a letter to your great-great grandchildren. Tell them what has been meaningful in your life, what you did that was “right,” and what you would change. Tell them what you hope they may discover in their own lives. Make it personal: “This is who I was, this is what I believed in, this is what I stood up for, this is what I did, this is the difference I hope I made, this is how I want to be remembered, this is what I really left my children, my grandchildren, and you.” Keep a copy of this with your important papers. Request that the letter be read aloud and passed on to each successive generation. This may turn out to be one of your most important legacies.

Successful multi-generational planning begins with recognizing and sharing the values, ethics, and traditions that are unique to you and your family, and memorializing them so that they will be passed down through generations. Communication is at the heart of heritage design planning. Families spend a lot of time together working on family issues that will help them become stronger and more unified now so that they will retain that unity, strength, and trust for generations. Conversations and family exercises can be facilitated by trained professionals at family meetings, but you can also start by just getting the family—grandparents, parents, uncles, aunts, children—to sit down together and share their stories. Get with your children and prepare your family’s mission statement. Record your values.

For more information, visit http://theheritageinstitute.com/the-heritage-process. I plan to get started on our own family’s heritage design process as one of my 2016 resolutions. Progress report to follow!

AUTHOR:

JULIA BUTLER, CFP®, JD, MBA, CFEI