Among affluent families, the disconnect between what their current wealth transfer planning does, and what they want their planning to do, is staggering. While 75 percent of wealthy parents say it’s important to leave an inheritance to the next generation, only 20 percent agree strongly that their children will be prepared to handle the wealth they receive. Although 54 percent of the wealthy believe their family would benefit from developing a formal set of principles to guide the purpose and meaning of their wealth, only 10 percent of them have done so. And, while the affluent are looking for customized solutions, fully one-half of them think that their current estate plan is too complicated.
Traditionally, estate planning has been asset focused, and as a result, it rarely considers the individuals, personalities and unique dynamics of each family. It’s based on a linear way of thinking; that is, if transferring some wealth is good, it follows that transferring morewealth is better.
In addition to being asset focused, traditional estate planning is too often generic, resulting in a cookie-cutter approach. Estate-planning software has only exacerbated this issue. All too often, estate planners focus on transferring financial resources using the alphabet soup of GRATs, DGTs and SCINs without contemplating how to transfer the values that helped create that wealth to begin with — like gratitude, wisdom and determination.
A New Kind of Planning
Estate planning that’s designed and intended to meet the demands of the 21st century should look and feel different from traditional planning. First and foremost, it should be beneficiary-focused and more concerned with preparing future generations to maximize their own potential than about transferring financial wealth for the sake of the wealth.
Second, it should be customized and based on the specific goals, values and beliefs of the client. A multigenerational wealth plan can’t be built on outdated assumptions. The planning needs to recognize that families are unique, and their planning should also be unique. Only after you know the goals will you have the ability to know when and how to use the tools.
Third, it should be purpose driven. Trusts, limited liability companies, charitable strategies and other wealth-transfer devices should be seen as nothing more than tools to accomplish the family’s goals. The key to being purpose driven is to focus on what provides for family continuity and not just on what provides for financial continuity.
Finally, because a family changes over time, the plan should include regular conversations as well as maintenance and updating to stay relevant and effective. While a plan may be up-to-date for any given period, it’s never completed. An effective plan should be consistently reviewed and updated as new family members enter the picture, individuals age, desires change and Congress changes tax laws.
How to Retool
Holistic wealth transfer and family continuity planning should be the goal of estate planning. The best plan is one that ultimately is less interested in helping the next generation become rich and more interested in preparing them to manage, sustain and carry on a rich and cohesive legacy.