Financial planners often help clients create an investment philosophy to define the level of risk, the need for liquidity and the time frame for making their investments. Clients starting the estate planning process should create something similar. Under the typical planning arrangements of wills and trusts, those documents tell heirs what and when things are to happen, but not why you planned the way you did. A written philosophy will help clients achieve their objectives in the accumulation, management and distribution of their personal wealth. While establishing priorities, this is an opportunity to protect assets and pass down a set of values held by the client. These objectives, once stated, help your professional advisors create tools that better meet those goals. Scott Fithian has been particularly helpful in articulating these objectives in the planning process and the National Alliance of Renaissance Associates (NARA) has promoted much of it as a concept worthy of inclusion in all plans.
Wealth is a relative concept, but nobody wants to unnecessarily waste a lifetime’s work. What results do you want when family assets are preserved and passed on to your heirs?
· a financial advantage, giving heirs a headstart
· improved competency through education and enhanced self-esteem
· an incentive to create and develop up to their full potential
· a sense of tradition, loyalty and family harmony
· a desire to serve others or acquire societal impact
There are conflicting concerns about passing down unearned wealth, and the different positions each have some justification. Some parents feel an obligation to pass down their wealth and leave their children better off than they were. On the other hand, a few parents have strong beliefs about having heirs make their own way. Their belief is that by overcoming adversity heirs may somehow improve their work ethic and character. Since divorce affects nearly 50 percent of marriages, a few parents may have justifiable concerns about the possible loss of family wealth. While other parents fear the dilution of family assets among many heirs will result in the complete lack of influence for those inheriting. There are no right answers, but the fact that you take the time to set out your feelings makes them important in your plan.
A good checklist for creating your personal philosophy includes answering the following questions:
1. Did an inheritance play any role as your family acquired its wealth?
2. Does your plan promote either equal or equitable distribution, as they are not necessarily the same.
3. Have intra-family gifts been a component of your estate plan?
4. How successful have these gifts been? Did the recipients make good use of the asset? Will you be able to continue a gifting program?
5. Have your heirs been prepared to manage the estate‘s assets?
6. Will there be disagreements among the heirs over future inheritances? How will the in-laws affect family harmony?
7. Have you taken action to protect family assets from unnecessary expense and tax?
8. Does your wealth create ethical burdens?
9. Can wealth be used as a tool to modify character development, responsibility, skills?
10. Will your plan achieve a zero estate tax liability?
These questions and others need to be addressed if your plan has a real chance to succeed. An estate plan can be a technically designed masterpiece, but if the family is not completely engaged in the process, it will fail. Plans that ignore human frailties will find the estate wasting too many of the assets in legal expenses to defend itself from heirs who feel they have been wronged. A recent suit in Texas by a distant relative over the use of a charitable gift annuity opens up more potential for litigation problems. Dissatisfied heirs or creative attorneys attacking foundations, charities and educational institutions is all it takes to derail solid estate plans. A personal financial statement may establish the donor’s intent and be all the defense that is available to keep greed from starting a family feud. Good team planning is critical for success, take the time and do it now.
Vaughn Henry deals with planned giving programs and estate conservation, and is a member of the Central Illinois Planned Giving Council.
Preserve the Influence Benefits of Family Wealth
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Vaughn W. Henry Henry & Associates Gift and Estate Planning Services
22 Hyde Park
Springfield, IL 62703 USA
Phone: (217) 529-1958 Fax: (217) 529-1959
E-mail: VWHenry@aol.com
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