by David R. York, Esq., CPA
(This is an excerpt from an article originally published in the May/June 2018 issue of Investments and Wealth Monitor.)
When it comes to estate planning today, few words are used as often as the word “legacy.” Surveys of wealthy Americans reveal that high-net-worth individuals are far more concerned than their parents about how their wealth will impact successive generations and more concerned about the negative effects of inherited wealth.
THE FIVE ESSENTIAL TRUTHS OF LEGACY
The word legacy can mean different things to different people. There are two primary definitions for the word. The first: An amount of money or property left to someone in a will. The second: A thing handed down by a predecessor.
#1 Legacy is more than money.
Financial resources come and go, but lasting legacies are found in our passions, our actions, and our words.
#2 Legacy is not neutral.
We often think of legacy in terms of the positive qualities we hope to be known for. But the reality is that legacies can be positive or negative. Negative family legacies can include things such as addiction or dysfunctional communication.
#3 Legacy is not optional.
We can’t opt out of leaving a legacy or delude ourselves into thinking that we don’t or won’t have an impact on others.
#4 People are more legacy-minded today than they have been for hundreds of years.
Lately there is less focus on inheritance and more on impact, which has the potential to be an incredibly beneficial shift – especially because Baby Boomers are projected to leave upwards of $40 trillion to the next generation.
The concept of legacy now involves emotional legacy – the ways we affect one another through daily interactions over the course of years. As more people consider their families of origin, and how they’ve been impacted by them, there is a greater sense of personal responsibility to right the wrongs of the past and to work toward transformation in the portions of family legacies that aren’t constructive. Social, spiritual, and emotional legacy are all intertwined with financial legacy.
#5 Legacies can be changed.
John Newton was born in 1725 in London, England. His mother died when he was six. At 11, he apprenticed on a ship but was so disobedient he was pressed into service with the Royal Navy. He openly mocked his captain with obscene poems and songs. He got into so many fights that he was imprisoned at sea and sold into slavery.
After regaining his freedom, he worked in the slave trade. A few near-death experiences led Newton to examine his life and, at 33, he began studying theology. At 48, he wrote a hymn that begins: “Amazing grace! How sweet the sound, that saved a wretch like me. I once was lost, but now am found; was blind but now I see.”
A NEW APPROACH TO PLANNING
Traditionally, estate planning has focused on structure and followed a dump, divide, defer, and dissipate model. The assets are dumped on the next generation, divided among the children, attempting to defer any taxes, and finally dissipated within one or two generations. It’s like building a roaring campfire, then trying to divide up the burning logs among all the people huddled around and expecting them to effectively care for, transport, and replicate that fire.
It’s largely because of the dump, divide, defer, and dissipate model of estate planning that 90% of wealth accumulated by the first generation is gone by the third.
What if, instead of focusing on a generic model for wealth transfer, we focus on aligning the values of a family with their tangible assets in order to empower the maximum amount of multigenerational good with the least amount of collateral damage?
ESTATE PLANNING AND VALUES
Values are the great driver of human behavior. The problem for most people is that they are not consciously aware of what they value. As a result, they continually make decisions that create confusion and contradictions in their lives. This is also true in the area of estate planning.
The word “value” originates from the financial realm. It derives from the Latin word for strength and originally meant material worth. Over time, the word came to mean innate worth. A personal value is something that has worth to you; something that you strive toward and are willing to pay a price to obtain.
Compassion, justice, productivity, honesty, and creativity are all examples of values. Values give purpose, meaning, and shape to human life. Like an internal GPS marker, a value drives what we do and how we act, in our personal lives, in our families, and in our businesses and organizations.
Most of us have a general idea about the kinds of values we hold dear, but relatively few of us could identify and name our core values as a lever for living a more engaged and meaningful life. The better we understand our values, the better equipped we are to make purposeful, practical, and principled decisions.
You will probably discover that many, if not most, of your values are rooted in your life story. Values are lived things, not stuffy abstractions. Perhaps there was an admired figure in your early life who influenced you. Perhaps your parents or teachers rewarded you for exhibiting certain values. Perhaps you experienced suffering and made a vow – conscious or not – to prevent that kind of suffering from happening to others.
Telling your story helps you better understand how you formed the values you hold dear and why they are important to you.
4 STEPS TO A RIVETED ESTATE PLAN
Rivets are permanent fasteners that fill empty spaces in order to create connections. They literally hold a structure together.
What holds an estate plan together – beyond the document itself?
Values are the rivets of a riveted estate plan. Just as rivets hold a suspension bridge together, our values connect our financial capital and our human capital. The process of transferring holistic wealth on a multigenerational basis is similar to the process of building a suspension bridge.
Wealth is far more than numbers on a balance sheet.
The transfer of our wealth in all its forms is the primary objective of a riveted estate plan. Our health, education, life experiences, family, friends, personal and business relationships, physical fitness, spiritual beliefs, and overall quality of life are all aspects that may be viewed as markers of wealth.
Step #1: Draft a Design
Values drive groups as well as individuals. Identify and capture the human capital of your family. Shared values are the fuel that provides energy to inspire and motivate a group.
Whenever you establish shared values within a group, you give that group exponentially more power and cohesion. You create a positive force in the group that overrides individual differences and unites members around a common sense of purpose.
Being able to articulate who you are as a family, or any other type of group, creates a greater sense of unity, helps members decide how to allocate its time and assets in the present, and helps the group align its values with its financial resources.
Step #2: Construct the Towers
The first tower is the parents’ tower and the second tower is the children’s and future generations’ tower. The goal: to build the most solid and secure towers possible to provide support to the entire structure and to ensure the plan can handle the load it will ultimately carry.
Share your narrative wisdom and include your mistakes. Often our bad experiences and failures are more powerful teachers than our successes. Did you make financial mistakes and have to dig out of a deep hole of debt? What was the nature of the hard work necessary to preserve the wealth? What struggles were overcome? What are your dreams for the next iteration of your family line?
Unearth the hopes and fears of the upcoming generation. What are they most passionate about accomplishing? What do they see as their biggest hurdles? What questions are they hesitant to ask? In what areas do they need your insight?
Step #3: Build a Bridge
A critical element in connecting generations is to ensure that your children and successive generations know what to expect and what not to expect. A family coach or facilitator is often helpful in this process.
Let the discussion wander. Don’t control it. Pull your core values from your stories. Active listening is a key component during this step.
Step #4: Improve the Structure
After years of planning and construction, San Francisco’s Golden Gate Bridge stood in all its glory for its grand opening. Even though it accomplished its goal of connecting the two sides, the perpetual maintenance process began almost immediately. If it hadn't, the bridge would have begun to degrade and ultimately fall. Likewise, the constant maintenance of your estate plan is crucial.
Aligning your shared values with your family’s estate planning is essential. For example, many families have a guiding value of independence, and yet their estate plans too often say, “If I die, here’s a whole bunch of money; go do anything you want with it.” That lack of direction is completely inconsistent with the value of independence. It encourages heirs to fall back on inherited wealth rather than rely on themselves.
Ideally, the estate plan should connect the dots between the values of the family and the use of assets. By consciously identifying our values, we take inventory of what’s important to us. We also give ourselves the opportunity to patch holes in our values systems and adopt new values that we want to embrace and live by.
A life that is driven by consciously chosen values is a life of freedom and fulfillment. It is a life that inspires others and has the power to change the world.
(David R. York is a managing partner with the Salt Lake City law firm of York Howell & Guymon. He practices law in the areas of estate planning, tax, business planning, and non-profit entities. He is the co-author of Entrusted: Building a Legacy That Lasts and Riveted: 44 Values that Change the World which upon its release was the #1 Business Ethics book on Amazon. He’s also the creator of the game Experience Rivets™, which helps individuals, families, and businesses identify their unique and shared core values to assist them with holistic wealth transfer, effective estate planning, and team building.)