Perspectives on Inheritance - Part 3 of 3
Seeing the fruits of your labors in action
Stephen Trefts, President
This newsletter is the final of a series of three that discusses perspectives on transferring wealth between generations. For over 27 years, our firm has seen excellent stewardship where family wealth is passed to the next generation without trial and travail, and we have also seen wealth transfer destroy relationships and end up being dissipated by family feuds. In this newsletter, we will offer ideas around encouraging participation of your family and charitable organizations in your estate plan.
Just to recap the previous discussions, in the first newsletter of this series, we asked four questions to help you pass on your values, as well as your wealth:
- What would you want your children, grandchildren and other descendants to think and say when they hear your name?
- What do you want every member of your family to always have?
- What opportunities do you want your children, grandchildren and beyond to have?
- If the world is to be a healthy place with healthy people in it, what do you think is needed?
In the second newsletter of this series, we discussed balancing the needs of your children with a keen awareness of their unique abilities, strengths and weaknesses. This was followed by a discussion on how to prepare your children and future descendants for acquiring wealth, using the stark contrast of the Vanderbilts and Rothchilds.
Moving from estate planning to present planning – experience the joy of giving.
In this final newsletter, we discuss how you can to see the fruits of your labors by allowing your family to participate in your estate plan. There are two types of distributions to heirs. The most common are those made by our firm after the death of the grantor (parents). However, I am also a strong proponent of parents giving to the children, descendants, and charity during their lives (i.e. advancing the inheritance). Obviously, the grantor must first consult financial advisors to ascertain what is needed to live on for the future, but what may result is a realization that they have plenty of resources to live comfortably for the rest of their lives AND a surplus.
When this is the case, why not experience the joy of giving when the needs of your family and society are imminent, rather than waiting until after your life to distribute the surplus? The idea is not to spoil children or interfere in their marriages, but the help on purchasing a home, education, business or automobile could have a significant and positive impact on their lives if they are conscientious. Additionally, if gifts are squandered, this could be a vital signal to the grantor regarding future inheritances. In other words, family members can test the waters and make adjustments that reflect their values, which obviously cannot be done after their lives.
Recently an elderly and astute client hired us as her financial manager through a power of attorney. She is extremely wealthy with not only a large income that she will never be able to spend (even though she has given millions to charity), but she also has a multi-million-dollar portfolio. In her estate plan, she intends to divide her assets equally between several relatives. It came to my attention that many of her relatives had current financial needs. I employed the rationale discussed in the preceding paragraph and suggested that she make a multi-million-dollar distribution now when it could make a significant positive impact AND she could experience the joy of the gift. After reviewing the idea with her attorney, she did so, and both she and her relatives were overjoyed.
Why give to a heart cause in a will, when you can do so now?
Naturally, the same principle discussed above holds true for making current charitable gifts (versus through one’s estate or trust). For most of my career, I have been privileged to serve on charitable boards. I have seen current major gifts to charities not only incredibly impact the vision and mission of the organization but also deeply effect the donor. Additionally, when the donors include sons and daughters and descendants in the process, this will often help transmit values from one generation to the next. While there are several methods to choose from, I have found two very effective ways to do this:
- One is for the donor who wants to maintain maximum control. He or she could create and fund a private family foundation and include the family on the board of directors (our firm could manage the administration). A similar type of thing can be done with a community foundation. The entire family will then make charitable distributions.
- In another example, the parents can create a trust and, from the trust distribution, require that the beneficiary contribute 10% (or whatever percentage) to the charity of the beneficiary’s choice.
Communicate, Communicate, AND Communicate
Face to face communication is key to creating a successful wealth transfer plan, often through family conferences where the family gathers for intentional conversations. There are three main advantages in doing this. First, while the ultimate decisions on wealth transfer depend on those who own the wealth, it would be extremely helpful for the family to have a discussion regarding unique assets such as the vacation home, antiques, art, etc. The purpose is to understand if the children are even interested in these items. If not, then instead of dividing them equally, perhaps there could be a cash offset for an heir who is not interested. Additionally, unique management tools may need to be put in place for these assets in order to avoid conflict down the line.
Secondly, a family conference is an excellent time for the parents to personally explain their equal love for each child and their rationale for either uneven estate distributions to children or their rationale for large charitable distributions. Our firm has been involved in many expensive family disputes over the years, and the major cause for this is that parents never explained the reasoning for their wealth transfer decisions to their children.
Lastly, it is much better for the heirs to hear about (and thus express gratitude) for the inheritance from parents rather than from an impersonal attorney. If the inheritance is large, then educational and management plans can be formulated collaboratively, which gives the heirs more buy-in to the plan. It also creates a realistic view of the eventual gift and the explanation of it by the parents which could alleviate future conflict between heirs.
In conclusion, these past three newsletters will hopefully give you food for thought as you plan your own wealth transfer or advise your clients in estate planning. The values set forth in these newsletters will hopefully increase the wholistic benefits of wealth transfer between generations. We remain committed to assisting families in this process with professional services that are carried out with compassion, diligence and integrity.
Print date: Spring 2018