By Richard Aronson, Benjamin Ciocco and Karen Ann Stollar
As successful business owners, you understand that carefully crafted estate and trust plans provide the tools for families to safeguard assets and protect their financial security. But these plans can also ultimately help families create their legacies. How can you have confidence that the planning strategies used in estate and trust plans, as well as the fiduciary appointments made to carry them out, accurately capture your legacy goals and objectives? We believe a legacy conversation—thought-provoking questions that go beyond the numbers—is a crucial prelude to crafting and updating estate plans.
During these conversations, it is important to respect family beliefs and values, and to acknowledge and understand the power of family dynamics, if your family wants to build both wealth that endures and a legacy that lasts. A personal discovery process will help your family recognize your wealth transfer plans from two perspectives: generationally, which reveals how you experienced wealth transfer; and multigenerationally, which reveals how you intend to transfer wealth to others. Asking appropriate questions, or noting why something or someone is important, will help you and your advisers craft estate and trust plans that reflect your objectives.
Themes of the legacy journey
In our experience, effective family legacy conversations focus on three main areas: beliefs, values and relationships. We have found that family legacy goals typically complement estate and trust planning objectives. Many of you probably have estate and trust plans in place, so you know that they can often address only the tangible, or quantifiable, part of a person's legacy. You likely want the peace of mind that comes with knowing that your plans will be carried out as you intended, without disruptions or oversights that could incur unnecessary taxes, expenses or legal hassles. Legacy planning provides the framework; estate and trust planning provides the practical implementation.
Family beliefs. Beliefs come from an emotional connection to wealth and how money influences the decisions you make during your lifetime. Think about your first encounter with wealth. Was it positioned in a positive light? Did it have a strong impact? Or was it divisive, controlling or limiting? Your personal experience with wealth can influence the beliefs that form the foundation of a thoughtful and effective estate plan. Also, understanding your beliefs and their inherent connection to wealth may provide some clarity on your wealth transfer goals.
Significant wealth often fosters a desire to give back to society, encouraging both the ownership and stewardship of wealth. Families who share philanthropic interests often become mission-minded in their actions. Charitable interests become part of the family's outreach efforts and a way to connect with each other, even across generations.
The following are some questions about beliefs that may prompt a frank discussion about philanthropy and wealth transfer:
• What are your core beliefs? For example, do you believe in "giving back" to the community, and should all family members share this belief?
• What do you and your family want to be known for?
• What character traits are hallmarks of your family?
• What opportunities do you want to create for stewardship of wealth?
Family values. Values are the actions behind your beliefs. This "thread," or passion, that flows through your family can often explain family members' behavior, relationships and traditions. Family values can be shaped by how wealth was created, whether it be a rags-to-riches story filled with hard work, discipline and sacrifice, or a fortunate event. Knowing your family's values can provide a glimpse into their biases toward wealth and its potential to help or do harm.
Generally speaking, wealth can provide freedom from financial worry. For some families, this may mean building a conservative nest egg to satisfy living expenses, with the leeway to pursue careers, interests and charitable endeavors. For other families, financial freedom signifies everything negative about wealth and how time and energy can be wasted commodities. Deciding how you and your family view wealth can affect how you formulate your estate and trust plans.
Following are a few questions to consider when discussing family values during your legacy conversation:
• What is the most important thing wealth can provide?
• What values, both growing up and as an adult, have influenced you, positively or negatively?
• What are your greatest accomplishments? Regrets?
• What do you want the generations beyond your lifetime to know about you and your family?
Family relationships. A historical perspective on your family relationships can be as important as the state of the family's financial affairs. Delving into a family's history provides information on more than just the quantitative data. Looking beyond the numbers helps you to understand the qualitative aspects of wealth -- the "whys" that explain the behavior behind financial decision making. How individuals and generations view and assimilate wealth in their daily lives can be understood by looking back and seeing the path each person took on his or her journey. How you experienced wealth transfer in your lifetime may influence how you direct the people and organizations involved in your own plans.
In our role as advisers, we have encountered families who have developed complex arrangements to restrict and control access to wealth for family members. This often has much more to do with family dynamics—for example, family members' perceived ability to manage wealth—than with anything else. But these restrictions can cause permanent, sometimes irreparable, divisions among family members. This emphasizes even more the importance of communication when it comes to estate and trust plans, and your legacy.
Most families will agree that family dynamics present some challenges, and confronting issues in the present can be uncomfortable. But communications after the fact can be misconstrued, especially when delivered over multiple generations. By addressing issues through a constructive discovery process, estate and trust plans can be crafted and communicated with minimal conflict and misunderstanding.
Family dynamics often come into play in the appointing of fiduciaries. For example, it may be best to discuss decisions regarding trustee appointments with family members in advance rather than selecting individuals who the family feels may not be in the best position to serve as trustees. Some may consider being named as an executor or trustee as an honor, but other family members may see it as a responsibility they do not want. An executor or trustee position is a lot of work, involving fiduciary responsibilities and decision-making power. Before appointing an executor or trustee, honestly evaluate the person's talents and determine if he or she has the time to fulfill the duties and obligations of an executor or trustee. Often families may opt to use the services of a third party, an objective decision maker who is not burdened with family dynamics. Such a decision should come after a candid conversation with family members.
Here are several questions related to family relationships that may help you explore your family dynamics:
• How much control do you want, and why?
• How do you define fair versus equal? Are there ways to offer a balance?
• Should your plan provide incentives or some form of compensation to help achieve a certain standard, preferred career choice or lifestyle consideration?
• Based on the personal talent, education and family relationships that exist today and those that may be forged later, who is in the best position to manage, preserve and protect your family's wealth?
• What skill sets do the people involved possess to manage, invest and distribute wealth with objectivity and authority?
• Whom do you trust to carry out your wishes based on their personal knowledge of you, your family and your intentions? Are there family members, advisers or corporate entities you trust and, if so, why?
Creating a bridge from thought to action
Conversations about estate and trust planning should not focus just on financial wealth. We feel families who do so miss an opportunity to capture the legacy lived today and redefined through generations. These conversations should also include strategic matters, such as your personal inspiration and motivation, embracing who you are, where you have come from and how you want to be remembered.
Families often avoid discussing estate and trust plans openly. After a death, it is common for heirs to be surprised to learn the terms of the estate plan, that assets were left in trust and that others are named in a fiduciary capacity such as executor or trustee. It is much more effective to ask the right questions now that focus on your beliefs, values and relationships so that resources are allocated at the right time, to the right people and in the right amount.
The questions highlighted in this article only scratch the surface of any family legacy conversation. Creating estate and trust plans that reflect multigenerational concerns typically requires long-term thinking and planning with your advisers to consider all the challenges and opportunities for family members and organizations.
Alan Titus, J.D., senior fiduciary advisor at Hawthorn, PNC Family Wealth, contributed to this article.
Richard Aronson, J.D., CFP is managing director, fiduciary services, Benjamin Ciocco, J.D., is Pittsburgh market director, fiduciary services, and Karen Ann Stollar, CFP, is senior wealth strategist at Hawthorn, PNC Family Wealth (hawthorn.pnc.com). Hawthorn is a multi-family office providing integrated wealth management solutions to families and individuals with investable assets of at least $20 million.
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