A new look at estate planning

Coaching - Succession- Financial Planning

A new look at estate planning

Estate planning is defined among financial professionals as the “organizing of one’s affairs to distribute the assets tax effectively.”

The question however is: Should the assets be distributed? Is it a better idea to organize one’s affairs so that the assets can best benefit future generations and the community as a block of assets?

It is an interesting idea and calls for a shift in thinking, history shows that wealth is typically earned by one generation, the next generation works to conserve, and the third generation spends it all. “Shirt sleeves to shirt sleeves in three generations” appears to be a human condition crossing international and cultural boundaries.

Examination of wealthy families of history show that families that have a horizontal strength do better than families that have a vertical vision. That is, communication between brothers, sisters and cousins gives a family a better chance to create and add to wealth.

It is when trying to conserve wealth (usually a second-generation attitude) that family values and family fortune start to atrophy. Second generation members work to protect what Mom & Dad built, in protecting the wealth they lose the entrepreneurial attitude that built the wealth.

When estate planning calls for distribution the planning effectively contemplates a vertical family in the future — parent to child to grandchild.

This brings us back to the idea that if estate planning is dividing the estate, it may be doing more harm than good. Using holding companies, trusts and family offices an estate can effectively become a family bank. They can lend money to heirs, require heirs to justify use of the money, encourage them to think entrepreneurially — as their parents have done to create the wealth initially.

The heirs are no longer second-generation conservers but a new first generation that can, in fact, build on the family fortune. Brothers, sisters, and cousins connected through the family “bank” and family office, are encouraged to think together, and create a network with each other, even if they are in different businesses or walks of life.

When you start to think of the estate as a lasting tool for future generations, a legacy, it takes on a life of its own, now you’re talking about family capital instead of just assets and tax costs.

If we were talking about armies and warfare, the terms “divide and conquer” and “united we stand,” come to mind.

Do I detect a skeptical eyebrow out there?

What about family fights over the estate?

They will happen, but when families understand the idea that there is strength in the family network (a developed culture) and that the assets focused will serve each member of the family better, there is the opportunity to avoid the squabbles that can occur if one family member feels shortchanged in the dividing of the estate. Regular family meetings go a long way to addressing this issue.

For successful families, estate planning in the future will contemplate a beginning instead of an end, and generations of families will benefit.