Having spent most of my professional life as an estate planning attorney, I must admit that my thinking about estate planning has evolved dramatically. Early in my career, many in the industry treated estate planning as a distribution exercise. The critical questions to be answered by the process was who would receive the client’s property and the value proposition was ensuring that transfer had as little “friction” as possible (tax friction, probate friction, legal fee friction).
As I became a law partner and began working with my own clients (and became a parent myself), my mindset shifted. The process I delivered to clients was less about distribution and more about impact: While the critical questions continued to be “who” focused, the questions matured. Instead of the simplistic focus of who received stuff, the purpose was on who the client wanted to impact and how they wanted that impact to work. The value proposition evolved from frictionless distribution (which still existed, but in the background as “table stakes”) to execution of values. That mental model has driven my professional advice for most of my career.
But in the last five years or so, my thinking has undergone another significant evolution. The reason for that change is, as I have become a wealth advisor and strategist, my role has become helping clients align their resources with the impact they wish to make on the people and causes most dear to them. And under that lens, the “classic” estate planning model mismatches resources and wealth.
Why Traditional Financial Plans Leave Wealth Sitting Idle for Decades
Why is that? Because, while there are certainly exceptions, most financial plans are built around a couple. They accumulate assets, they spend some of those assets and whatever is left over when they are ninety, that is left to the children. Stated another way, the plan is built to impact the couple over their lifetimes and others after they are dead. Is there anything “wrong” with that structure? No. But if we take a step back, we recognize that oftentimes, the children are in their seventies by the time they receive assets from Mom and Dad. At that time, it is not uncommon for them to have their own wealth, their own plan and their own strategy of self-sufficiency. So, Mom and Dad’s remaining wealth, which has “sat in a drawer” making no impact for decades, gets added to another pile of unspent funds. Presuming the children run the same playbook as Mom and Dad, those funds might never have the impact that Mom and Dad intended.
Two Fears That Keep Families From Making an Impact
So, if the goal is impact, why do so many people run this impact minimizing playbook? One possibility is that it is what “has always been done.” Humans own their stuff until they die and then leave it to their kids.
But I do not think that explains it. I think the answer is fear. Actually, the intersection of two fears:
- The fear of demotivation.
- The fear of running out of money.
Fear #1: Will Giving Wealth to My Children Demotivate Them?
As to demotivation, the theory is that if I give my children money, I deprive them of ambition. Might that be true? I guess so. But the nearly unanimous findings on whether money “ruins” children come to the same conclusion; money is merely an accelerant to character: Motivated children will use excess funds to further their success and fulfillment and unmotivated children will use it as an excuse for sloth. In my opinion, the bigger issue regarding the fear of raising spoiled children is it misses the point; you get to define the impact you want your wealth to make on the people you care about:
- If you want it to foster ambition, you can use it to fund further education or a business opportunity.
- If you want it to provide safety, you can employ it to provide help when needed.
- If you prefer family togetherness, you can pay for everyone to visit Sardinia.
Your plan is a choose-your-own-adventure book; do not pick the path you want to avoid.
Fear #2: What If I Give Too Much and Run Out of Money?
As for the fear of running out of money, this is the main reason for using an advisor. Our mission as wealth advisors is to align your resources with your desired impact. A plan does not do that if it shoves money into the basement to sit idle for decades. The way we alleviate this fear at Johnson Financial Group is, for every plan, we separate lifetime assets from legacy assets. Lifetime assets are those that clients and their spouses use for their wants and needs during their lifetime. Legacy assets are found by taking total assets and subtracting lifetime assets. Stated another way, legacy assets are those that will, definitionally, be used by others. Once we know what those are, we can build the plan to use them at a time that makes the impact the clients want as opposed to delaying their impact until they die.
How to Build a Values-Based Wealth Plan
So where do you start? The best plans start with values:
- What is it about money that matters most to you?
- With those values in mind, what impact do you want your money to have?
- Why?
- On whom?
- When?
Once those questions are answered, we can build a spending strategy wherein we measure the cost of the desired impact, the timing of the impact and the resources needed to fund the impact. Then we define the spending, saving and investing tactics that accomplish the desired impact, we employ an action plan, we act and then we react (when things inevitably play out different than we assumed they would). A strategy to tell your story; to make the impact on those you care most about, in a way that furthers your beliefs at a time that maximizes your goals.
