Based on the book

Riveted: 44 Values That Change the World

by David R. York and Andrew L. Howell

 

 

Investments and Wealth Monitor

Advisor of the Future

May/June 2018

 

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. In fact, less than one-half of Baby Boomers think wealth transfer is important, and only three percent (3%) believe they have any obligation to leave their children anything. Fewer Baby Boomers are implementing wealth transfers during their lifetime when compared to the Greatest Generation (34 percent versus 9 percent), and seventy-two percent (72%) of Baby Boomers plan on doing their own estate planning differently from their parents.[1] Although Boomers are less interested in transferring wealth and more concerned about the negative effects of estate planning, seventy five percent (75%) of Baby Boomers surveyed agreed with the following statement:  “It is extremely important to me that future generations remember my parents and what mattered to them.”

The Five Essential Truths of Legacy

It’s because of this changing landscape that legacy has becoming increasingly used by both financial advisors and estate planners. That said, the word legacy can mean different things to different people. There are two primary definitions for the word. The first is this: An amount of money or property left to someone in a will. That’s the definition that most planners gravitate toward. It’s the second definition, though, that seems to be capturing the hearts and ideals of an increasing number of clients, and that is this: A thing handed down by a predecessor.

There are five essential truths about what a legacy is and how it should be viewed when it comes to estate planning.

  1. Legacy is so much more than money. Because the term legacy has been used in conjunction with finances, we too often marginalize the word and we lose its richness and meaning. Financial resources come and go, but lasting legacies are found in our passions, our actions, and our words. As Pericles said thousands of years ago, “What you leave behind is not what is engraved in stone monuments, but what is woven into the lives to others.”
  2. Legacy is not neutral. We often think of legacy solely in terms of the positive qualities that we hope to be known for or the inimitable contributions that we leave with others. But the reality is that legacies can be positive or negative. Slavery in America left us with the negative legacy of segregation and racism that continues to affect us even today. Negative family legacies can include things like abuse, addiction, or dysfunctional communication. Why is it important to realize that legacies can be positive or negative? Because of the next essential truth.
  3. Legacy is not optional. We all will leave a legacy, and likely multiple legacies. Our legacies, the things we hand down, are left to our families, our co-workers, our communities, and our country. We will all become the predecessors of the future. We cannot opt out of leaving a legacy or delude ourselves into thinking that we don’t or won’t have an impact on others. As the writer Annie Dillard said, “How we spend our days is, of course, how we spend our lives.”
  4. People are more legacy-minded today than they have been for hundreds of years. There is less of a focus on inheritance and more of a spotlight on impact which has the potential to be an incredibly beneficial shift, especially in light of the fact that the Boomers are projected to ultimately 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. The reality is that we are more than what we have been and what we have done. Our legacies are constantly shifting and changing and that continues to happen until we die.

Perhaps one of the greatest examples of a changing legacy is the story of a man named John. John was born in 1725 in London, England. His mother died when he was 6 years old and he was raised by a cruel stepmother while his father was away at sea. At 11, he became an apprentice on a ship, but was so disobedient he was pressed into service with the Royal Navy. He openly mocked his captain by writing obscene poems and songs. He was not only recognized as having the foulest mouth of any sailor in the British Navy, but he was credited with inventing several new curse words. He got into so many fights that he was imprisoned at sea and then eventually sold into slavery for a period of time. Despite being so mistreated as a slave, upon being set free he actually found work on a slave ship and worked in the slave trade for several years.

A few near-death experiences led him to reexamine his life and, at 33, he left sailing and began studying theology. At 48, he harkened back to his poetic roots, though this time with a different objective, and wrote a hymn based on a New Year’s Day sermon given in 1773. It is estimated that the hymn written three years prior to the signing of the Declaration of Independence has appeared on more than 11,000 albums and it is estimated that it is sung more than 10 million times every year. The hymn, written by the former slave trading, curse word creating miscreant John Newton, starts like this: 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 been focused on structure and has typically followed a dump, divide, defer, and dissipate model.  This model involves dumping the assets to the next generation, dividing them among the children, attempting to defer any taxes, and finally dissipating those assets within one or two generations at most. It’s a shotgun approach to wealth transfer. 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 percent 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 instead focused on

Estate Planning and Values

The whole notion of human values has evolved greatly over recent years. Value itself is an abstract idea—and one that can cover a lot of ground—so its meaning can vary from person to person. While nearly everyone may have their own definition, the concept of values needn’t be complicated or idiosyncratic.

Values Defined

The word “value” originally came from the financial realm. The word itself derives from the Latin word for strength and originally meant material worth. Whether we’re referring to stock, land, or personal property, when we talk about something having worth, we talk about its value. Over time, the word came to mean innate worth. Accordingly, a personal value is something that has worth to you; something that you strive toward and are willing to pay a price to obtain.

A value, stripped down to its essence, is an ideal—or benchmark—that we consider important in guiding the way we live and work. 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. One of the most effective ways of helping your clients transition from a traditional estate plan that focuses on financial wealth transfer to a holistic Riveted Estate Plan that creates the greatest potential for a positive legacy is to start by focusing on values.

While most of us have a general idea about the kinds of values we hold dear, relatively few of us could identify and name our core values in order to use them as a lever for living a more engaged and meaningful life. Knowing our core values is an extremely empowering endeavor because the better we understand our values, the better equipped we are to make purposeful, practical, and principled decisions about our lives.

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 and whom you wished to emulate. Perhaps your parents or teachers rewarded you for exhibiting certain values. Perhaps you experienced suffering of some kind and made a vow—consciously 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.

Communication Roadblocks       

Values are the great driver of human behavior. When faced with any decision, from the simple to the complex, we tend to choose in favor of what we value the most. The problem for many 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.

Generational Divide

We are witnessing a fundamental shift in how generations view the passage of wealth. Many clients have seen first-hand the destructive potential of unharnessed and undirected inheritances. Most people blame the money when unprepared heirs act in ways that are not only outside of the realm of what any reasonable person would consider commendable but also ultimately self-destructive. Discussing values builds a bridge of connection now, so that when grief hits later, family members will be buffered by the proactively prepared structure. This can be the difference between massive family upheaval or a few uncomfortable bumps on the journey.

Room for Differences

Identifying and understanding our values and the values of others creates commonality, understanding, and connection. One reason for this is that we learn that each of us has different and unique values. The other reason is that considering the values of others helps us to understand more about who they are; it gives us a lens into their life stories and a key to relating to them. Values tend to come to us in great moments and terrible ones, through triumph and tragedy. If you ask a friend, for example, about his core value of honesty and why it is so important to him, he might tell you that when he was a child, his father was unfaithful to his mother. He saw the hurt and anguish this caused, and committed to always being honest in his relationships. He made beauty from ashes, took brokenness and turned it into strength. When we learn about others’ values, we often learn about their personal stories and come to respect them in new ways.

Knowing what you value and how those values are expressed helps you understand yourself and provides insight into how you connect with others in your family or group. While it is natural to relate more easily to those whose core values are like your own, understanding what makes anyone “tick”—the values that guide and direct them—can help to create better connection and community with that person.

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?

Your values are the rivets of your estate plan and your legacy. Just as rivets hold a suspension bridge together, your values connect your financial capital and your human capital. The process of transferring holistic wealth on a multigenerational basis is very similar to the process of building a suspension bridge. Wealth is far more than numbers on a balance sheet. The transfer of your wealth in all its forms is the primary objective of a Riveted Estate Plan. As each of us gets older and collects more life experience, we begin to realize that wealth has many meanings. Our health, education, life experiences, family, friends, personal and business relationships, physical fitness, spiritual beliefs, and overall quality of life are all aspects of our lives that can and should be viewed as markers of wealth.

Whether building a literal structure or crafting a Riveted Estate Plan, both can be broken down into four separate and distinct stages:

 

  1. Draft a Design.

Begin by asking some critical questions: What load does the structure need to support? What is the topography and environment that I intend to build in? What obstacles or hindrances stand in the way? What is my vision for this? Only when these have been identified can the blueprints for the bridge be developed.

Clearly identify and capture the human capital of the family. Values drive groups as well as individuals. 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 the members around a common sense of purpose. Knowing the values that you share, and embracing those values, gives a group a “theme” and also gives it a new way to bond together and make a difference to one another, to the community, and perhaps even to the world at large.

Values are central to healthy families as well. Most families could perhaps venture a guess at what drives them and makes them unique, but they don’t always know how to adequately express it. Being able to articulate who you are, as a family, and why you’re here on Earth is critical in three respects. First, it creates a greater sense of unity among the family members. Second, it helps the family decide how to allocate its time and assets in the present. Third, clearly articulated values can help the family align its values with its financial resources for estate-planning purposes.

The importance of a well thought out and articulate family vision and mission statement cannot be overstated. They are essential for everything that comes after.

 

  1. Construct the Towers.

Like building a suspension bridge, once a design has been developed, the next stage would involve building two 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 that the plan can handle the load it will ultimately carry.

Capture the narrative wisdom of the parents’ lives, and encourage them to include the mistakes. Often our bad experiences and failures are more powerful than the successes. Did they 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 successes and failures came along the way? What are their dreams for the next iteration of their family line? Admitting our failures requires a level of transparency and humility, but courage can be found in the desire to allow others to learn from our mistakes and not repeat them.

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 insight and wisdom from the generation that has gone before them?

  1. Build a Bridge.

Ensure that the children and successive generations know what to expect and what not to expect. A family coach, attorney, and financial advisor are often critical participants in this process. There is no one-size-fits-all system for connecting the parents’ tower with the children’s tower. Within the parameters established by the parents, be open to letting the plan organically unfold. Use the common history of the family to engage one another. What connects the family? Where does their history lie? What unites the family in a positive spirit? It may be a special place, such as a family cabin or vacation spot, or a favored gathering spot, such as horse stables, ski slopes, around the pool, or in the kitchen. Is there a special time of year, like Thanksgiving, or a special food you eat that brings them together?

Use the commonality and history that already exists in the family to pull all the individuals together toward understanding their common values. Let the discussion wander. Don’t control it. Let it stray into memories and family folklore. Pull the core values from the stories. Active listening is a key component during this phase.

  1. Improve the Structure.

Just as in the process of bridge building, the work of maintaining the bridge should be ongoing. After years of planning and construction, the Golden Gate Bridge stood in all its glory at its grand opening. Even though it accomplished its goal of connecting the two sides, crews almost immediately began the perpetual process of maintaining it. If they hadn’t, the bridge would have begun to degrade within a short time and would ultimately fail. As with the bridge, constant maintenance of your plan is crucial.

Beyond simple maintenance, the Riveted Estate Plan should also be improved over time. As each family member proceeds down his or her own path of life, the entire family should regularly come together to share their experiences.

Conclusion

Aligning your shared values with your family’s estate planning is essential. As was discussed in our book Entrusted: Building a Legacy That Lasts, even in families with identified values, the benefactors too often fail to reflect these values in the way they pass their assets. For example, many families have a guiding value of Independence, and yet the estate plan they have in place too often says, “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 their value of Independence; it encourages the heirs to fall back on their inherited wealth rather than rely on themselves. Ideally, you want to connect the dots between the values of the family and the use of assets. Good estate planning enables a family to create structures by which their family values are passed down, not just to the next generation, but in perpetuity.

By consciously identifying our values, we take inventory of what is important to us. We also give ourselves the opportunity to patch in holes in our value system 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, integrity, and fulfillment. It is a life that inspires others and has the power to change the world.

 

DAVID R. YORK is an Attorney, Certified Public Accountant and Managing Partner at York Howell & Guymon in Salt Lake City, Utah. David received his Accounting and Law degrees from the University of Utah. [email protected]

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

[1] See GRATs versus Gratitude, Trusts & Estates Magazine, David R. York and Andrew L. Howell, May 2017.

2 The Generational Collide, U.S. Trust Insights on Wealth and Worth, p. 14, 2017.