In 1789 Ben Franklin penned the now-famous words which estate planning attorneys often reference: “In this world, nothing is certain except death and taxes.” However, Franklin’s observation is not about death and taxes but rather the inevitability of change! Managing the inevitability of change epitomizes the executive experience.
What most families experience in “estate planning” is an event. It is often an uncomfortable focus on money as impacted by death and taxes. Few actively employed executive families living under the tyranny of the urgent prioritize a periodic review of their plan; therefore, traditional estate plans generally become stale and non-optimal.
What families deserve is a “legacy management” process with a biennial (every other year) review and re-optimization of family resources (human, charitable, and financial). Regular reviews are necessary because a family’s precious resources and objectives intersect with the passing of time and the inevitability of change.
What legacy management delivers is a long-range planning continuum involving the active management of the family’s global legacy plan. The process seeks to minimize adverse developments and capture new opportunities, which change brings. There exist three vital elements to the legacy management process:
- Collaboration. The family appoints a trusted advisor who convenes and coordinates the team of advisors and all meetings. The team might include all or some of the following: an insurance expert, an investment advisor, an accountant, a financial planner, a trust officer, and an attorney. Three or more of these roles might coexist in one advisory firm. The team will work with a shared data source to minimize duplication, conflicts and reduce plan management and administration errors.
- Quantitative Analysis. Vital quantitative elements for creative and enduring plan design are:
- Determination of required Lifestyle Capital. The quantification of the current wealth-holding generation’s required assets to maintain their desired lifestyle through life expectancy with appropriate margin for opportunities and unforeseen events.
- Determination of Transcendent Wealth: Transcendent wealth is assets that could be, if desired, given away immediately to charity or children without risk to the ongoing financial security of the current wealth-holding generation.
- To properly quantify transcendent wealth, one merely subtracts required lifestyle capital from total capital.
Until the above two quantitative assessments are satisfied, truly inspired legacy planning is not possible. Great quantitative analysis unleashes the creative intellect of all team members and family leaders. Informed decision-making empowers family leaders to implement more powerful strategies that will best harmonize potential outcomes with desired expectations.
- Ongoing Review and Benchmarking. Biennially, a review of the quantitative model allows for benchmarking of actual performance against prior expectations. In addition, client objectives are refreshed, and any threats to the plan or new opportunities are discussed. Finally, if necessary, the plan is amended to conform with current client objectives.
In sharp contrast with the more traditional estate planning review event, which, if fortunate, might occur about once in a decade, this more frequent reassessment process allows tactical adjustments to be made as legislation and family circumstances or objectives change. Thus, periodic reviews keep the Legacy Plan “fresh.”
Most parents of the current wealth-holding generation are enthusiastic about the appropriately timed involvement of their adult children in these ongoing legacy management conversations. As a result, the rising generation can be trained and empowered with the practical knowledge necessary for the plan’s ultimate success across many generations.
Doing nothing is easy, yet it almost guarantees a non-optimal result. As adult children witness and practice the principles of this legacy management process, the next generation’s financial literacy and confidence in the family matures. While most families do not own a family business, all families can be involved in the business of the family.