From "Estate Planning" to "Family Strategic Planning" Plus

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Socrativestor
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From "Estate Planning" to "Family Strategic Planning" Plus

Post by Socrativestor »

In another thread sscritic posed the question "Do Your Adult Children Understand Inheritance?" and began with his own answer about his own family situation. Along with others, I chimed in with a post that began:
I, too, am just beginning to grapple with this -- but at an even earlier point in the process: involving heirs in the estate planning process itself. Rather than present them with a fait accompli that they must then be educated about, the idea is to educate them as part of soliciting their input in a plan they can understand and buy into (so to speak).
I then listed the following books that I had just ordered on the subject -- most, if not all of which, I had seen recommended here on bogleheads in one place or another (in fact, I think Larry Swedroe was the ultimate source of several of them)
  • :
    Beyond the Grave: The Right Way and the Wrong Way of Leaving Money To Your Children (and Others) by Condon and Condon
    Wealth: Grow It, Protect It, Spend It, and Share It by Lucas
    For Love & Money: A Comprehensive Guide to the Successful Generational Transfer of Wealth by Williams
    Preparing Heirs: Five Steps to a Successful Transition of Family Wealth and Values by Williams and Preisser
    Philanthropy, Heirs & Values: How Successful Families Are Using Philanthropy To Prepare Their Heirs For Post-transition Responsibilities by Williams and Preisser
    Family: The Compact Among Generations by Hughes
    Family Wealth--Keeping It in the Family: How Family Members and Their Advisers Preserve Human, Intellectual, and Financial Assets for Generations by Hughes
    I noted that:
    Several of these books are by The Institute for Preparing Heirs (Motto: "Families traditionally prepare assets for heirs ... we prepare heirs for assets.")
    with which I have no affiliation of any kind.

    I also linked to several resources that I had found online and had found helpful:
    (I particularly recommend the podcast as a place to begin.)

    Near the end I mentioned my interest in a wiki entry on this subject and solicited resources from others.

    ---------------------

    I have just finished Hughes' Family Wealth and am now beginning For Love and Money by Williams and would like to use this new thread to distill and share my thoughts and solicit comments and input. If it turns out to be any good, perhaps this can become the basis for a wiki entry or something.

    ---------------------

    Propositions

    P1) Wealth is a Means Not an End
    This sounds obvious in theory perhaps but it seems also that this is the easiest and first thing to be forgotten in practice. Traditional "estate planning" is often an exercise (often a complex and costly exercise) in "wealth preservation" per se that often amounts to little more than an often complex and costly exercise in tax avoidance. Little, if any, attention is paid to the ends to which that wealth will be put in the future -- or, indeed, can be put in the present to advance the long-term well-being of the individuals in the family and the family as a whole.

    P2) Wealth is Not Inherently Good
    Although perhaps not quite as obvious as #1 :wink: , nonetheless almost everyone at Bogleheads (and perhaps also in the world at large) has heard anecdotal evidence and/or has lived through a personal experience in which wealth had a positively harmful effect on the people it was intended to benefit. This often happens to lottery winners, for instance, and also within dysfunctional families. As my eponym Socrates pointed out so many years ago, most supposed "goods" are not inherently good but become "good" when used wisely (as opposed to foolishly).

    P3) A Family's "Business" is the Maximization of the Family Members' Individual and Collective Well-Being
    Or in peculiarly American terms: "Maximally Facilitating Its Members' 'Pursuit of Happiness'" [credit: Hughes, Family Wealth]. Or in Maslovian terms: "Maximizing the Family Members' Individual and Collective Self-Actualization". Or in ancient Greek terms: "Maximizing the Family Members' Individual and Collective 'Excellence' / 'Goodness' / 'Virtue'". However one puts it, though, "dying with the most toys" (or even: "living with the most toys") is most certainly not the definition of "winning" or "success". "Quality of Life" is.

    P4) Most (If Not All) Families are Dysfunctional to One Degree or Another
    In other words, most (if not all) family "businesses" of maximizing family members' individual and collective well-being fail to one degree or another. Indeed, family dysfunction often (if not always) results in family members harming one another and/or themselves -- taking the family farther from, rather than closer to, its goal. Wealthy families (using whatever definition you like) are not only not immune from family dysfunction, they are rather probably more prone to family dysfunction due to a variety of factors. In any case, the presence of wealth will generally serve to amplify whatever dysfunction exists -- and also to motivate the disguising of family dysfunction in order to promote the public (and private) image of a "successful family".

    ---------------------

    Conclusions

    C1) From "Estate Planning" to "Succession Planning"
    If "Estate Planning" is the term to designate "Strategic Wealth Planning", then "Estate Planning" is clearly a necessary -- but also clearly an insufficient -- component of a successful family that maximizes its members' individual and collective well-being. Another necessary component is what might be called "Strategic Wisdom Planning", the strategic cultivation of the family members' individual and collective wisdom so that wise use can and will be made of family's wealth (and other potential-goods) in order that the family's wealth may benefit family members and not harm them. Borrowing from the terminology of the business world, this strategic cultivation of the capacities of the next generation to make beneficial use of the wealth they will inherit can be (and has been) termed "Succession Planning".

    C2) From "Succession Planning" to "Family Strategic Planning"
    The cultivation of family members' individual and collective capacity to make beneficial use of the wealth they will inherit -- i.e. their wisdom -- is a long-term process (which is why it requires strategic planning). Indeed, in some sense it is a long-long process of conscious parenting in which both "the cultivated" (child) and "the cultivator" (parent) will grow, will grow closer, and will grow more symmetrical. Indeed, in some sense this life-long process will become an end in itself, in which both parties are what Aristotle called "friends". Thus, once begun,"Strategic Wisdom Planning" inevitably shifts from a "succession focus" to a "lifetime / lifestyle focus" to a "transgenerational focus". In other words, "Succession Planning" in particular inevitably morphs into a key component of "Family Strategic Planning" in general -- the conscious planning of the family "business" of maximizing its members' individual and collective well-being.

    C3) From "Family Strategic Planning" to "Family Therapy"
    By design "Family Strategic Planning" will identify the obstacles impeding the success of the family "business" of maximizing its members' individual and collective well-being and develop plans for the minimization (if not outright elimination) of those obstacles. What might be called the "external obstacles" confronting the family "business" of maximizing its members' individual and collective well-being will be addressed through the familiar avenues of "Strategic Wealth Planning" ("Estate Planning", "Financial Planning", "Retirement Planning", etc.). Addressing what be called the "internal obstacles" confronting the family "business" of maximizing its members' individual and collective well-being will be addressed through the somewhat less-familiar avenues of "Strategic Wisdom Planning" ("Succession Planning" and "Conscious Parenting"). Given the prevalence and significance of family dysfunction, however, addressing the "internal obstacles" will often require "Family Therapy" (even if the family dysfunction appears localized in one or a few family members). Although many (if not most) families will resist "Family Therapy", they should in fact welcome it -- both for the short-term healing it can bring to the family and for the long-term benefits it can bring to the family (most of which will be unattainable if the short-term healing is not attained).

    In short:

    C4) "Wealth Doesn't Help People; People Help People"

    ---------------------

    Personally, I am finding this emerging framework for thinking about "Estate Planning" as a component of both a larger planning process and also ultimately a total way of life to be a potentially profound paradigm shift -- one that I probably would not have been able to appreciate at any earlier point in my life (I'm in my early 50s). On the other hand, I am well-known for favoring the abstract (and some think: the irrelevant) and thus perhaps I am making a big deal out of nothing. In any case, I welcome input from others on the matter.

    I expect this to be a work in progress for me as I continue reading and thinking -- and taking into account the additional viewpoints of the Bogleheads. Thanks to all for your ongoing facilitation of my own growth.
Last edited by Socrativestor on Tue Nov 20, 2012 11:29 am, edited 1 time in total.
--Socrativestor | "Neither of us has any knowledge to boast of, but he thinks that he knows something which he does not know, whereas I am quite conscious of my ignorance."
Jerry_lee
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Re: From "Estate Planning" to "Family Strategic Planning" Pl

Post by Jerry_lee »

Thanks for posting, this is actually a good resource. From an advisor perspective, this is something we've dealt with for a long time. Many family stewards appreciate having someone (a non-family member) who can help them carry out their legacy, frame it in a way that isn't coming exclusively from the family patriarch, help family members appreciate it within the context of their own lives/experiences, etc.

It is one of the most fun and rewarding aspects of working with people that transcends "do I own the best index fund in each category" or "is my mix of small and value to large and growth or US to foreign optimal". Also, I've found that in order to be most effective in this regard, you can't be dealing with thousands of families/relationships. At that level, you don't have the time for much else than a model portfolio and an annual phone call.

Unfortunately, despite a garbage investment platform, some of the large trust companies (Northern, Goldman, US Trust) have been very/most effective at making inroads with these issues...they've committed significant resources to legacy projects/educational efforts, and in a lot of cases a "wealth management team" might only work with 30-50 families. That is a hard model for an independent fee-only firm to build from scratch (unless they've broken away from one of these shops), so you wind up having a few more clients than that -- some which value the legacy perspective, and some that don't.

PS -- I don't think you can "script" this stuff. There is no "roadmap" for most effectively creating and instilling a multi-generational legacy. It only comes from ongoing dialog, no hidden agendas, and trying to understand that each family is unique and requires a different approach. But being on the outside looking in, sometimes its easier as you aren't so close to the situation that you get tied up in all the family issues/dynamics, etc. My advice to any family doing this alone is to be open, upfront, shelve any day-to-day issues (leave that out of the conversation if possible), and commit to it being a life-long process where mistakes will be made in hopes of learning/improving.
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dandan14
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Re: From "Estate Planning" to "Family Strategic Planning" Pl

Post by dandan14 »

Another necessary component is what might be called "Strategic Wisdom Planning", the strategic cultivation of the family members' individual and collective wisdom so that wise use can and will be made of family's wealth (and other potential-goods) in order that the family's wealth may benefit family members and not harm them.
I really like this thought. By creating a culture of responsible wealth management and stewardship, hopefully even those who are not interested will have certain habits ingrained in them as part of the family culture.

Good stuff.
RadAudit
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Re: From "Estate Planning" to "Family Strategic Planning" Pl

Post by RadAudit »

Excellent points all. But how much money are we talking about before we begin to discuss wealth and Family Strategic Planning? Where's the break point?
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Socrativestor
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Re: From "Estate Planning" to "Family Strategic Planning" Pl

Post by Socrativestor »

RadAudit wrote:Excellent points all. But how much money are we talking about before we begin to discuss wealth and Family Strategic Planning? Where's the break point?
The Break Point? How about $0.00? Seriously.

For in this line of thinking everything that began as thinking about "Family Wealth" ends up as thinking about "Family Health" -- and the latter is applicable to all families, regardless of how much money the family has. After all, shouldn''t every family want to maximize its members' individual and collective well-being? Shouldn't every family seek to heal its dysfunction(s)? If so, then every family would engage in "Strategic Wisdom Planning", "Family Strategic Planning", and "Family Therapy". (Indeed, it is through these means that a poor or modest family might in fact become more likely to become wealthy.)

Indeed the only component that ends up have a dollar break point is the narrow "Estate Planning" / "Strategic Wealth Planning" part itself. But in this formulation it's that very component that serves to bring the broader problem(s)/issue(s) into view.

In other words, in this line of thinking the irony is that the greatest value of wealth may be its role as a catalyst to attending to things that one should attending to in any case, but often doesn't.
--Socrativestor | "Neither of us has any knowledge to boast of, but he thinks that he knows something which he does not know, whereas I am quite conscious of my ignorance."
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Re: From "Estate Planning" to "Family Strategic Planning" Pl

Post by Socrativestor »

Another resource recently found (geared towards professionals but useful in general as a brief introduction to a framework about thinking about an "advisor" should ideally be):

"A Reflection on the Nature and Practice of the Role of the Personne de Confiance in a System of Family Governance; Historically and Today" by Hughes

The concept of a "personne de confiance" is one of the building blocks of Hughes' second book Family: The Compact Among Generations that I have just begun to read.
--Socrativestor | "Neither of us has any knowledge to boast of, but he thinks that he knows something which he does not know, whereas I am quite conscious of my ignorance."
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Re: From "Estate Planning" to "Family Strategic Planning" Pl

Post by Socrativestor »

Every structure a family elects to create must create revenue by directly enhancing the family's system of growing its human and intellectual capital. A family should never create a structure to reduce taxes, which are, after all, a cost of doing business, unless it perceives that the lifetime of that structure will powerfully enhance its governance system and its purpose to drive the growth of its human and intellectual capital. All too often the tax savings to be achieved on day one of a structure's life is the only result anyone considers. It is essential to be aware that creating a perpetual trust, for example, will affect every family member who is a potential beneficiary of it every day for the rest of his life and every day of the life of every beneficiary in every generation to come. To fail to see this reality is to fail to understand such a structure's function and impact on the family. It ignores the risk that the structure will not be revenue creating, that it will not enhance the growth of the family's human and intellectual capital, or worse, that it will be entropic to its relationships and in fact be a cost. That form must follow function is a well-known rule. The question for a family's long-term success is whether its members, and particularly its leaders and the professionals who serve them, practice it.
-- Hughes, Family: The Compact Among Generations, p. 29
A nice statement of "Don't let the Estate-Planning 'tail' wag the Family-Strategic-Planning 'dog'", IMHO.

(N.B.: I take it that the term "revenue" here does not (necessarily) mean "financial wealth" but is being used somewhat metaphorically to designate "benefits" / "increases in well-being" ...)
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sleepingrust
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Re: From "Estate Planning" to "Family Strategic Planning" Pl

Post by sleepingrust »

Hi,

Take a look at Stuart Lucas' book on family wealth too. Stuart is one of Carnation Milk heirs, and a wealth management advisor. He has given a lot of thought to what wealth means to a family across generations.

http://www.amazon.com/Wealth-Protect-Sp ... 014&sr=1-1
letsgobobby
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Re: From "Estate Planning" to "Family Strategic Planning" Pl

Post by letsgobobby »

sleepingrust wrote:Hi,

Take a look at Stuart Lucas' book on family wealth too. Stuart is one of Carnation Milk heirs, and a wealth management advisor. He has given a lot of thought to what wealth means to a family across generations.

http://www.amazon.com/Wealth-Protect-Sp ... 014&sr=1-1
It is number 2 on the OP's list.

This is an extremely important topic but also difficult to raise in polite company, Bogleheads included.

One of the difficulties is that many of these books focus on the unique business experiences and talents families develop that allow them to accumulate wealth in the first place. Then the books tell you to focus on those talents, inculcate younger generations in the businesses, transmit competitive advantages generationally, etc. But a lot of that doesn't apply to your average Boglehead, who might accumulate low seven digit wealth by the time she dies, but who did so only by using successful indexing strategies. There is not a lot of competitive advantage or inside business knowledge to pass on in that case. Which then leaves unanswered the key dilemma of 'family wealth planning,' namely "How do I make my kids and grand kids appreciate all this money, caretake of it, grow it, spend it wisely, pass on even more wealth to the next generation, and really feel like a part of the family's wealth creation culture, when all there is to say is don't market time and keep costs low?"

Bogleheads tend to be conservative and we counsel each other to withdraw no more than 3-4% of our initial portfolio balance to ensure portfolio longevity. But that means 95% of the time, we will have money left over when we die. The average balance on death will be 2.5x our starting value; and 5% of the time, rather than run out of money we will have 5 times our initial balance or more.

Consider also that if you live to a ripe old age, your heirs may be pretty ripe themselves by the time they inherit. He useful is your legacy to your 70 year old retired child who is a grandparent himself?
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Re: From "Estate Planning" to "Family Strategic Planning" Pl

Post by gwrvmd »

letsgobobby....Good post, especially the part about what happens on the other end of the Bell Curve when you plan for a 95% chance of not running out of money. That is rarely alluded to.

However: you only mention, in teaching, what you did with the money " don't market time and keep expenses low". I think it is
is important to somehow impart how you accumulated the money i.e. Save, live below your means, Don't borrow to buy things that depreciate in value etc. Although I agree that many of us, if we are lucky, will pass it on to people that are already retired; a little late to emphasize saving.....Gordon
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