“I want my child to grow up to be as selfish, unproductive, narcissistic, miserable, and uncaring as possible.
In all of my years as an estate planning attorney, I have never heard a parent express the sentiment in the statement above. As a matter of fact, I find that the opposite is the case. Yet too often, estate plans have exactly that outcome. As it turns out, terrific tax planning may not be the best planning for helping adults develop into strong, independent and productive people.
In the last century, estate planning largely involved assembling a sheaf of estate documents that reduced the cost of passing your wealth on to the next generation. The chief, if not exclusive concern, of these plans lay in reducing or eliminating estate taxes and the cost of probate. These documents might contain a trust for children, and occasionally would include crude incentives designed to elicit certain behaviors in the children.
For people with even moderate wealth, the stakes of doing appropriate transition planning get very high indeed. Unfortunately, estate plans that actually accomplish the goal of saving large sums of money in estate taxes may wreck havoc in future generations. Future generations get caught in cycles of dependency, low self-esteem, disempowerment, entitlement, and other negative behaviors. We have all seen this phenomena – the lawyers did a terrific job of preserving the wealth, but it is simply going to waste or even harming the heirs. These poorly designed transition plans end up doing far more damage than good. Those families owe it to themselves, their children, and their grandchildren to carefully consider how their estate plan might become a contributing cause to genuine human misery in successive generations and how they might do better.
Most of our clients are vitally concerned that their children become “productive members of society”. Because of that deep concern, we find that many parents are thinking about how to best pass their assets to their children in ways that make their children healthier and more productive. Yet for too long estate plans have resulted in the creation of entire generations of selfish and wayward heirs. The very thing that parents wanted to avoid the most was the unintended consequence of documents put together because “something needed to be done” with the only goal being the reduction or elimination of estate taxes. The Greatest Generation sees many of its children hobbled by debt and living lifestyles beyond their means. Many people in the Boomer Generation have significant concerns about the work ethic and overall engagement of their children. Transition planning by both generations is beginning to be seen as more than merely a way to pass on wealth, but as a means to fostering responsible stewardship of those assets by the next generation.
In contrast, the 21st Century is seeing the emergence of a much more nuanced and comprehensive approach to transition planning. While reducing the cost of wealth transfer is still vitally important, we are also beginning to understand more deeply how wealth affects successive generations and how inept estate planning can negatively impact families in the long run. The old clunky estate plans of the past are giving way to transition plans that not only reduce tax but also serve the needs of families in ways that promote more productive and well-adjusted heirs.
Questions
- Do you know estate planning attorneys who are moving away from more traditional approaches to create innovative transition plans for their clients?
- What do you think your clients want from their transition plans?