Can We Create More Meaningful Estate Plans?

A big part of my practice is working with clients to pass along as much of their wealth as possible to the people they love.  If you stopped by my office, you could find me doing the types of things estate planning attorneys do to minimize tax and preserve wealth.  I might be --

  • Drafting a GRAT to transfer appreciation on assets such as pre-IPO stock.
  • Structuring a transfer that reduces the value of assets for gift or estate tax purposes, perhaps through a gift of a partial interest in real property or a gift of family limited partnership interests.  
  • Drafting a GST trust or dynasty trust to pass more and more wealth to grandchildren, great-grandchildren, great-great-grandchildren and beyond.

But wealth preservation is not an end in and of itself.  (At least not for most clients.)  I believe that clients go through the time and expense of sophisticated estate planning because what they really want is to increase the opportunities for their loved ones to live happy, fulfilling lives. 

Of course, more wealth doesn't necessarily lead to greater happiness.  "The Joys and Dilemmas of Wealth," a new study out of Boston College's Center on Wealth and Philanthropy, funded in part by the Bill & Melinda Gates Foundation, reveals that parents worry an awful lot that wealth has the potential to do their children more harm than good.  An article by Graeme Wood in The Atlantic, "Secret Fears of the Super Rich," previews some of the results of the study:

the overwhelming concern of the super-rich—mentioned by nearly every parent who participated in the survey—is their children. Many express relief that their kids’ education was assured, but are concerned that money might rob them of ambition. Having money 'runs the danger of giving them a perverted view of the world,' one respondent writes.  Another worries, 'Money could mess them up—give them a sense of entitlement, prevent them from developing a strong sense of empathy and compassion

The study also reveals how some of the estate planning techniques used to address these fears (distributing wealth in stages, using incentive trusts) are not the answer in and of themselves, and may actually rob beneficiaries of a sense of personal autonomy or purpose:

Many wealthy parents structure their children’s inheritances such that the money arrives only in discrete packets, timed to ensure that during their formative years they have no choice but to find a vocation. But [Robert A. Kenny, one of the survey’s architects] hasn’t seen the strategy work, he says, because the children always know that the money is out there, and usually their friends do too. . . . Even if parents succeed in setting up a trust to parcel out the inheritance according to guideposts—get a degree, get a job, raise a family, etc.—they run the risk of setting up bitter intergenerational feuds. As one survey respondent from a wealthy family explains, 'I have grown up with a father who never wanted to give up control of his business but kept taunting me with the opportunity to step into his shoes.'  His wife adds, 'It has been difficult to feel financially independent when [my] spouse’s parents hold tight control over [our] children’s inheritance.'

So how do we create estate plans that move beyond enhancing wealth to enhancing lives?  Although wealth preservation is part of the estate planning process, the conversation between the estate planning attorney and the client needs to begin with people, not property.  Jon Gallo, a leader in the estate planning field (married to psychologist Eileen Gallo), blogs about how Eileen's work on the psychological impact of wealth caused him to change how he approaches meetings with clients:

For most of my thirty plus years in practice, I viewed myself as a teacher, whose job consisted of four functions:
  1. Obtain and analyze the necessary financial data.
  2. Determine the techniques that can be used to transfer the client’s assets to his or her intended beneficiaries in a tax-smart manner
  3. Present the alternatives to the client in such a manner that the pros and cons of each is clearly revealed and the client is able to make an informed decision.
  4. Implement the client’s decisions . . . .
After 30 years in practice, I changed my introductory meeting into one which explores the clients’ relationships with their children and grandchildren and focuses on the values that the client wishes the estate plan to convey. Asking the clients to prepare a family mission statement accomplishes far more than extolling the virtues of exempt generation-skipping trusts.

I think Jon's approach is correct, but that's not to say it is easy.  As estate planners, we can get pretty uncomfortable when we leave the familiar (and technical) realm of GRATs, IDGTs and FLPs and start talking with clients about things that can feel very personal -- hopes (and fears) for their children, attitudes about how wealth should (or should not) be used, charitable causes.  We may implicitly make decisions for our clients by asking closed-end questions that do not explore many possibilities ("Would you rather distribute assets to your children immediately upon your death or in stages at different ages?").  Or we may cut the conversation short through abrupt yes/no questions ("Do you want to leave a gift to charity?").

When I ask myself what I want for my own still-very-young children, I realize that my goals are more open-ended.  An attorney could not elicit them by asking narrow questions:

  • I want a safety net -- I want to make sure that my children will never fall through the cracks -- that they will always have the basics (a safe place to live, health care, and basic support if they can't earn a living)
  • I want my children to pursue a meaningful education, which, depending on who they grow up to be, might mean pursuing advanced degrees, attending a conservatory, training at a culinary academy, or something else
  • I want my children to have the opportunity to start a business to make the world a better place, or engage in philanthropic activities to make the world a better place, or supplement their income from the trust if they need to so they don't have to turn down a job that might make the world a better place
  • And, to round off the list, I want my children to be happy (in a meaningful way)

Estate planning attorneys may need to learn new communication skills.  Clients will need to accept that the planning process will be more time-consuming and more expensive.  But I think it will be worth it.  When we focus on something beyond wealth preservation -- to creating opportunities for our children, promoting happiness, enhancing lives -- the process of estate planning becomes more personally meaningful for our clients and the people they love.

Upcoming Seminar: Presence and Ethics at the End of Life

On November 12th, I will be giving a Silicon Valley Bar Association seminar on Preparing for Dying: Presence and Ethics at the End of Life with sociologist and filmmaker Dr. Michelle Peticolas and estate planning attorney Deborah Radin of Kramer Radin, LLP.  

We will begin the seminar by watching Dr. Peticolas's award-winning documentary, Caring for Dying: the Art of Being Present.  You can view a trailer for the film here

Deborah Radin will cover the benefits of using advance health care directives to make decisions about the end-of-life.  She will also discuss what an "ethical will" is and how individuals can use ethical wills to transfer their personal values, history and legacy. 

I will discuss estate planning ethical issues and rules of professional conduct when representing a client at the end of life.  If you are an estate planning attorney who has worked with clients in hospice, you are aware that there are numerous ethical issues, including knowing who the client is, undue influence, and capacity.  I plan to cover these and other topics.

Attorneys will receive one hour of ethics credit for attending the seminar.  You can register for the event through the Silicon Valley Bar Association.

Who Needs an Estate Plan?

Estate planning makes sense no matter what size your estate is.  Of course, if your estate is large enough to be subject to estate tax on your death, one part of the planning process will be looking at different ways to reduce or postpone estate tax.  But whether your estate is large or small, planning makes sense.  Estate planning lets you to decide who will manage your assets, take care of your personal affairs, and make health care decisions for you if you become incapacitated in the future.  

If you are a parent, an important part of the planning process is choosing who will take care of your children if you die.  

Estate planning lets you control who will receive your property on your death and how they will receive the property.  If you die without a will or trust, California's intestacy laws control who inherits your property.  Without a plan, property passing to minor children goes to them outright when they turn 18.  With an estate plan, you can make sure your property is held in trust for the benefit of the child until a particular age or even for the child's lifetime.  

For most clients, the fundamental building block of their estate plan is the revocable living trust.  A revocable living trust avoids probate on your death because the assets held in the trust can be "administered" without a formal probate.  

The State Bar of California has published a pamphlet about the planning process called "Do I Need Estate Planning?"  It is a helpful resource if you are wondering whether now is the time to get your own estate plan started.