Chances are when you took care of your estate planning, you were probably ill-prepared. Because you were ill-prepared, the professionals working on your estate plan resorted to the basic aspects of trusts and estates: asset protection, taxation minimization, and governance control.
Now consider this, 70% of estate transitions fail in the second generation and 90% fail by the third. 97% of wealth transitions have nothing to do with tax considerations and legal issues. What is going on here?
An ideal estate planning process usually has 4 steps, but most will only experience 2 of them.
Consider your experience:
STEP 1-you reached out to an estate attorney and had an initial conversation. You filled out a long questionnaire and reviewed it with the attorney. The attorney was extremely thorough. They helped you with the aspects of the trust, reviewed your business entities and partnership agreements. They advised you on your contracts, liabilities, asset ownership, asset protection, taxation minimization and governance. They clean up a lot of problems, presented you with some binders and brought the paralegal in to notarize all your signatures. A good law firm will help with getting assets renamed and make sure the trust is properly funded. They will even coordinate with your other advisors and keep things up to date over the years if they are elite.
STEP 2-You die. Your successor trustee finds your binders. They start calling everyone because they don’t know the first thing about settling an estate. They call the attorneys, and they provide some bits of advice. Then the CPA. Then the money folks. The successor trustee starts to understand that everyone operates in silos. They are overwhelmed and we haven’t even accounted for the fact that they probably just lost a parent. Selling off or taking control of illiquid assets is time consuming and potentially devastating if there is family conflict. It literally could take months or years to settle an estate. In essence, that is the norm for the estate planning experience. But the first and last steps of effective estate planning are typically ignored.
Now consider this: while only 3% of wealth transitions fail due to tax and legal issues, 12% of estate-transitions fail due to a lack of mission or purpose. 25% of failures were caused by inadequately prepared heirs. And 60% of failures were caused by a breakdown of communication and trust within the family unit.
We have to get over the notion that estate planning is a tax, financial and legal matter. It is almost entirely a family matter. It is largely about “people.” It is about family. It is about the human capital: the values, the mission, the purpose of each family. It is connecting the human assets with the financial. Out of simplicity—professionals usually ignore the tricky issues and focus on the things they can control.
So in reality, there is a step at the beginning and at the end that are usually ignored. The first is the development of an inter and intragenerational family wealth mission, strategy, and roles. We must prepare surviving spouses and success or trustees. We must do better at preparing family businesses to thrive in the next generation. Instead of just preparing assets for the heirs, we must begin to prepare heirs for the assets.
And the last step is once the assets are transitioned, then there is the effort of assisting the heirs in carrying out the family wealth mission in the face of inevitably changing circumstances. Estate planning is truly a generational process and not just “getting”a trust. In our practice, we have championed this role of being a whole-family advisor. We seek to prepare and grow the assets for the heirs, and also prepare the heirs to be good stewards of the assets for multiple generations.
So give us a call. Tell us what you want to accomplish. We’d love to help.
