Technically Proficient and Relationally Uninformed – Common Pitfalls to Effective Estate and Legacy Planning

THIS ARTICLE IS THIRD IN A FOUR-PART SERIES THAT EXPLORES ESTATE AND LEGACY PLANNING.

Our first article discussed the importance of understanding the difference between eulogy virtues and resume virtues in estate and legacy planning. Our second article explored the five capitals of estate planning: financial, intellectual, relational, character and spiritual.

 

Photo of Todd DeKruyter

BY: Todd DeKruyter
Family Wealth Strategist
(317) 412-3834

“I feel like I’m a pawn in my dad’s game to beat the IRS.”

“Honestly, I wish I know why my grandma left this trust with so many odd rules. Does that mean she didn’t trust me?”

Giving an inheritance is often done by people who never received a substantial one. Most estate plans are so focused on financial aspects that the grantor fails to view the inheritance from the heir’s perspective.

There are two common problems with most estate plans.

One, they are too technically focused. The technical tail wags the dog. To use another analogy, the technical aspects of the plan should be like the construction of a house: the technical aspects need to be shaped by the architectural design and intent of the architect. Most plans are constructed well, but very little strategic consideration is given to the inheritors and family dynamics. Trust work should be generative: it should add to the heir’s flourishing.

The second big problem – and where most estate plans fail – is focusing solely on financial aspects and neglecting the other forms of capital. The Williams Group’s research shows 70% of estate transitions fail with every generation. A full 60% of those failures are due to a breakdown of trust and communication. Another 25% is due to unprepared heirs. There’s also a 10% failure rate for a lack of family mission. Sum it up and 95% of the reasons your family is likely to fail in its transfer of wealth is not due to technical reasons.

Transfer of wealth fails because of the qualitative issues. Most, if not all, plans I’ve seen have been technically proficient, but relationally uninformed.

So, how do we solve this?

One key is seeing your wealth in its entirety. True wealth transfer planning considers all five capitals: financial, intellectual, relational, character and spiritual.

 

Estate Planning and the Mullins Exercise

One thing I do with clients is what I call the Mullins Exercise. It’s named after my friend Frank Mullins who taught it to me. I simply ask clients to answer these three questions:

Which of these capitals is your chief capital?

Which is the most important to you?

Which capital is least important to pass?

Imagine for a minute you had to pass only one of the five capitals. Are you going to pass financial, intellectual, relational, character or spiritual capital? Which is the most crucial? Which of these is the chief one for your heirs to inherit? Take a moment to determine your answer.

If you are like most people, you chose character or spiritual. Those two are deeper than the others. For me, the other capitals are governed by the spiritual capital and informed by your worldview. The spiritual capital, or how we make meaning of our experience, religiously or not, informs the others and arguably is most essential.

If this is true, would your heirs know your chief capital by how you spend your energy and money for planning your wealth transfer?

Similar to determining your chief capital, imagine for a moment you could only pass along four capitals, but not all five. Which would you leave out?

Take another moment to think about it. The capitals are again: financial, intellectual, relational, character, and spiritual.

If you are like most high-capacity individuals, you said that financial capital is the least important of the capitals. If you could pass on all the other capitals to your heirs, then they could obviously make their own money. And building your own financial capital, as you know, is a rather rewarding experience.

I agree with David York who said, “Financial capital is the fire, then the other capitals are flint and kindling.” If you would choose to disinherit the financial piece, but still pass on the flint and kindling, your heirs can make their own fire. But if you pass only fire with nothing else – ouch! Bad results can happen.

So, if you, like most people, would choose to omit the financial capital – therefore considering it the least important – then why do you spend most of your planning dollars and resources on that particular capital?

I’m not advocating for equal application of all capitals in estate planning. Done well, estate, tax, and financial planning are not cheap. But why do we have such a narrow view of legacy planning? Why do the non-financial capitals get left behind?

I’m also not advocating the complete disinheritance of your heirs financially. Estate bequests financially can be very wise. I am advocating a full inheritance using all capitals instead of only financial.

 

Action Steps:

1| Figure out what you are doing now to pass on your chief capital. Amplify your efforts or create new energy there.

2| Make a written commitment to yourself to put financial capital towards passing the other non-financial capitals.

3| Budget money and time to grow all five capitals.

4| If you need guidance, reach out to someone who can help guide you.

 

Next Step:
If you could benefit from estate planning and need advice on taking care of your loved ones, please contact me or any one of our professionals at 800.375.4646. We are ready to help.

About

Heritage Trust

In 1998, a group of trust officers and customers came together to form an alternative to big bank trust departments for those desiring unbiased and independent counsel with a high level of client service. Building from that core, Heritage provides an array of related financial services.

Our advisors are ready to sit down for a conversation to see how we can help you achieve your goals.

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