Nine of out ten wealthy families will lose their wealth in three generations. Six out of ten will lose it by the end of the second generation.
The primary problem with the practice of estate planning is that estate planning is viewed as synonymous with estate tax planning. When planning the transfer of estates, wealth holders and their advisors simply look to divide assets equally among heirs in a way that avoids taxes.
We are strong proponents of avoiding taxes, and a tax-conservative strategy that results in an equal-pie-share split among heirs might be the best short-term solution for protecting wealth from the government. However, it does little to mitigate the other risks associated with transferring an estate. Namely, estate tax planning fails to address the risks your heirs pose to the accumulation of your wealth. Perhaps more alarming, it does little to protect your heirs from the risk your wealth poses to them.
Estate planning and estate tax planning are not the same. The former is holistic—its considerations do include taxes, but it also extends to include values, acknowledging that a person’s life pursuits and morals can continue to be propagated even after death. True estate planning recognizes that transferring money to avoid taxes is not enough.
Most estate planners and holders do not consider the interrelation between the three types of wealth:
- Financial wealth consists of all assets on a person, family, or business’s balance sheet;
- Human wealth consists of the productive skills and technical abilities a person, family, or enterprise embodies; and
- Intellectual wealth is the knowledge of a person, family, or enterprise.
Human and intellectual wealth are almost always necessary to create financial wealth, but while financial wealth can support the development of human and intellectual wealth, it is not a necessary component.
If all of your financial wealth was lost, your human and intellectual wealth can rebuild it. But is the reverse true? Can human and intellectual wealth be rebuilt solely from financial wealth? As a result the children and grandchildren in these families act as though they hit a triple when, in fact, they were born
on third base. Yet in spite of this beseeching need to teach values, estate planning almost always focuses on financial wealth, which is clearly the least important of the three categories of wealth.
Estate planning places so much focus on eliminating taxes that they end up transferring money to unprepared heirs. And I would argue that an unprepared heir will waste more money than the government could ever confiscate in the current estate tax scheme.
There are over three hundred trust mechanisms exist, and comprehensive estate plans combine multiple layers of different trusts. These trusts can ensure a client’s values in addition to their wealth can live long after they do. Like a client’s goals, the outcomes of trust combination permutations are endless.
Click Here for a partial list of various strategies and trusts we use for estate planning.
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Additional Estate Planning Resources
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| Estate Planning Brochure |
| You Can Make It But Can You Keep It - by R. Wesley Sierk III |
