You want to make sure your loved ones are taken care of in case you die or become incapacitated. So, you have an estate planning attorney prepare a set of documents for you. You are assured that these documents will take care of everything. But you aren’t told that there is an inherent problem with estate planning. And that problem will most likely result in your life’s work – your money, property, life lessons, knowledge of your family’s history – being lost soon after you pass away.

What is Traditional Estate Planning?

Let’s say that you want to make sure your loved ones are taken care of if you pass away. Someone suggests that you should “get a will.” You then learn that wills and trusts are typically written by attorneys. So you call up an attorney and make an appointment. If you are married, you bring your spouse along to the attorney’s office.

During the meeting with the attorney, he asks you a bunch of questions. Then you are ushered out of the office and told that it will take a week or two for the documents to be prepared.

Later, you come back to the office and sign the documents. At the end of the meeting you are given a thick 3-ring binder with the documents you just signed. You are given some follow up instructions such as transferring your bank accounts to the trust and changing the beneficiary of your life insurance to the trust.

As the years go by, your 3-ring binder full of documents collects dust on the shelf. And eventually you pass away. Someone in your family then (hopefully) finds that binder and discovers your wishes.

There is a memorial service for you and your body is either buried or cremated. Then skip ahead a few months, and your loved ones get their inheritance checks. In most cases, that money is spent within a few years.

Notice what’s missing in this whole process:

• Telling your loved ones what you hope they will do with their inheritance. (Did you work so hard all your life just so your kids can upgrade cars and go on a vacation?)
• Passing your life lessons, values, and family history down to the next generations. (Research shows that children who know their family’s history – both the good and the bad – are more likely to be successful and to be careful with an inheritance. On the other hand, box of photographs means little unless the family knows the stories behind the photos.)
• Keeping a family-owned business in the family. (Most estate planning attorney simply assume that your business will get sold when you die. They won’t even bother to ask you if you want to keep it in the family – because most attorneys don’t know how to help make that happen.)
• How to maintain family communication and trust in subsequent generations so your children and grandchildren continue to want to stay in communication and get together for important holidays. (They may be unspoken animosities, greed, jealousy, resentment. Left unresolved, these can cause the family to splinter in parts after you are gone.)

Research has shown that for a wealth transfer from one generation to the next to “stick,” there needs to be transparency and communication between the generations. In other words, the parents need to include the children (and grandchildren) in the estate planning process.

If you think about it, the problem with estate planning (at least as it’s commonly done) is that it’s missing key ingredients. Without a common mission, the kids and grandkids will have their own ideas of how to use the money. And usually that involves spending it quickly. 

Meanwhile, however, the attorney ethics rules run counter to this. Keep reading …

Attorney Ethics is Part of the Problem with Estate Planning

Attorneys need to comply with ethics rules of their state. Here are some of these rules:

• Rule 1.6 (Confidentiality of Information): “A lawyer shall not reveal information relating to the representation of a client unless the client gives informed consent” (or some other exception exists).
• Rule 1.7 (Conflict of Interest): “… a lawyer shall not represent a client if the representation involves a concurrent conflict of interest (unless an exception exists).
• Rule 4.3 (Dealing With Unrepresented Person): “In dealing on behalf of a client with a person who is not represented by counsel, a lawyer shall not state or imply that the lawyer is disinterested.”

In other words, the client’s lawyer cannot communicate with the client’s children unless the lawyer specifically gets the client’s consent. (Rule 1.6) If the client’s children try to hire the lawyer, this creates a conflict of interest. The client (and the children) need to waive this conflict of interest. (Rule 1.7) And if these first two hurdles are overcome, the lawyer still needs to warn the children and other family members that he represents the parents.

This is why I often tell people that there is an inherent conflict between traditional estate planning and successfully working with a family to transfer wealth to the next generation.

The Solution

There are two main solutions to this conundrum. One is less expensive, but has inherent limitations. The other one costs money, and has a proven track record. Here they are …

The Do-It-Yourself approach:

After you go through the traditional estate planning process, plan a family meeting and discuss the estate planning documents with your adult or older teenage children. Discuss who will be in charge if you die or become incapacitated. Discuss who gets what and when. And even more importantly, discuss what you want your children to do with their inheritance. You’ve worked hard for what you’ve accumulated. Tell your kids what your money and assets mean to you. Let them know how hard you worked for it. Tell them that it take work to make money, and it’s even more difficult to keep it. Tell stories about your successes throughout life, and also your challenges and struggles. Introduce your kids to your professional advisors. All of this helps build a bridge so that the next generation is better prepared to receive their inheritance.

This approach avoids the inherent problem with estate planning because you (the parent) are taking the extra step and communicating your wishes to the next generations. You are being transparent and building trust with your children.

If, however, there are family conflicts or communication problems, then that’s a time to bring in a professional third party to help rebuild relationships.

Using a Consultant or Family Wealth Advisor:

Families that can afford it will bring in a consultant and/or family wealth advisor to help facilitate family meetings. The reason I’m calling this the “preferred” approach is that it is very difficult for you (as a leader of your family) to be a meeting facilitator, and also a participant. If any conflict arises, this can be hard for you to navigate.

The consultant or family wealth advisor will help the family:

• Create a process for making decisions (i.e., governance).
• Create a process for resolving conflicts.
• Help get the commitment of the family members to work together.

If you want a referral to a consultant or family wealth advisor, or if you have any other questions, give us a call at 602-443-4888.