When most people think of estate planning, they think of creating wills and trusts to distribute their financial assets. If our legacy is to be lasting, we must do more than merely preserve and pass along our valuables; we must preserve and perpetuate our values as well.
According to The Heritage Institute, nine out of ten wealthy families lose the family assets within three generations; while six out of ten run through the money in just two generations. Unfortunately, I have also seen cases in which families overspend the income they receive and experience disastrous financial results within a few years.
It's a story as old as time, told by biblical figures and billionaires alike. The story goes like this: an heir inherits a large sum of money and loses his or her pursuit of purpose. As far back as the Old Testament, King Solomon cautioned, "An inheritance quickly gained at the beginning will not be blessed at the end." (Proverbs 20:21) Members of the Vanderbilt and Carnegie families have warned that inherited wealth can have adverse affects on one's work ethic and self-esteem. And tycoon and uber-investor Warren Buffet came right out and said, in his view, there should be limits on what an individual inherits, recommending "enough money so that they feel they could do anything, but not so much that they could do nothing."
For me, some of the wisest words about money management come from the New Testament, where both Matthew (Matthew 6:21) and Luke (Luke 12:34) remind us that where our treasure is, our heart will be also.
How can we make sure our treasure ends up in the right place? Here are four steps to help you put your money where your heart is:
1. Know What Matters. Set aside time to examine your life and replay the pivotal turning points -- the good, the bad and the ugly. Start by asking yourself: what have I done right? What have I given to the world? What hardships have I endured that made me who I am? Which experiences or people have influenced or inspired me? What acts of kindness have I been the recipient of and which have held the greatest meaning for me? What is truly important to me? What causes or issues do I feel passionate about?
2. Decide Where You Can Make the Most Impact. Once you've identified what you value and care about most, think about how you can use your personal and financial legacy to create the greatest impact. For example, I know of a Midwest man who was a young boy during the Great Depression. He had two life experiences that resonated strongly for him: Growing up he saw friends and neighbors struggle to feed their families, and sometimes felt the pangs of hunger himself; and he had a 9th grade English teacher who took an interest in him and helped him find scholarships and funding so he could attend college.
While this gentleman now gets many requests for donations, he has decided to focus his resources on two priorities: setting up a trust to make sure all of his grandchildren will be able to get a college education and making endowments to organizations that help feed the hungry.
3. Structure Your Legacy to Achieve your Goals. Think of your legacy in three parts: 1) personal -- your values, history, goals and hopes; 2) financial -- money and assets; and 3) philanthropic -- what you want to give back to the world. Set goals and strategies in each of these areas that will serve as a guide in achieving the true impact you desire when preparing documents such as your will and trusts or setting up grants, endowment funds or a family foundation.
4. Prepare Your Family. Communicate the three parts of your legacy to your heirs, explaining what went into creating the wealth they will inherit as well as the values and history behind the gift. Ensure they understand the responsibilities and practical skills that go along with being good stewards of their inheritance -- not only when it comes to managing the money but the personal and social intentions that go along with it.
Above all, know that your greatest assets go far beyond just the money. Imparting a shared history, a common set of values and a strong sense of purpose can truly be the most important gift of all.
This information in this article is general in nature and may not apply to your own financial situation. Please consult your own professional tax advisor regarding this information and your own personal tax needs. For a complete disclosure statement, please see my biography.