Purposeful Planning; An Exploration & Explanation

Kaiser Law Group’s ‘tagline’ is “Purposeful Estate Planning for the Millionaire Next Door.”  Many of our clients and colleagues know our appreciation for Thomas Stanley and William Danko’s late 1990’s classic book, The Millionaire Next Door, which extols the virtues of living beneath your means (“playing good defense”), investing in products and services of true value (e.g. like a quality CPA, financial advisor and estate planning attorney) and possibly owning a small business or other investments (“playing good offense.”) If any clients or colleagues would like a copy of the book, we’d be happy to have you come by our office and pick one up as a gift for yourself or a loved one.

We’ve probably shared less about the importance of a “purposeful” estate plan.  About six years ago, I was introduced to the Purposeful Planning Institute and its founder, John Warnick, by an author, James Grubman.  Dr. Grubman is a psychologist, consultant and author in the field of family wealth psychology.  I’m a fan of his book, Strangers in Paradise, which is about how families adapt to wealth across generations.

Purposeful Planning is based on a philosophy that creating technically competent/accurate estate planning documents is not enough to sustain family wealth in all its forms (not just financial) across generations.  I’ve attended the Purposeful Planning Institute Conference in Denver, Colorado each of the last three years and it’s probably my favorite continuing education conference (and I attend a LOT of those conferences). Last year, I co-founded the Southern California Chapter of the Purposeful Planning Institute so that I could connect with local professionals who share the purposeful planning philosophy on a more regular basis.

In high-net worth families, studies show that 70% of the families lose their wealth by the end of the second generation and 90% lose it by the end of the third generation[1]. That historical pattern repeated over time has led to the saying “shirtsleeves to shirtsleeves in three generations.”

This phenomenon has been witnessed across time and across cultures. In fact, we have similar sayings in other countries:

  • Mexico: “Father-Merchant; Son-Playboy; Grandson-Beggar”
  • Italy: “From the stables to the stars and back again.”
  • Germany: “The first generation creates, the second inherits, the third destroys.”

When we examine the reasons for failure of the plans to sustain the families’ monetary wealth and heritage over generations, studies indicate that only 3% of the failures can be explained by poor investment, legal or tax advice. 85% of failures are attributable to “softer” factors such as the unpreparedness of heirs (25%) and breakdowns in family communication and trust (60%).[2]

Elements of Purposeful Planning:

Trust Naming to Convey Meaning – naming a trust can be an overlooked symbolic opportunity to connect the beneficiary(ies) and trustee to the purpose and meaning of our clients’ gift. The best name for a trust is one that our clients choose that reflects their deepest purposes, hopes and dreams for their loved ones.  Even when done in a more lighthearted way, the trust name can convey special family meeting.  For example, we had a recent client who named his trust the “Crapshooter Trust” after the nickname he used as his “handle” while working as a long-distance truck driver for many years.  His trust name will connect his family to his sense of humor as well as the hard work and dedication he put into his job to create a legacy for his family.

Purpose of the Trust –   Beyond the foundational goals of avoiding probate and minimizing fees and taxes, families have an opportunity to share a more unique purpose for their plan.  For example, one client family wanted to encourage their oldest daughter to spend her inheritance more liberally on herself than they expected her to; she has always been overly responsible and frugal. How liberating would it be for her to see that her parents’ wish for her to do that was actually part of their estate plan?  She could treat herself to a vacation for example without feeling guilty that she was “wasting” her parents’ money.

Legacy Letter – Two years ago, we added a talented legacy writer to our team.  She has helped about 1/3 of our clients create a family “legacy letter.” Clients have used this opportunity to share special family memories, cherished family values and dreams/wishes for their beneficiaries. We have two samples for you to easily review: Legacy Letter Sample 1, Legacy Letter Sample 2

Family Meetings – Keeping in mind that one of our primary objectives is to minimize family conflict upon the passing or incapacity of our clients, our experience has shown that beneficiaries who are informed about the basic structure and purpose of an estate plan (not necessarily the details or value of assets) are less likely to threaten or engage in litigation.

Formal studies bear this out – 89% of beneficiaries who were aware of the basic function of a plan were satisfied with the plan while only 65% of those who weren’t informed of the plan were satisfied. That gap leads to a lot of confusion and anger in the midst of family grief.

We facilitate family meetings with our clients, their beneficiaries and their other trusted advisors. The purpose of these meetings is to discuss the basic function of the plans (not the amount of assets unless that is what the clients want), make sure that the beneficiaries understand any unique or unequal wishes (to minimize conflict between siblings, for example) and make sure that all of the clients’ trusted advisors understand their wishes and are ready to work as a collaborative team to support the clients.

We hope this gives you a bit of insight into what Purposeful Planning is and why we feel it deserves time and emphasis as a part of our estate planning process.  If you have any questions about Purposeful Planning, drop us a line.

Happy New Year!

[1] Williams Wealth Consultancy Group – study of 3,200 high net worth families.

[2] Missy Sullivan, “Lost Inheritance,” The Wall Street Journal, March 8, 2013.