Legacy planning goes beyond mere numbers, aligning traditional estate planning with a family’s goals and values. The process includes defining and expressing what wealth means to a family. It involves identifying the core values that bind the family, and in many cases it involves grooming children and grandchildren to be guardians of not just wealth, but also those values.
Legacy planning prevents surprises by bringing extended family into the planning process. And it lets patriarchs and matriarchs see their legacy begin to unfold while they are alive to appreciate it.
All affluent families are concerned with preserving and managing their wealth. They want to successfully navigate the risk that’s part of the modern world. But they’re more concerned about the things that can’t be quantified, such as bestowing wealth on children in a healthy way; expressing familial values through philanthropy, and ensuring that future generations understand the family’s values and the source of its wealth.
Traditional estate planning can preserve and apportion wealth. But it does not help to ensure a stable legacy within a multi-generational family. It focuses on a transfer that occurs after a death, and it pertains to quantifiable financial assets. Little in conventional planning fosters long-term family harmony.
And that is a key reason why family wealth doesn’t last. Numerous studies have found that about 70% of all families lose their wealth across generations. While bad spending and tax decisions account for part of the failure, the most important factor is lack of communication, trust and preparation within a family.
This is hardly breaking news: Families’ boom-to-bust cycles are expressed in numerous old proverbs from around the world. You may know the expression “from shirtsleeves to shirtsleeves in three generations.” The Chinese speak of going “from peasant shoes to peasant shoes in three generations.” Scots say “the father buys, the son builds, the grandchild sells, and his son begs.” And in Italy, families are said to go“from the stable to the stars and back again.”
Family harmony and cohesion, so indispensable to making wealth last, drives legacy planning. All the accounting, legal and tax work associated with estate planning is critical, of course. But legacy planning, by acknowledging the connection between wealth and purpose, helps to make that work understandable and meaningful. And it helps to preserve families’ values along with their money.