Preparing Your Heirs for Their Inheritance

As we counsel clients during the preparation of their estate plans, one concern is usually very evident - parents are worried that their children will squander the funds and assets that they worked very hard to accumulate. This concern can be addressed in many ways, but usually, parents request specific provisions in their estate planning documents that control an heir's access to distributions based upon age, accomplishments, and certain life choices. Therefore, the assets are distributed largely because a specific milestone has been reached. The thoughtful nature of the distribution planning, however, leaves a primary problem unaddressed - preparing the heirs for wealth transition from one generation to the next. Studies conducted by various institutes demonstrate that many estate plans that have been completed and then updated carefully and competently throughout the years, successfully address the issues relevant to the parents' wishes. The attention to detail, however, cannot necessarily fill the gap of the heirs' lack of direction and instruction that results in chaotic estate administration, family disharmony, and relationships that remain broken forever. The "soft" skills that are necessary to develop the maturity and wisdom for the successful transition of family wealth should be given more attention by parents and grandparents. Most of the care and thought given to such considerations as tax-planning, beneficiary designations, and other details are very important to the preservation of family wealth, yet no matter how well those matters are addressed in the estate plan, if the heirs have not been prepared to accept and manage the responsibility that comes with an inheritance, the investment that was made in the estate plan may not provide the return the client was hoping for (after his or her death). Ask business owners what the most important asset of their business is, and they usually respond with "our employees." Their answer does not consider the banking account balance of the business. A family's most important assets are the people- the parents, children, grandchildren, uncles, aunts, grandparents, cousins, etc.- the understanding and knowledge that these individuals have learned and will, ideally, integrate into the family. During the summer months when families can spend more time together, such as on vacation, the opportunity is provided to work on communicating family values and stories that impart learning experiences, reading excellent books that promote stories of character, and deliberately using intelligence and common sense to tackle problems. Parents can encourage their children to develop the ability to work through problems while dealing with difficult personalities and people, to consider other options to solve seemingly incompatible ideas that siblings may have amongst themselves, and to place the most value on the people that are a part of the family organization rather than on the financial assets that will eventually become theirs. Parents can begin by encouraging shared values and the enhancement of the individuals and the family as a whole. A family can preserve itself through many, many generations if the proper estate plan is in place and if the attitude toward the family's assets is that of the assets serving the harmony, growth, and human capital of the family.

Dan A. Penning