“Values-based” Estate Planning
There are many facets of estate planning.
Certainly, it’s important to craft a will that delineates how the fruits of years
of hard work will be distributed to your loved ones—fairly and harmoniously. And,
of course, crafting strategies that will maximize what you pass on at the minimum
tax cost is an important goal.
Still, it’s not all about who gets what. Nor is savvy tax management the “be all
and end all” of estate planning. In sum, says Scott C. Fithian, author of Values-Based
Estate Planning: A Step-By-Step Approach to Wealth Transfer for Professional Advisors
(John Wiley & Sons, 2000), “it’s putting vision, values and goals before techniques,
products and tools.”
Transferring your personal values and ideals is likely to be an important part of
the legacy that you want to leave behind. In other words, what you want your children
and grandchildren to inherit is more than stocks and bonds, but the beliefs that
you want them to cherish and the goals for which you wish them to strive—recognition
of one’s heritage; respect for family traditions; the need to contribute to the
community and the world at large.
Establishing your financial philosophy
Developing a financial philosophy (or as Fithian calls it, a “mission statement”)
is an effective way to identify your needs and desires and to translate them into
an estate plan. As Attorney Wendy S. Goffe of the law firm of Graham & Dunn
in Seattle, Washington, explains it, this philosophy or mission statement is developed
by considering several aspects of your financial life. For instance, it’s important
to determine what resources you will need to maintain financial independence during
your lifetime and to decide on the appropriate legacies for your heirs.
In addition, you need to choose how to distribute your “social capital.” Fithian
defines the term as either the tax that you will pay on your assets or the charitable
donations that you will make. It represents the part of your wealth that neither
goes to you nor passes to your beneficiaries.
By sifting through your thoughts and motivations with regard to these three elements—financial
independence, legacies and social capital—you will be able to articulate clearly
the values upon which your estate plan will rest. For instance, if you recognize
that you have a strong desire to maximize your charitable gifts, you ultimately
may decide to reduce the size of the legacies to your heirs. Or if your loved ones
stand first and foremost in your planning, the amount of tax that you pay or donations
that you make will be much less of a concern.
Imparting your value
Setting aside the resources for a comfortable life is a matter of projections and
dollars and cents. Similarly, effectuating your charitable goals can be accomplished
with any number of time-tested techniques without a great deal of difficulty. But,
how exactly, can your mission statement be translated into actions that will perpetuate
your goals and values among your offspring?
One of the most effective tools that you can employ is referred to as an incentive
An incentive trust allows you to reward the behavior that you wish to see or to
delay an inheritance to a time when it is most likely that your offspring will have
the maturity to recognize the wisdom and truth of your value system. Thus, the trust
that you create can call for distributions only when your beneficiary has reached
a certain age. Or, you can distribute assets in increments. Common age benchmarks
are 25, 30 and 35.
In the same vein, if you believe in the importance of a productive life and fear
that a large inheritance will put a damper on ambition, an incentive trust can be
fashioned to provide for the distribution of assets only if a child has earned income;
in which case, payouts often are designed to match salary (dollar for dollar, for
Similarly, if you value education highly, payments of income or principal also may
be tied to an educational objective— completion of college or graduate school or
achieving a certain grade point average. Or, if the goal is to encourage a social
conscience, the trust could provide for supplemental payments when a child enters
a career that you favor—for instance, as a teacher, social worker or member of the
There are any number of additional types of incentives based on specific family
circumstances, Attorney Goffe points out. Additional distributions from the trust
might be made available for a beneficiary whom you would like to see set up a certain
business or professional practice; or to continue the operation of a family farm;
or to encourage a child or grandchild to be a stay-at-home parent.
If desired, the instructions drafted in an incentive trust document can be restrictive.
For example, distributions can be tied to assumption of the family business or the
donation of a certain amount to charity. The trust even may forbid distributions
in the case of destructive behavior (for example, alcohol or substance abuse).
A final consideration
With your financial philosophy formed, and the tools in place to make the various
elements of your philosophy become a reality, there is still one more step: Making
certain that there is someone who will see that your plan is put into action and
operates in the manner and style that you intend.
You may wish to explore appointing a corporate fiduciary, such as a trust department
or trust company, to serve as your executor and trustee (or in the capacity of coexecutor
or cotrustee). Professional fiduciaries bring much to the table: Experience, objectivity
and constant availability are just a few important talents and traits that you should
seek in choosing those who will oversee the implementation of your financial philosophy.
The permanence of a corporate fiduciary will allow your value-based estate plan
to continue to perpetuate your ideals and beliefs for generations to come.