The Business of Family – Your Guide to Legacy Planning

By Kim Ciccarelli Kantor, CFP^®, CAP^®

When we hear the term estate planning, most people consider the “nuts and bolts” of your plan:

Estate documents (wills, powers of attorney, health care proxies);

Financial vehicles that can support your family and your community for years to come (various types of trusts, donor-advised funds, etc.).

While the tangible aspects of your estate plan are absolutely necessary to your family’s long-term financial success, your legacy plan encompasses more than just your investments and assets. When properly prepared and executed, the plan should serve as a blueprint to prepare your children and grandchildren to become good stewards of your wealth.

Unfortunately, many personal fortunes have been squandered more quickly than they were amassed as a result of poor family communication and inadequate planning.

All too often, the intangible component of legacy planning is overlooked and future generations are left without a guiding framework for how to best sustain and enhance family wealth.

Key Considerations for Family Founders

As the family matriarch or patriarch, a well-thought-out legacy plan affords you with a unique opportunity to guide your children and grandchildren in achieving long-term personal and financial success.

At the very core of the legacy planning process should be your family’s mission and deeply held values. A mission or values statement serves as a succinct, powerful means for articulating financial priorities and creating mutual understanding about how to align your money with your principles and purpose.

In order for your legacy plan to achieve its full potential, you must consistently communicate your family mission and story – including the core values and key lessons that were instrumental during your lifelong journey of building and sustaining your wealth.

Perhaps the most important consideration as the family patriarch/matriarch is how to prepare your children and grandchildren to inherit wealth and embrace a healthy perspective about money.

In our experience, families realize the greatest benefit when they move beyond a simple explanation what is given to heirs. Rather, the heart of your family discussions should focus on (1) why the assets are being passed forward and (2) your intentions for how the wealth should be utilized.

If you have neglected to lay out clear expectations during your lifetime, your children and grandchildren could misinterpret your wishes and use their inheritance in a manner that is not consistent with your family mission and values statement.

While some of your descendants may indeed view their inheritance as a legacy to be preserved and passed on to future generations, others may see the windfall as a means for immediate gratification and short-term indulgence.

With these considerations in mind, the question remains: As the family founder, what is the most effective way to convey my wishes for how my legacy plan ought to be carried out?

Based on our extensive work with client families, we have identified five vital components of most successful plans – known as the “capital” in the business of family. By fostering strong development in each of these crucial areas, your family members will gain clarity and insight into your distinctive vision for the future.

Figure 1. The five types of capital serve as the building blocks of the business of family, with each component playing a critical role in constructing a legacy for future generations.

Financial capital consists of the tangible assets you have accumulated during your lifetime – investments, business interests and possessions – as well as the future growth potential of these assets.

Sustaining family capital is best accomplished when you have clear, realistic expectations and a strategic approach to long-term growth. Through the family financial and legacy plan, your children and grandchildren should gain a mechanism for investing appropriately, conserving values and appreciating the end use for the wealth.

Human capital is expressed through the personal character development of individual family members. In order to serve as good stewards of your wealth, your descendants must value responsibility and productivity, as well as a desire to continuously learn and expand their skill set.

To successfully cultivate these traits, you must talk about the meaning of money as a family unit – sharing your values about spending, saving, sharing and investing. Assisting your children and grandchildren in developing these traits will empower them to pursue worthwhile ambitions during their life – in essence, utilizing their human capital in an impactful way.

Family capital involves the process of creating and reinforcing mutual understanding so that you can strengthen your existing familial ties into positive, productive relationships. Families learn to respect and trust each other through the open exchange of ideas, by mitigating past misunderstandings, and by listening to and learning from each other.

Mastering the ability to compromise is necessary, as well as striving to achieve a win/win outcome for all parties involved.

Societal capital manifests through community action and your family’s involvement in service and philanthropy. To be effective, societal capital must be expressed both in individual and collective family choices.

Depending on your circumstances, family foundations, donor-advised funds and charitable trusts are useful vehicles for carrying out your philanthropic goals (as may be reflected in your family mission statement).

Structural capital serves as the foundation required to hold the legacy plan together, to bridge the gap between generations in a concrete way.

The framework of your legacy plan – the business of family – is demonstrated through the development of the family mission and value statement, regular communication between family members, and decision-making procedures that promote accountability and boundaries for managing your money.

Successful family governance is best achieved through clearly written, living agreements among family members, with an eye towards perpetuating the family’s mission and values for posterity.

Figure 2. By gathering multiple generations for a family meeting, you can promote open communication between all parties and reinforce the desired mission and goals of your legacy plan.

By facilitating intergenerational communication about your family mission, values and purpose of the plan, our CAS team aims to help you build mutual understanding and cohesiveness among family members and prepare your heirs to leverage all five types of capital to their fullest potential – today, tomorrow, and for generations to come.

Discover how our team of experienced advisors go above and beyond the traditional, tangible financial planning role to simplify the transfer of your intangible wealth and values to your children and grandchildren.