Estate Planning

Why Traditional Estate Planning Fails

Avoiding Failure Requires the Optimization of the Human,
Intellectual & Financial Assets Comprising "True Wealth"
By Kenneth E. Guard

Traditional estate planning has done more to destroy American families than the federal estate tax could ever do! There are four reasons why typical estate planning usually fails: 1) The game played between the taxpayer and the tax-collector becomes paramount - it isn't important what happens to the money as long as you keep more and the government gets less; 2) The estate planning industry has created intellectual strategies and products designed to make you believe you are winning; 3) Regardless of its complexity, traditional estate planning has become a process of "Divide, Defer and Dump which is wealth transfer without responsibility or accountability; 4) The division of assets (gifting) not only diminishes the assets but actually encourages extraordinary consumption and discourages savings. Hence, with or without estate and inheritance taxes, with or without "traditional" estate planning, family wealth dissipates and rarely survives three generations!

According to the Family Firm Institute of Brooklyn, Massachusetts, "nearly 70% of all family firms fail before reaching the 2nd generation, and 88% fail before the 3rd generation; only a little more than 3% of all family enterprises survive to the 4th generation and beyond." The third generation seems to be the brittle generation. Hence, the saying, "Shirt sleeves to shirt sleeves in three generations!" (Or in Asia, "Rice paddy to rice paddy in three generations!"). A common misconception is that the estate tax is the cause of this loss of wealth. Nothing could be further from the truth. The loss of wealth occurs at the same rate in countries with no death or estate tax, such as Australia!

One of the greatest challenges facing affluent individuals, families and businesses is how to control, protect and empower their human, intellectual and financial capital. As Albert Szent-Gyorgyi once said, "Discovery consists of seeing what everybody has seen and thinking what nobody has thought." Rather than taking just a financial approach to estate planning, we should also focus on the perpetuation of a family's human and intellectual assets. In his book, Finding The Better Way, multi-billionaire James LeVoy Sorenson said, "My family and good health are what make me truly rich... True wealth only comes through health and family and friends."

The Rothschilds are one of the few families who have perpetuated their family wealth down through several generations. The Rothschilds followed a three-part philosophy: 1) They loaned their heirs money which their heirs had to repay; 2) The knowledge and experiences those heirs gained had to be shared with other family members; 3) The family gathered at least once a year to reaffirm their virtues and intentions. Nathan Rothschild said, "It requires a great deal of boldness and a great deal of caution to make a great fortune; and when you have got it, it requires ten times as much wit to keep it."

In order to make the transition from success to significance, to create a lasting legacy for a family, requires an understanding of "true wealth". The "true wealth" family balance sheet hierarchy is comprised of first, human assets (people), then intellectual assets (knowledge) and lastly financial assets (things). The sum of these three equals "true wealth."

Human assets enhance the individual health, happiness and well being of each family member. They include family, health, habits, values, virtues, unique abilities, environment, attitude and time. Robert Frost said, "Every affluent father wishes he knew how to give his sons the hardships that made him rich."

Intellectual assets, when captured, are available for the benefit of each family member. They include wisdom, education, life experiences (both good and bad), ideas, skills, methods, and alliances.

Financial assets ensure financial independence, provide for family legacy and enrich political and social involvement. They include personal financial assets (financial independence), family financial assets (family enhancement) and civic philanthropic financial assets (social, significance). When individuals are asked which one of the three categories of the family balance sheet they would bankrupt had they no other choice, without exception, they would choose the financial assets category. Why? Because they could rebuild that category of assets using their human and intellectual assets! So why do professional estate planning teams focus primarily on the least important of the three categories, the family balance sheet?

Gaining "true wealth" is the process of capturing intellectual assets and combining them with the capitalization of financial assets to enrich the health, happiness and well being of individual family members. A family's empowerment begins with its understanding of its responsibility and stewardship to "true wealth." The first step in the process is to define and articulate a unique family philosophy. The family philosophy sets forth those things most important to the perpetuation of the family values, beliefs, goals and purpose. Going forward with the true wealth planning process, all facets of the estate plan are designed around the family philosophy to promote, maintain and perpetuate the family values, virtues, ethics, morals and belief systems to achieve the family's intellectual, human and financial goals through generations.

Ken Guard and his national team of specialists assist affluent clients in structuring and implementing plans and systems to perpetuate the family philosophy such as the "Family Empowered Bank™" (a conceptual "bank", not an actual chartered bank). The governance and operation of the bank is designed around the family true wealth philosophy, and ensures that family financial assets be used to perpetuate family values and enhance human and intellectual assets.

When the Family Empowered Bank™ is established, there are two entities, the private portion and the social portion. The private portion is perpetual, offers loans and grants to family members, enters into joint ventures with family members, and the assets are protected and are not subjected to estate taxes. The social portion is also perpetual. It creates... family significance, social significance, and there is no inheritance tax. It can make loans to family members and others.

The Family Empowered Bank™ provides the structure for human asset optimization with:
1) health and wellness programs,
2) family retreats,
3) philanthropic awareness and participation,
4) identification and sharing of unique abilities and talents, accountability and responsibility, and
5) a sense of purpose and balance.

The Family Empowered Bank™ also provides the structure for intellectual asset optimization with:
1) the capture of life's experiences,
2) the deposit of intellectual assets for the benefit of other family members,
3) the enhancement of strategic relationships,
4) the utilization of formal education,
5) the recording of family events and accomplishments, and
6) the recognition and utilization of skills.

Finally, the Family Empowered Bank™ provides the structure for financial asset optimization with:
1) parallel asset management,
2) proprietary wealth optimization strategies,
3) income and estate tax reduction/elimination,
4) asset protection structuring,
5) creative philanthropic strategies,
6) financial wealth accountability, and
7) responsible financial management.

Thus, family empowerment begins with identifying the hierarchy of assets and discovering how they can work in harmony to enrich "true wealth."

It would behoove any family to develop and utilize some type of system designed to:
1) enhance the individual health, happiness and well-being of each family member,
2) support and encourage family leadership,
3) capture family virtues, memories and wisdom and
4) protect, optimize and empower the family's intellectual and financial capital.
Such a system would provide tremendous clarity, balance, focus and confidence for the family.

 

For more information on how to optimize your human, intellectual and financial assets, contact Kenneth Guard via e-mail: (kguard@isgva.com) or call toll-free: 1-800-741-2890.

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