The client, the father of two adult sons, was in his late 70s, the typical age when people can no longer put off thinking seriously about estate planning. Working with a financial advisor, the client duly finalized arrangements for the transfer of his assets. Each son was to become their own trustee receiving approximately $600,000. Yet he remained unsettled. While both sons were mature professionals—one a college professor, the other a dentist—the client had reason to worry that at least one of his sons would go through the funds impulsively. Should he put some restrictions on the trust?
The financial advisor had an alternate suggestion. Why not write a letter of instruction to go with the will? In the letter, the client could share some of the principles, values, and guidelines that went into creating the wealth as well as the confidence he had in his sons to use the money in a prudent and principled way. And that’s just what the client did.
When the client died four years later, along with the transfer of the trusts and physical assets, the financial advisor forwarded the letter—also known as an ethical will—to the two sons. More and more advisors are recommending that their clients consider preparing such a document as part of their overall wealth transfer planning.
While both sons appreciated receiving the message from their father, only one took its contents to heart, says Peter Blatt, president of Blatt Financial Group in Palm Beach Gardens, Fla., the father’s advisor. “One of the sons—the teacher—came to me to help him manage his share of the estate,” Blatt says. “As we went through the planning process, I was struck by how tightly he made the values of the ethical will his own. The teacher handled the trust with prudence and remains my client.”
As for the dentist, the father’s worry turned out to be justified. That son promptly drained the account and purchased highly leveraged real estate just as the housing market bubble burst. “The properties all went south,” Blatt says. “Every once in a while I still run into the dentist. When we meet, he always says the same thing: ‘I wish I’d followed my father’s guidelines.’”
What Matters Most
An ethical will is not legally binding or enforceable. It is a heartfelt expression of what truly matters most in the client’s life. Clients who have specific requirements about the conditions underwhich their assets are to be distributed need to put their instructions in a will or trust.
A lot of attention is given in our society to the importance of transferring an individual’smaterial assets. “An ethical will is an attempt to transfer an intangible legacy of values, life lessons, and words of appreciation and encouragement to our family and others,” says Harry Scheyer, cofounder and principal member of Marlton, N.J.-based Pinnacle Financial Advisors. “Together they provide the complete legacy transfer of what both valuables can and what valuables can’t buy.”
Unlike a will or trust (or a living will, which concerns end of life medical issues), an ethical will is designed to let give heirs and future generations a glimpse into the values, principles, life lessons, and beliefs that inspired and motivated the giver. Some clients ask their advisors or lawyers to disclose their ethical wills after death. More and more, says Scheyer, clients choose to share these documents while they are very much alive in an effort to create a conversation around its contents.
Ethical wills can be informal letters to lengthy autobiographical narratives. While most ethical wills take the form of a written document, other clients choose to produce printed books, bound albums, audio messages, or even videotape.
A Bigger Conversation
“An ethical will opens a door for an advisor to start a bigger conversation about estate planning,” says Susan Turnbull, a principal with Personal Legacy Advisors in Manchester-by-the-Sea, N.H. She is the author of The Wealth of Your Life: A Step By Step Guide for Creating Your Ethical Will, a document that many advisors offer their clients as a template for creating ethical wills.
“Whether a client actually creates an ethic will or not, it not a measure of the value of recommending one,” she adds. “It opens up an imaginative landscape in the minds of clients. ‘What do I want to impart?’ ‘What’s important to me?’”
The reality is that most clients of even modest wealth think about their legacy. Without an appreciation of the work and wisdom that went into building the wealth they receive, a client’s heirs may have a harder time retaining that legacy. Advisors who have as much expertise in assisting clients with the transfer of their intangible legacy as the transfer of their material assets will be in a stronger position. Such advisors will reap the benefits of better serving their existing clients and better position themselves to serve the inheritors of the legacy.