I was dumbfounded when I discovered there was no working definition of “estate planning” at such reputable institutions as the American College of Trust and Estate Counsel or the American College of Financial Services. Seriously, no definition.
That seemed unfathomable to me in a profession in which there are tens of thousands of us who say we are actively engaged in “estate planning.” From estate attorneys as the honor guard, to life insurance agents, to accountants, to elder care specialists, to family dynamic facilitators, to trust and philanthropic officers and to comprehensive financial planners, the estate planning industry is clearly much more than any one planning professional and its own limited perception of estate planning. At the same time, estate planning is very much its own intensive discipline and shouldn’t be confused with the more broadly based notion of financial planning. Estate planning is a distinct subset of financial planning; it isn’t to be watered down in the comprehensive ocean of financial planning.
Words Have Meaning and Can Create Confusion
Forced to turn to the oracle of Wikipedia for further clarification, I gleaned that “estate planning” is “the process of anticipating and arranging during a person’s life for the management and disposal of that individual’s estate during the individual’s life and at, and after, death while minimizing gift, estate, generation-skipping transfer and income tax.” Try incorporating that little ditty into your next elevator speech. No wonder we have mightily struggled for many years to find the right words to tell people what it is that we do when asked by them at cocktail parties. Justifiably, we had good reason to choose the less occupied corner in the room.
Okay, it’s only a definition—is there really cause for concern? Yes! It’s precisely in how we define and perceive estate planning that will dictate how we overtly approach it. Moreover, the public (including many of our own clients and clients to be) is overwhelmingly confused as to what estate planning is, and we as professionals have in no small way contributed to the misunderstanding. According to a recent WealthCounsel survey, three-fourths of Americans are confused regarding their thoughts about estate planning. This lack of clarity around estate planning helps explain the lack of public engagement, where 64 percent of Americans don’t even have a will.
The Need for a Working Definition
For there to be a working definition of “estate planning” that will bring meaning to the plethora of planning professionals and the public alike — no one will get everything that he wants from it. Still, all can and should have a more simplified and tangible definition that they can understand and live with.
The definition of “estate planning” should be enduring and unchanging. The expression of estate planning, however, must continually adapt and change with the times. For many years, leading with estate tax minimization and the tax saving strategies therewith was an effective way to get clients in the door to do proper estate planning. Today, however, the estate tax has already been effectively repealed for 99 percent of American taxpayers, and if the Trump administration has its way, it will soon be 100 percent.
In its most fundamental state, estate planning should support the family (or the individual) first, and thereafter concern itself with the transition of their assets. Simply put, it seems to me that “estate planning” is a multidisciplinary process where planning professionals are collaboratively engaged in protecting, preserving and enhancing the family through the accumulation, conservation and distribution of one’s assets and values.
Four (Plus One) Capitals
One’s assets, common sense tells us, must consist of economic and non-economic assets alike. Estate planning encompasses more than just dealing with financial assets or financial capital. Who among us would voluntarily trade our life, a limb or a loved one for financial capital? A families’ greatest asset is seldom the amount of financial capital it possesses. Jay Hughes in his seminal book, Family Wealth: Keeping it in the Family, proffers four capitals as follows:
- Human — refers to the individual family members: their knowledge, talents, spirituality, values, passions, dreams and aspirations. Most importantly, the term also refers to their defining who they are called to be and what they are called to do.
- Intellectual — involves how individuals learn over a lifetime and how families communicate, resolve conflict, make joint decisions and mentor one another.
- Social — refers to an individual’s connections with his communities. It typically shows care and civic engagement.
- Financial — reflects the more traditional definition of wealth, such as property of the family, its financial assets, trusts and partnerships and other investment and estate planning arrangements.
Hughes’ account in Family Wealth was that financial capital alone can’t promote long-term wealth preservation. When families and their advisors narrowly define and approach wealth in terms of financial capital, they routinely fall victim to the proverb of “shirtsleeves to shirtsleeves in three generations.” They fail to properly invest in the other more fundamental capitals that can also help bolster a family’s long-term financial capital. To bring Jay’s published list of capitals up-to-date, there should be a fifth capital that both Jay and I have implored for many years, as mentioned below. - Spiritual Capital — refers to an act in which an individual discerns and deploys his unique gifts and strengths, dreams and desires, with spiritual (enlightened) self-interest. It’s about guiding the family to flourish so that its members must balance their own individual needs with those of others, both familial and societal.
Values
One’s values, and importantly our understanding and recordation of them, is critical to the context of financial capital and to what inheritors say they want. Studies consistently show that passing along personal and family values is the most important legacy that can be left for heirs — more than twice as important as money and financial assets.
As we wait for professional and academic organizations to collectively bring about a much-needed makeover to “estate planning,” practitioners may do well to retool their skillsets to have a broader focus beyond financial capital. Estate planning practices should also consider modernizing so that, for example, more attention could be paid to “cloud-based collaboration.” Technology now provides those engaged in estate planning with communal programs such as SharedFile (for storing and sharing important client planning documents) and GoToMeeting (for virtual client/advisor meetings), and they’ll increasingly be used by progressive planners who seek to serve the client in a more collaborative and more cost-efficient manner.
