Do No Harm

There is certainly an art to designing the distribution of your assets

Everyone knows that America and Americans have been entrusted with much wealth.  Such wealth requires much thought and responsibility.  

According to Price Waterhouse Coopers (PWC) Americans own $72 trillion which PWC estimates will grow to $120 trillion in the next 10 years.  The Silent Generation (those born between 1928 and 1945) and the Baby Boomers (born between 1946 and 1964) own $60 trillion of the total.

The youngest Baby Boomer born in 1964 has an actuarial life expectancy of 30 years which means that if everyone born beforehand passes according to actuarial statistics, $60 trillion will be transferred from these generations to the next within the next 30 years.

To demonstrate how much money $60 trillion represents, if you gave away $10 million each day (assuming no interest earnings) it would take you 16,438 years to distribute all $60 trillion!

In many respects, there is a disconnect today between the financial reality of our everyday living and the amount of funds that will be transferred to heirs in the coming years.  We may not realize the amount of assets that we really own and the value it represents for the beneficiaries of our estates.

When it comes to the subject of distributing one’s estate, a number of questions can surface such as how much is enough to leave our children, should we talk to our children about the estate and if so, how and when? 

Addressing the question of how much is enough, businessman Warren Buffett said "the perfect amount to leave children and grandchildren is enough so they would feel they could do anything, but not so much that they could do nothing. "

Should you talk to your children about your estate?  Many people find talking to children about their estate is often awkward to discuss. To the children’s credit, I hear many say to their parents that it is the parents’ money and decision as to who and how they want to leave the estate.  Whatever the parent decides will be fine with them. 

That is consistent with Tom Gitter, a wise, well-spoken businessman and pastor, who reminds us that "you don't want anyone cheering you on from the here and now (i.e., children) regarding the establishment of your estate distribution plan."  Easier said than done!

There is certainly an art to designing the distribution of your assets so money does not stop the fulfillment of non-financial objectives you have for your heirs.

We can learn one key principle about distributing our estates from the medical community. My nephew, Justin, who is in his residency at Packard Hospital in Palo Alto, California, tells me that although the focus of medicine is to improve a person’s health, the motto from which they operate is "Primum non nocere " which is a Latin phrase meaning "do no harm."

Ultimately, we do not want our wealth to do harm to our heirs rather than the good we intend.  With all of our wealth we want to make sure our children and grandchildren are safe and comfortable, helping them become established and successful in life and providing for their education, medical or housing needs.  We also want them to exhibit character, mental strength, integrity, a sense of family legacy, and responsible behavior-- all attributes money cannot buy. 

However, most of us do not want to give them too much to cause them harm.  We want our heirs to be self-supporting, yet in a position to help others and not ruin their desire for personal achievement. It is a tension that is important to manage wisely.

Defining an appropriate inheritance requires careful consideration about each individual child, grandchild, nephew or niece. What is appropriate for one may not be appropriate for another. Our task is to identify specific lifestyle attributes we would like our beneficiaries to enjoy resulting from receiving an inheritance.

There is a relatively simple formula for creating a preferred future vision for your estate.

First, determine the amount you wish to give family members during your lifetime.

Second, identify the appropriate amount to give them when you pass.

Third, calculate the amount of tax (if any) due on these transfers and establish a reserve to meet that liability.  Finally, the balance of the estate is free for your use in supporting the philanthropic interests of you and your family.

This exercise may in turn reduce income, estate and gift taxes owed. Many people find that charitable gift planning techniques enable them to accomplish much more than they ever dreamed possible.  It may allow them to create a preferred future vision for their estate.  Instead of just letting things happen, people become intentional about who and how family and charities will benefit from their funds.

So, the next time you consider the distribution of your estate ask yourself the following questions:

          When you are no longer here, who do you want using your money?
          How will they be using it?  Will they be spending the income, principal or both?
          What will be happening?  Will it be positive?
          What do you hope is the result and outcome of the use of your funds?
          How will the world be a better place as a result of your funds?

By carefully creating a preferred future estate vision for your money, benefiting both family and charity could effectively help you impact and influence the lives of many.

For more thoughts on generosity pick up a copy of the enjoyable book, “An Unexpected Legacy: Strategies of Generosity.”    Click here to place your order.