What is Heritage Planning?
Let's begin with a definition
Heritage planning is a process that creates a foundation upon which families can plan for and accomplish what matters most to them today, and for generations to come. As with traditional financial and estate planning, heritage planning comes in many shapes and sizes. Just as no two families are exactly alike, no two heritage plans will look the same, either.
Heritage planning can best be understood in the context of its relationship to the two best-known elements of planning, financial planning and estate planning. In simple terms the three elements of planning look like this:
• Financial Planning: Grows and protects your assets for you. Financial planning can be as simple as the monthly household budget, or as complex as sophisticated long-range planning designed in consultation with professional planners.
• Estate Planning: Passes your assets to your heirs. Estate planning can mean anything from a simple will to dynasty trusts, offshore planning and multi-faceted philanthropic plans.
• Heritage Planning: Prepares your heirs to receive both their financial as well as their emotional inheritances. It shapes and guides the decisions people make regarding their financial and estate planning. Heritage planning can be as simple as creating special family traditions that foster communication between family members, to the establishment of multi-generational family governance.
By the way, this may be the first time that you have heard anyone say that emotional inheritances are as important as financial inheritances. In fact, research shows that if you want your family to remain strong and unified for generations, planning for the emotional inheritance may be the most important part of your planning strategy.
A remarkable-and chilling-statistic
The proof of the importance of the emotional side of the inheritance quotient can be found in this statistic: for as long as records have been kept, 9 out of 10 families have failed when it comes to keeping their family unified and their assets intact for more than two generations.
Elements of Heritage Planning White Paper
Heritage planning grew out of research that sought to discover the 'secrets' of the 10% of families who thrive and prosper generation after generation, through war and depression and political upheaval and all of the ups and downs of real-world family dynamics. The results of the research and study are now being put into practice by planning professionals, non-profit organizations, educators and even by families themselves.
Heritage Planning Background
For centuries, "comprehensive planning" for most families has consisted of two elements: financial and estate planning. And for centuries, 90% of that planning has failed when measured by the objective of helping the family to retain both their family unity and their assets for more than two or three generations. This is not a recent phenomena. Since ancient times, the majority of inheritance plans have failed. Two thousand years ago a Chinese scholar penned the adage: "fu bu guo san dai," or "Wealth never survives three generations." In thirteenth century England they said "Clogs to clogs in three generations," and in nineteenth century America the expressions became "From shirtsleeves to shirtsleeves in three generations." And, over 200 years ago, Adam Smith - of "specialization and division of labor" fame - summed it up in "The Wealth of Nations" when he said: "Riches, in spite of the most violent regulations of law to prevent their dissipation, very seldom remain long in the same family."
This three generation cycle is not news to financial and legal professionals. Ask a room filled with advisors how many have seen families torn apart by issues surrounding money and inheritance, and you will see every hand shoot up. And yet, traditional, two-element planning continues to be the dominant framework within which most people prepare for their futures. (By the way, when we say 'traditional,' we mean it: the basic system of inheritance planning used in the Western world today is not much different than it was in 1540, when England's King Henry VIII pushed his Statute of Wills through Parliament and set in motion many of the processes and procedures we use to this day!)
Change comes slowly in the world of planning. The most significant changes since the 16th century have come about in just the past quarter century. In the mid-1980's, Bob Esperti and Renno Peterson formed the National Network of Estate Planning Attorneys with a goal to "Change how America Plans" to use Living Trusts and avoid probates in even modest estates. Within 10 years, the Network had grown to over 1,500 members, and Living Trusts were becoming the norm in all estate plans. The National Network of Estate Planning Attorneys helped change the way America did its estate planning; which was a wonderful accomplishment.
But, they still did not transform how America plans. That is the goal of heritage planning, and the increasing number of advisors, non-profit officers and educators around the world who are introducing the 3rd Element of Planning to their constituents.
Heritage Planning in Practice
At The Heritage Institute in Portland, Oregon, research begun nearly two decades ago was inspired by this question: "if 90% of families fail to keep their unity and their assets together across generations, what do the 'successful' 10% do differently?" The difference between the families who failed and the few families who kept their family and fortune together for multiple generations is NOT in their financial or estate planning. Contemporary studies and the cumulative experience of professional advisors provided the answer: families who remain strong and unified across generations share many specific 'elements of success' in common, including how they intentionally teach and transmit those elements to succeeding generations.
Find a family that is successful across generations (meaning they build, maintain and enhance family unity, support individual family member accomplishment, and retain their assets), say researchers, and you will find a family that consciously implements most or all of the heritage planning 'elements of success' listed below.
The elements of multi-generational family success
The list below has been adapted from the white paper, Sustaining Family Wealth & Unity Across Generations, by Rod Zeeb and Ryan Zeeb. A free download of the complete white paper, which goes into detail regarding each element, is available here: (add link)
1. Foster strong and effective Communication, and build Trust between generations.
2. Develop, maintain and regularly re-visit your vision for the present & the future.
3. Meet regularly, and focus on 3 activities: Family Fun, Family Development & The Business of Being a Family.
4. Promote a balanced definition of the meaning of 'Wealth.'
5. Keep the family business (including investments) separate from the business of being a family.
6. Identify the 'roles' necessary for the family to be successful (non-Financially as well as Financially).
7. Inspire individual family members to participate in the heritage planning process for their own individual reasons.
8. Training & Mentoring each generation for success is a hallmark characteristic of families who successfully sustain their wealth and unity.
9. Facilitate the genuine transfer of leadership from generation to generation.
10. Require that any professional advisors you may have work together as a true collaborative team on your behalf.
11. Create mechanisms for ongoing family governance.
12. Do it now.
Benefits of Heritage Planning
For Individuals and For Families
Heritage Planning helps families to recognize and encourage the intrinsic skills, abilities and interests of each individual family member. It creates opportunities for each individual to use their personal talents to make meaningful contributions to the family. Heritage planning also helps individuals to develop 'healthy' relationships with money, and to understand how to use any money they may receive as an inheritance to accomplish things that truly matter, not just for themselves, but also for their family and their community. It provides each family member with a sense of multi-generation family stability and continuity, while helping them to discover and pursue their ideal life.
For Communities & Non-Profit Organizations
Heritage Planning is good for communities. Over the years, heritage planning professionals have observed that there is a common thread of active philanthropy among successful families; that is, they have determined that enduring families make philanthropy a core component of the activities they take on as a family. No matter how small or large the financial commitment may be (the value and lessons for the children here do not come from how much money they give, but from the act of giving itself), families who make philanthropy a 'part of who they are' realize huge benefits within the family, while at the same time making important contributions to charitable organizations. Those organizations also benefit because heritage planning encourages children to become lifetime philanthropists (again, even if the amount of money is small) instead of just occasional donors.