Volume 3, Number 3 • August 2005

 

Reintroducing the Ethical Will: Expanding the Lawyer’s Toolbox


By Scott E. Friedman and Dr. Alan G. Weinstein

Perhaps the best known of all legal documents is the will—the instrument by which individuals direct how and to whom their assets are to be transferred upon their death. Often in consultation with other professionals such as accountants and financial planners, both general practitioners and estate planning specialists devote much or all of their professional time and resources to assisting their clients prepare their wills and ancillary documents in contemplation of wisely and efficiently transferring their wealth.

Notwithstanding the often considerable time spent in the estate planning process, too many people fail to even consider, much less plan for, the transfer of wisdom, insight, experience, and similarly related intangibles. This failure results in an unnecessary loss of real value to families, friends, and communities. Parents, particularly as they age, find themselves wondering who will offer advice and guidance to their children after their demise. Children who have lost their parents are often left wondering what advice “mom or dad would have given.” The transfer of these intangibles may provide families and friends with a continuity and sense of purpose that traditional wills do not.

Historically, professional advisors have too often neglected the opportunity to counsel their clients with respect to the transfer of wealth in the form of wisdom and insight. The time is now for that omission to be rectified. Lawyers can offer at least a partial solution to the foregoing problem by introducing their clients to an ancient, but little-publicized, tool known as an “ethical will.”

 

What Is an Ethical Will?

Because it is a uniquely personal document, it is difficult to precisely define what is meant by the term ethical will. As a general proposition, it is a letter that is intended to share important values, lessons, and blessings to loved ones. Ethical wills are sometimes used to ask for forgiveness or to forgive someone else. An ethical will might even contain burial instructions or, as one of the authors recently experienced, instructions to forego a traditional burial service in lieu of a party. It can be written to family members, friends, and even organizations.

Perhaps the oldest known example of an ethical will is found in the Hebrew Bible, where Jacob’s blessings to his sons are recited in Genesis Chapter 49. The Christian Bible also contains references to ethical wills (John Ch. 15–18).  Although some ethical wills continue to be transmitted orally, the modern ethical will is most typically prepared as a written letter. Because of wide access to new forms of technology, ethical wills are now being prepared on CDs and DVDs, with all the accompanying bells and whistles (video clips, photographs, sound bites, music, etc.). It is even possible to engage production companies for those interested in preparing a professional quality video. Whether simply written on the back of a napkin, or recorded with the most advanced technology, an ethical will represents one of the surest tools available to transfer wisdom, values, and expressions of feelings.

 

Contents of an Ethical Will

Mostly conceived of as a vehicle for expressing deeply held personal or family values, visions, and beliefs gleaned from a lifetime of learning and experiences, there is almost no limit to the amount or type of information that can be included in an ethical will. Contents might include insights into happiness, business success, and dealing with difficult times and difficult people. Historical information that might otherwise be forever lost can be transmitted. For example, the circumstance surrounding meeting a spouse, delivery of a child, overcoming adversity, or the memories from a particular trip or moment of time. Recounting major lifetime decisions, and the purposes underlying those decisions, might also be included. Recommendations about favorite books, songs, or movies might be important for some to share for posterity.

In helping our clients prepare their ethical wills, we ask them consider a wide variety of subjects for possible inclusion. For example, in addition to the subjects referred to in the preceding paragraph, we ask our clients to consider including thoughts on the following:

1. A statement of values and examples of how they were used to help make difficult decisions.

2. Lessons from loved ones, including parents, spouse, children and friends.

3. Hopes for the future.

4. Advice.

5. Important events in life.

6. Expressions of love, gratitude, appreciation, and forgiveness.

7. Favorite books, movies, songs, quotations, and places to visit.

In our experience, we have found that those who take the time to prepare an ethical will not only discover a unique way to share important gifts with their loved ones, but they also learn something very important along the way about themselves. The experience of working on the ethical will has, in our experience, been a universally positive emotional experience for our clients, providing an often-unexpected sense of clarity (as to what is most important to a person) as well as a sense of “completion,” particularly as a parent. For many, it is clear that the gifts transmitted in an ethical will are far more important than anything transferred in their legal will.

 

Adjunct to a Succession Plan

The pressing need for a more holistic approach to estate planning finds particular relevance with respect to family owned businesses. The unique challenges facing family businesses are as well known as their high statistical failure rate. (See, e.g., S. Friedman, The Successful Family Business (Dearborn Publishing Group, Inc. 1998)). Many lawyers have watched helplessly as their family business clients unravel and implode following the demise of their founder. In the storm of controversy and resulting despair, the refrain among survivors is as predictable as the sun rising in the east: “What would Dad [Mom] have wanted?” Without the benefit of clear guidance, each child freely interprets the wishes of the deceased parent. As a result, offspring often bicker and seek to promote their own self-interest to the detriment of the family business and family relationships.

In contemplating the scale and variety of intrafamily conflict we have worked through over the years, we have come to the conclusion that many such conflicts are, in part, attributable to the death of a leader who had not thought to clearly transfer his or her intentions, wishes, and wisdom to the surviving family members. Lacking direction and the benefits gleaned from a legacy of insight and wishes passed on by the patriarch or matriarch, surviving children often become absorbed in the negative emotions of selfishness, resentment, and jealousy, which all inevitably leads to trouble for the business.

Although practitioners have become increasingly aware of a number of strategies to assist families in business together (e.g., family council, code of conduct, family constitution, etc.), an ethical will is a wonderfully complimentary tool that, in conjunction with other strategies, can play a role in intentionally seeking to create and reinforce a higher level of cooperation and trust among family or group members who often struggle in the vacuum created by a leader’s passing.

Although traditional estate or succession plans might detail the mechanics pursuant to which ownership interests in a business are transferred, an ethical will can explain why the interests are being transferred in a particular way. The ethical will could also outline how its author hopes future decisions regarding the company’s operations might be made in order to build collaboration and family unity. In short, an ethical will can be used by a senior member of the family business who seeks to (1) share his or her intentions with regard to leadership, succession, ownership, and governance of the family business; and (2) provide a moral compass that permits the leader to transmit his or her insights and wisdom to the next generation.

 

Collapse in a Family Business

Not long ago, one of us counseled a company that underwent a management transition when the patriarch died suddenly. Three sons and two daughters worked in the business, which the father had ruled with an iron fist. The father loved his children and had always planned for them to take over the business upon his retirement. Unfortunately, his unexpected death left the family unprepared for a smooth succession of business leadership.

The mother, who inherited legal ownership of the business, did her best to keep peace in the family, but the children bickered. The sons, who already had stronger leadership roles in the business, convinced their mother to give them even more leadership responsibility. Ultimately, the family business broke apart, and the daughters left to start their own competing company. Holidays were never the same after that, and the mother passed away brokenhearted.

Without an ethical will to provide clear guidance of the father’s intentions, the three sons were able to prevail upon their mother to grant them virtually unlimited authority to run the family business as they saw fit. The daughters felt their father’s intentions were being violated and that all five siblings should have shared leadership and management of the family business equally. The daughters accused their mother of favoring her three sons.

The father’s silence on leadership succession in this family business created a vacuum that allowed his children to focus on their own self-interest. His wishes and intentions as the founder died with him.

Sam Steinberg, founder of the Steinberg Supermarket chain of Montreal, Canada, was another family business leader who apparently failed to communicate clear expectations about how his company would operate after his death. In that family business, the lack of a clear succession plan—which might have been included in an ethical will—led to well-documented intrafamily discord and litigation. One company executive, commenting on the succession plan and implicitly recognizing the confusion over the founder’s intentions, observed that after Steinberg’s death, his daughter Mitzi and her husband “really took hold. This must have been his desire. If you get to be 70 and you haven’t planned for the succession of the business, then this must be what you want. He knew he had a heart problem, and his brother died in his 50s. So …” (See Sam Steinberg Case, Harvard Business School 9-392-061, rev. March 10, 1993. Italics added).

This executive’s observations may have been accurate. But we can’t help believing that Sam Steinberg’s family would have been better off if his intentions had been explicitly spelled out and shared with his relatives and key company executives.

Such disasters occur every day in family businesses around the world. Sometimes, the leader’s intentions were clear but never communicated to his survivors. Other times, the leader simply ignored the difficult planning decisions that inevitably arise. In either case, the surviving family members are left with little guidance about how to lead the company.

 

Guiding Principles

Paul Ciminelli, the CEO of Ciminelli Development Company, a successful family-owned real estate development business headquartered in Western New York, has written an ethical will. Ciminelli, a second-generation leader, says his main purpose in preparing this document is to help explain to his children how he has chosen to live his life. “I wanted to let my sons know what guided me through my life,” explains Ciminelli, a second-generation leader.

In his ethical will, Ciminelli expresses his values and core principles and explains the background behind some of the most important decisions he has made in his life. Not seeking to convince his children to mimic his decisions, he uses his life choices to set the stage for his children to better explore their own path. His ethical will discusses such subjects as the importance of finding balance in life, his relationship with his own father, and why he decided to pursue a career in his family business.

Although Ciminelli chose to enter the family firm, he makes it clear that his children need not feel obligated to do the same. If they want to join the business, he has set up ground rules that specify education and outside business experience as prerequisites. His ethical will, he explains, gives him a reference point in transferring his values to his children. He wants to deal with his children as people, not just legal beneficiaries of material wealth. Ciminelli, a student of leadership and business, wants to transfer his most important lessons and experiences, not just a portfolio full of real estate projects, to his children.

 

Preparation Tips

Although there is no right or wrong way to prepare an ethical will, we offer a few recommendations based on our experiences. Traditionally, an ethical will is provided to its intended recipients upon the author’s death. We believe a better approach is to review the document as a family while the author is still alive. This creates a better learning opportunity for the beneficiaries, who can ask questions and gain a sense of clarity and understanding.

As is done with traditional wills, it can be useful to update and edit the ethical will and perhaps add to it over the years as you continue to clarify your thoughts, knowledge, and insight. Ethical wills can be used throughout life to help clarify values and guiding principles: in a sense, something akin to an “ethical statement” (or statement of core values and principles). Such statements might be helpful to couples as they enter into marriage, to children upon the divorce of their parents, or at any other point where one feels inspired to share insight, experience, and wisdom.

Consider using communication options such as videotape, CD, or DVD. A statement that captures not just your words, but also your tone, emotions, and other intangibles can be extremely helpful to your beneficiaries. If your client likes to write poetry or songs, encourage him or her to include a poem, or lyrics of a song, in their ethical will. If an ethical will is written, consider using archival paper to ensure long-term survival.

Finally, we note that an ethical will, although potentially more valuable in many respects than a traditional will, should not be considered a legally enforceable instrument. If there are particular points that an author would like to make enforceable, such as a succession plan in a family business, include those points in other documents such as a legal will or shareholders agreement.

 

Sharing Your Wisdom

The oft-cited cliché tells us that it’s better to teach a person how to fish than to give a person a fish. Education creates self-sufficiency; material gifts risk breeding dependency. Accepting that premise, we believe that a parent’s insight, knowledge, and wisdom are the most important assets they can transfer to a child. Yet in the traditional will, lawyers and their clients traditionally limit their focus to how many fish (read: money and tangible assets) can be given away. The ethical will is a wonderful tool that all lawyers should become aware of and use in their professional practice to help their clients share insight and wisdom with children, friends, and favorite organizations.

In sum, we recommend that lawyers encourage their clients to write an ethical will. We believe it will lead to a higher likelihood of acceptance of the traditional will and reduce the potential for intra-family conflicts. Ethical wills may also provide a sense of intergenerational continuity by promoting a sense of legacy that bridges the generations of the past and those of the future.

Scott E. Friedman is a managing partner at Lippes Mathias Wexler Friedman LLP in Buffalo, New York. Scott has published several books and numerous articles in the field of family business. He has coauthored an upcoming new book with Bob Rich, Jr., CEO of Rich Products Inc., on happiness and success.

Dr. Alan G. Weinstein is a professor of management and entrepreneurship at Canisius College in Buffalo, New York, and a family business consultant. He is the founder of the Center for Entrepreneurship and the Family Business Institute at the college. Dr. Weinstein has published several articles on family business, and he regularly teaches an MBA seminar in family business.


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