As an alternative to suffering from an ineffective system, many wealth and business creators choose not to engage with the system at all. In 2018, over half of the family-owned business in the United States did not have a clear succession plan.4 Considering that around 90% of U.S. businesses are family-owned, the absence of a plan to determine succession issues in those businesses has dire consequences for the U.S. economy.5 Moreover, only 40% of U.S. adults have a will.6 Although the likelihood of an estate plan increases with an individual’s wealth, high-net-worth families are not immune from the general population’s aversion to estate planning—38% of people with assets of $1 million or more have not created an estate plan with the advice of a financial expert.7
The ineffectiveness of traditional estate planning devices—wills and trusts—and the unwillingness of business owners and individuals to create a plan for the future of their business or wealth should concern the Twenty-First Century estate planning practitioner.8 Not only does a significant portion of the U.S. population exist with no plan in place, but those people with a plan face a minute probability of that plan succeeding (assuming that the success of an estate plan means that the execution of the plan matches the wishes of the testator).9 The aforementioned failure of family businesses or wealth to last beyond one or two generations is a dismal reality for estate planning practitioners and their clients, likely contributing to the low percentage of people participating in the estate planning process.10 If so few estate plans work, why bother creating one at all?
This Article offers a solution to this dilemma through an overview of and advocacy for “legacy planning.” Legacy planning, an idea that has existed since the recording of the earliest intergenerational transfers, is the inclusion of intangible assets in an estate plan—namely values—to ensure the creation of an individual or business legacy that benefits the descendants of a family and society as a whole.11 Although there is no specific formula for estate planning practitioners to follow in their crafting of a legacy plan, the planning process should include the whole family, not just the testator.12
A legacy plan includes the proactive establishment of a family or family-owned business’s core values and a path to ensure that those values are paramount in the drafting of a will, trust, or any other estate planning device.13 A successful legacy plan will not limit or control an individual’s descendants or business from beyond the grave but instead will empower those descendants or that business to achieve their full potential.14 The implementation of a legacy plan offers the strongest defense against the shirtsleeves-to-shirtsleeves in three generations problem and provides estate planning practitioners with a valuable role in the lives of their clients.15 Only by including intangible assets in an individual estate plan or a family-owned business succession plan can estate planning practitioners provide their client with a chance to beat the odds and ensure the preservation of a legacy that includes not only wealth or a business but also values.
In this Article, I will prove the necessity of legacy planning to the estate planning practitioner by examining the historical practices of transmitting intangible assets between generations, discussing the incompatibility of traditional estate planning devices with leaving a legacy, and providing an overview of the current state of estate planning practice. Further, I will explain how legacy planning works using three case studies of well-known, wealthy families and family businesses. Finally, I will offer a guide for creating a legacy plan.
Through this Article, I hope to contribute a resource for estate planning practitioners who want to differentiate themselves from their competitors in the Twenty-First Century. I want to empower estate planning practitioners with a concrete “why” for their clients’ estate plans and family-owned business succession plans. With the onset of automation threatening to eliminate functions of the estate planning practitioner—namely, drafting documents16—an inclusion of legacy planning in one’s practice offers a service to one’s clients that machines can never replicate. Legacy planning combines history, psychology, and law to create a holistic plan for passing on tangible and intangible assets. Barring an unforeseen quantum leap in artificial intelligence, machines cannot replace attorneys in terms of guiding a client in the creation of such a holistic, nuanced plan. By adopting legacy planning as the core of their practice, estate planning practitioners ensure the survival of their clients’ assets and their businesses.
The inheritance of wealth and the succession of family-owned businesses are subjects that likely will never lose their relevance. Even for people with minimal experience with inheritance or succession planning, the themes of family relationships, leaving a legacy (both tangibly and intangibly), and the meaning of life capture attention and inspire reflection. Television shows and films, often barometers of cultural fascination, highlight the drama and importance of the decisions surrounding what to do with one’s wealth or business in the long term.
For example, the 2018 HBO drama Succession examines an aging New York City media mogul’s plan regarding the future of his multi-billion dollar media conglomerate as his health begins to fail him.17 Complete with squabbling siblings and Shakespearean betrayals, Succession demonstrates that little in life brings a family together, or tears a family apart, more than death—or the impending prospect thereof.18 Succession also reveals the importance of a well-thought-out succession plan in a family business, no matter the size.19 Garnering numerous critical awards and nominations at the close of 2018, Succession’s success hinges in large part on the universal themes of the show that arise out of focusing on a succession plan for a family-owned business, namely the stress of dealing with an aging parent, the importance of family unity, and the devastation of family discord.20 As psychologist Carl R. Rogers said: “What is most personal is most general.”21 Audiences resonate with shows, like Succession, that capture experiences with which they are familiar.
On a larger screen, the 2011 film The Descendants, starring George Clooney, tells the story of a Hawaii-based attorney who is the sole trustee of a 25,000 acre tract of land in Hawaii worth hundreds of millions of dollars.22 The film follows the attorney as he wrestles with what to do with the land as the trust approaches expiration—thanks to the rule against perpetuities.23 Dozens of family members are beneficiaries of the trust, and the majority of them (having squandered their inheritances) favor a sale of the land.24 Like Succession, The Descendants highlights the manner in which decisions regarding the passing of wealth or property from one generation to the next often serve as catalysts for conflict. Also like Succession, The Descendants received widespread critical acclaim, netting five Academy Award nominations and winning the Oscar for Best Adapted Screenplay.25
The appeal of Succession and The Descendants to critics and audiences alike captures the continued importance of succession planning and intergenerational wealth transfer. Moreover, the conflicts detailed in Succession and The Descendants reveal that attorneys are far from reaching a solution regarding the peaceable transition of assets and businesses between generations. Perhaps the inherent strife between generations and family members is too old to overcome,26 but legacy planning offers the best chance to rewrite the story.
While the human race has sought for millennia to include values in formal and informal estate plans, the importance of value inclusion has never been greater to the estate planning practitioner. The Tax Cuts and Jobs Act of 2017 and the rise of automation combine to threaten the role of the estate planning practitioner in the eye of the client. Without an inclusion of legacy planning in their catalogue of services offered, estate planning practitioners may face a much diminished role in the near future.
A. Historical Practices of Leaving a Legacy through the Transmission of Intangible Assets
As far back as the Old Testament, people have recognized that inheritance and succession include more than just possessions or job titles.27 In fact, Jewish tradition often included the creation of an “ethical will” concurrent with or as a part of a legal will.28 Ethical wills were written, moral directives in which a testator instructed their descendants to uphold certain values, demonstrate particular virtues, and partake in (or refrain from) specific activities.29 For example, the Ethical Will of Judah ibn Tibbon, written in France between 1160 and 1180 A.D., states in its opening clause, “My son, list to my precepts, neglect none of my injunctions. Set my admonition before your eyes; thus shall you prosper and prolong your days in pleasantness.”30
Eight centuries later, Jewish culture maintained the tradition of ethical wills, even under the horrific circumstances of the Holocaust.31 Shulamit Rabinovitch, facing the unlikely prospect of survival, drafted an ethical will for her sons in the United States:
We sense the end is near. It will not be long before they finish us off . . . . Our greatest consolation and good fortune is that you are not here. But, dear children, don’t take foolish things to heart. Be happy, contented people; be good human beings and loyal sons of your oppressed nation. Never abandon your land or your people. Fight for freedom and social justice. Be just and honest; and under normal conditions this is so easy!32
Rabinovitch’s words, written during one of the worst atrocities in the history of mankind, demonstrate the importance of values in the contemplation of how one would like to be remembered and how one wants to influence future generations. The directives to be “happy, contented people” and to “[f]ight for freedom and social justice” reveal the essence of estate planning in that, stripped of her possessions, Rabinovitch focused on the quality and content of her descendants’ lives rather than their material comfort.33 Tragedy tends to sharpen one’s focus and priorities,34 and Rabinovitch’s ethical will captures what the majority of testators likely would want for their descendants—happiness and meaning.35
In a less ethically clear context, testators have created another method for passing on intangible assets through a device known as the “incentive trust.”36 Through the incentive trust, a uniquely American creation, testators condition bequests upon the beneficiaries’ completion of a particular condition.37 Parents often use incentive trusts in an attempt to prevent an inheritance from spoiling their children and as a means of encouraging their children to live productive lives.38 The most common conditions of incentive trusts focus on education, religion or morals, careers, and avoidance of destructive behaviors.39 For example, a father conditioned the passing of a large portion of his wealth to his son on the event that his son married a woman who shared their religious background.40
Incentive trusts, like ethical wills, reflect the desire of mankind to influence future generations and leave behind more than money or possessions. While the efficacy of such devices is unlikely, their existence nevertheless underscores the broad implications of estate planning: the passage of tangible assets between generations must include a thoughtful consideration of the intangible assets that will accompany that transition. Testators from the biblical era onwards clearly intended to pass values on to their descendants, and it is up to the estate planning practitioner to harness those values and ensure their survival.
B. Incompatibility of Traditional Estate Planning Devices with Leaving a Legacy
Traditional estate planning devices—wills and trusts—often fail to incorporate the values implicit in an individual’s or business’s decisions regarding the distribution of assets or the changing of the guard in a company.41 Consequently, the testator’s or business owner’s plans frequently fail as well,42 echoing Robert Burns’s adage, “The best laid schemes o’ Mice an’ Men” often go awry.43
The primary reason for the ineffectiveness of traditional estate planning devices is an overemphasis on the “what happens” and a lack of emphasis on the “why.”44 Once a testator passes away or a business owner leaves a company, the instructions regarding inheritance or succession may not create a complete picture of the vision behind the plan.45 Gone are the days when primogeniture removed the decision-making process from the hands of individuals; while society certainly is in a better and more equal place without this feudal institution, the freedom to choose the fate of one’s assets or business has vexed estate planning practitioners and their clients to this day.46
By dividing possessions among children or granting control of a business to one family member over another, wills and trusts sow the seeds for conflict.47 As dramatized in Succession and The Descendants, family divisions simmering under the surface often widen when the ramifications of a will or trust emerge from the drawing room.48 Moreover, the financial focus of wills and trusts—tax avoidance, buy-sell agreements (in the business context), and distributions—fuels any underlying divisions by shifting the attention of family members from the legacy of the individual behind wills or trusts to the leftovers of their estate.49 Like lions fighting over the remains of a gazelle, family members can heighten inheritance or succession issues to a vicious conflict, turning to intrafamily litigation and even, in the words of several experienced estate planning practitioners, “physical altercations and fisticuffs.”50 Clearly, traditional estate planning devices provide a grim outlook for families seeking a peaceful transition of assets or business leadership.
C. Ineffectiveness of Incentive Trusts
One attempted solution to the disharmony of families in the estate context, the aforementioned incentive trust, fails to remedy the inherent ineffectiveness of traditional estate planning devices because it controls rather than encourages future generations.51 Through its conditional nature, the incentive trust forces individuals to choose to follow the specific instructions of the settlor or forfeit their inheritance.52 While the intention of settlors utilizing the incentive trust is often well-meaning—requiring beneficiaries to attend college or obtain gainful employment—the conditions of the trust limit the ability of beneficiaries to decide the course of their lives.53
Additionally, the incentive trust exacerbates, rather than solves, one of the primary fears of settlors: their money will corrupt their descend-ants.54 The incentive trust places money at the forefront of a beneficiary’s decision-making process, forcing the beneficiary to jump on what one author refers to as the “hedonic treadmill.”55 The hedonic treadmill, or the pursuit of material wealth, has adverse effects on individuals’ behaviors and attitudes.56 These effects include an increased tendency towards immoral or unethical behavior, altered personalities, and a lack of personal fulfillment.57 Ironically, the incentive trust can lead beneficiaries to make the reckless choices that the settlor sought to prevent through the design of the trust.58 Instead of removing the temptations of a money-oriented lifestyle, the settlor unintentionally communicates to the beneficiaries that money is the ultimate reward for their actions.59
Incentive trusts can also encourage beneficiaries to bend the rules to receive their inheritance.60 While a well-drafted trust accounts for unfore-seen circumstances and contains a certain degree of flexibility, the terms of a trust must be specific to be enforceable, creating a rigid “if this, then that” scenario.61 Faced with a clear-cut hoop to jump through, beneficiaries have exercised creative methods to accomplish that jump—sometimes more than once.62
For example, Tommy Manville, the grandson of industrial entrepreneur Charles Manville, took advantage of a condition of his grandfather’s incentive trust to reap millions of unintended dollars.63 Charles, concerned with Tommy’s predilection for misbehavior, drafted an incentive trust that would pay Tommy between $250,000 and $1,000,000 in the event of Tommy’s marriage, a condition that Charles hoped would encourage Tommy to settle down and reform his behavior.64 Because the terms of the trust simply stated that Tommy would receive the money on the event of his marriage, Tommy married thirteen times.65 Each time he married, he collected another large sum of money.66 Instead of settling Tommy down, Charles guided Tommy towards the hedonic treadmill and its accompanying delights, demonstrating—albeit in an extreme manner—that the incentive trust can accomplish the opposite of a settlor’s intentions.67
D. Impact of Tax Cuts and Jobs Act of 2017 on Estate Planning
In addition to the ineffectiveness of traditional estate planning devices, recent changes to tax law in the United States require estate planning practitioners to shift their focus to the transmission of intangible assets. On December 22, 2017, President Trump signed PL 115-97 into law, better known as the “Tax Cuts and Jobs Act.”68 An amendment to the Internal Revenue Code, the Tax Cuts and Jobs Act reduced corporate tax rates, increased the standard deduction, repealed the individual mandate penalty of the Affordable Care Act, and (most importantly for estate planners) temporarily doubled the federal estate tax exclusion amount.69
The Tax Cuts and Jobs Act temporarily raised the federal estate tax exclusion amount to $11.18 million per person, or over $22 million per married couple, indexed for inflation.70 As a result, until the scheduled sunset of the law in 2025, an estimated 99.9% of U.S. citizens will no longer be liable for estate taxes.71 Although some people will still face estate tax liability at the state level—twelve states have estate taxes and six states have inheritance taxes—the exemption of the overwhelming majority of the U.S. population from federal estate taxes threatens the relevancy of estate planning practitioners in the eyes of their clients.72
On the contrary, the Tax Cuts and Jobs Act benefits estate planning practitioners by removing a factor that naturally leads clients to think about the tangible, monetary component of their estates—taxes.73 Scarlett O’Hara’s famous declaration in Gone with the Wind, “Death and taxes and childbirth! There’s never any convenient time for any of them . . . ,” still rings true following the passage of the Tax Cuts and Jobs Act, but at least estate planning practitioners can focus more on the outcomes of the death and childbirth and less on the taxes.74 The new tax legislation provides estate planning practitioners with the opportunity to guide their clients through a process that emphasizes the relationship between those on their way out and those on their way in.75
E. Impact of Automation on Estate Planning
The rise of automation in the legal industry presents an additional opportunity for estate planning practitioners to pivot to their clients’ intangible assets. According to Massachusetts Institute of Technology labor economist Frank Levy, automated technology is replacing approx-imately 2% of an attorney’s total workload per year.76 The pieces of the attorney’s workload transitioning from human to artificial hands (if computers had hands) include document review, document drafting, and case administration and management.77
As the introductions of the typewriter in the 1920s and the word-processing system in the 1960s eliminated the formbooks that attorneys relied upon for centuries in document drafting, automated technology promises to restructure the legal profession.78 Fifty years from now, what will attorneys look back on as technological innovations that changed the landscape of the legal profession as widely as Lexis and Westlaw (introduced respectively in 1973 and 1975)?79 Early indications point to advances in document assembly.80 Computer programmers have already crafted intricate systems that not only eliminate the repetitive tasks of inserting names and dates in documents but also insert optional clauses depending on a client’s need.81 Similar to Intuit’s TurboTax software asking its users a series of questions to determine their tax filings, an estate planning software system may ask a user, “Do you wish to name only one executor, rather than an executor and an alternate executor?”82 Based on the response to this and other questions, the software would then generate a preliminary document.83
Despite dire warnings that such software heralds the end of the legal profession,84 the need for the “human touch” in law practice is unlikely to disappear.85 Technology-driven automation may reduce costs and remove repetitive tasks from the purview of the Twenty-First Century attorney, but the advisory capacity of the attorney will likely survive the march of the machines.86 TurboTax cannot, and does not, advise its user how to respond to a potential Internal Revenue Service inquiry.87 Automated legal software similarly will not explain how the inclusion or exclusion of a clause in a will could result in a lawsuit between the beneficiaries of the will.88
Like the Tax Cuts and Jobs Act, the rise of automation offers estate planning practitioners the chance to focus more on the intangible nature of the transactions that their clients want to accomplish.89 Advances in technology will reduce errors in and help attorneys spend less time on the physical tasks of their profession, namely document drafting, opening the door for more time spent on the bigger picture of their work.90 By getting “out of the weeds” of the monotonous details of document drafting, attorneys can develop better relationships with clients and offer more sound advice.91 For the estate planning practitioner, the rise of automation should be a welcome phenomenon because it provides a greater chance to discuss the “why” of an estate plan rather than working on the “how.”92
III. Estate Planning Practitioners Should Incorporate Legacy Planning in their Practices to Best Serve their Clients and Adapt to the Legal and Technological Changes of the Twenty-First Century
Considering the ineffectiveness of traditional estate planning devices against the “shirtsleeves-to-shirtsleeves in three generations” problem and the dual impact of the Tax Cuts and Jobs Act and automation, estate planning practitioners should re-evaluate their methods to elevate the importance of intangible assets in their work. In this re-evaluation, estate planning practitioners should incorporate a legacy plan in their arsenal of client service tools. Legacy plans benefit attorneys and clients alike by creating a holistic approach to individual and family-owned business planning, intertwining the intangible values important to the individual or business with the tangible assets moving to the next generation. While no specific formula exists for the creation of a legacy plan and legacy plans lack legal enforceability, they nevertheless deliver the greatest probability of an inheritance or a business surviving beyond three generations.
A. What is a Legacy Plan, and Why Does it Work?
A legacy plan is a written or recorded expression of an individual’s intangible assets.93 These intangible assets complement, and often explain, how individuals obtained their tangible assets.94 Intangible assets fall into two categories: intellectual assets and human assets.95 Intellectual assets are an individual’s knowledge, education, acquired skills, formulae, experiences, systems, and processes.96 Human assets, on the other hand, are values, ethics, morals, passions, wisdom, human relationships, motivation, and endurance.97 While wills and trusts detail the distribution of monetary wealth, legacy plans facilitate the transmission of intellectual and human assets.98
Legacy plans can exist in a variety of forms, depending on the wishes of the client, but the estate planning practitioner should focus on three factors to ensure their effectiveness.99 These factors are communication and trust, preparation of heirs, and family purpose.100 Additionally, the creation of a legacy plan should include the participation of the “beneficiaries” of that plan.101 Instead of delivering the legacy plan to the intended recipients after the author of the plan has died, the estate planning practitioner should review the plan with both the author and the recipients during the author’s life.102 Similar to a will, a legacy plan should be revisited and updated throughout the author’s life to ensure that additional intangible assets make their way into the plan as the author obtains them.103
In the context of family-owned businesses, a legacy plan should complement the nuts and bolts of a legal succession plan—leadership, compensation, and capital allocation—by establishing the core principles of the organization.104 The core principles of a business should include three factors as well.105 These factors are a statement of core values, a vision and mission statement, and a code of conduct.106 Working in tandem with the mechanisms of the succession plan, the principles embodied in a legacy plan guide businesses through the scenarios that a succession plan cannot address, like unhappy customers or a failed product launch.107
Legacy plans work because they force authors to identify the values important to them and then communicate those values with the next generation.108 Moreover, legacy plans align with authors’ wishes regard-ing the fate of their descendants.109 Most people describe their desires for their descendants in intangible terms instead of their material possessions, revealing that a legacy is more often than not a transition of values. In a survey of over 2,500 families, including those who owned businesses, consultants at The Williams Group asked respondents to describe their family 50–100 years from now.110 The majority of respondents did not mention financial assets, but stated that “they would like to see their family members happy and fulfilled, spending and enjoying time together.”111 While a plan for the distribution of tangible assets or the succession of a business is certainly vital for estate planning practitioners to create with their clients, intangible assets must be included too.112
Legacy plans also work because they reflect the psychology of successful leaders and companies.113 Management consultant and motivational speaker Simon Sinek explains that successful leaders and companies “start with WHY.”114 In terms of a product or service, Sinek states, “People don’t buy WHAT you do; they buy WHY you do it.”115 For example, Apple’s early slogan was “Think Different,” characterizing itself as an innovator that challenged the status quo.116 Instead of identifying itself based on what it sells—computers, music, and smartphones—Apple projects the reason behind its products first.117 The message of innovation resonated with customers and propelled Apple to its current position as number three on the Fortune 500 list.118
Similarly, a legacy plan encompasses the “why” of a will, trust, or succession plan.119 A legacy plan explains the decisions of the author, not only in the distribution of assets or selection of a successor, but also in the journey of his or her life.120 By documenting the “why” in a recorded form for future generations, the authors of legacy plans increases the likelihood that their families, wealth, and businesses will remain intact.121 As Sinek explained, people are much more likely to buy into the “what” of a decision—in this case, the terms of a will, trust, or succession plan—once they understand the “why.”122
B. Vanderbilts, Rothschilds, and Greens: An Examination of Legacy Planning in Three Family Trees
Throughout history, numerous families have exemplified the importance of passing intangible assets from generation to generation.123 The focus, or lack thereof, on intangible assets often determines the difference between the creation of a family dynasty and the dissolution of a family fortune.124 Three families in particular illustrate the impact of the transmission of intangible assets: the Vanderbilts, the Rothschilds, and the Greens (owners of Hobby Lobby Stores, Inc.). An examination of how these families handle intangible assets amongst their multiple generations demonstrates the necessity of a legacy plan for the estate planning practitioner.
The first family, the Vanderbilts, offers a case study of what happens when intangible assets do not join tangible assets in the estate planning process.125 The Vanderbilt family business began with Cornelius “Commodore” Vanderbilt, who transformed $100 that he borrowed from his mother into a railroad empire and a $100 million fortune at the time of his death in 1877 (roughly equal to $185 billion today), an amount larger than that in the U.S. Treasury at the time.126 His son, Billy, inherited ownership of the railroad company and doubled the family fortune to $200 million.127
Following Billy’s death, the fortune rapidly declined as it passed to Billy’s children.128 The third generation of Vanderbilts spent lavishly, accumulating yachts, thoroughbred horses, and real estate, including the 146,000 acre Biltmore estate.129 Additionally, the third generation of Vanderbilts donated millions of dollars in philanthropic endeavors.130 Coinciding with the extreme spending, the family railroad business crumbled as advances in the transportation industry reduced the demand for freight and passenger railroad.131 Third-generation William Kissam Vanderbilt adequately summed up the family troubles when he stated, “‘Inherited wealth is a real handicap to happiness . . . . It has left me with nothing to hope for, with nothing definite to seek or strive for.’”132
By the fourth generation, the Vanderbilt wealth had all but evaporated, and at a family reunion at Vanderbilt University in 1973, not one of the 120 family members in attendance was a millionaire.133 The Vanderbilts’ railroad empire, New York Central (once the second-largest railroad in the United States), declared bankruptcy in 1970.134 CNN anchor Anderson Cooper, a sixth-generation Vanderbilt, explained in a radio interview in 2014, “[My] mom’s made clear to me that there’s no trust fund.”135 More clear than the absence of a trust fund, the values that Commodore Vanderbilt relied upon to build his business and wealth did not accompany the tangible assets of his accomplishments.136 By the third generation of Commodore’s descendants, the Vanderbilts occupied themselves more with consuming wealth than producing it, fulfilling the shirtsleeves-to-shirtsleeves adage to the letter.137 Without a recorded legacy plan, the Vanderbilts provide a historical example of the danger of bequeathing tangible assets without their intangible counterparts.138
On a more positive note, not all famous family dynasties splintered with the passage of time.139 One such family dynasty, the Rothschilds, known primarily for their role in global banking and finance, carried a legacy across centuries and continents that remains very much intact today.140 Beginning with Mayer Amschel Rothschild’s establishment of a banking business in the 1760s in modern-day Frankfurt, Germany, the Rothschilds expanded a family-run business operation throughout Europe.141 Quickly gaining success, Rothschild family members financed the British war effort against Napoleon, fueled the Industrial Revolution, and provided the funding for the construction of the Suez Canal.142 The Rothschilds also built a lasting philanthropic tradition within their family, financing schools, libraries, and public housing throughout Europe.143
Although the Rothschilds and their business suffered during the Twentieth Century (most notably from the closing of their German, French, and Austrian banking operations at the hands of the Nazis), the Rothschild business and wealth endured.144 Moving into the Twenty-First Century, the Rothschilds emerged as power players in financial services, real estate, mining, energy, and the wine industry.145 The Rothschilds also continue the charitable tradition of their ancestors through philanthropic organizations like the Edmond de Rothschild Foundations, which focus on the arts, health, and the promotion of entrepreneurship.146
The Rothschilds owe the centuries-spanning preservation and growth of their wealth and businesses to a commitment to shared values within the family.147 The Rothschilds established a family organization to share wisdom, as well as money, between their generations, offering mentorship and funding to family members in their business ventures.148 The Rothschilds also have a family constitution that all willing members of the family agree to be bound by, hold annual family meetings, and allow family members to opt out of the family organization if they so choose.149 Through a commitment to shared wisdom and values, the Rothschilds have maintained a sense of family unity that provides a backbone for flourishing individuals and businesses.150
David Green, the founder of Hobby Lobby, similarly utilizes shared values within a family business to achieve financial success and unified, multigenerational relationships.151 Founding his arts and crafts business out of his home in 1970,152 Green transformed a humble operation into a multibillion-dollar business and is a perennial member of the Forbes 400 list of the wealthiest people in the United States.153 As Green’s business grew, so did his family; several of his children joined Hobby Lobby and then gave birth to children of their own.154 With the expansion of his family and business, Green turned to traditional estate planning devices to establish a procedure for the eventual transfer of his wealth and business.155
Green, however, felt troubled by the prospect of initiating a process that more often than not results in the shirtsleeves paradox.156 Although he trusted his children, he did not trust the traditional processes of wealth transfer:
I could see in my mind how this would play out over the generations. With each transfer of wealth from parents to children, the wealth and the vision would again subdivide. To me, subdivide just seemed like a fancy word for get weaker. We wouldn’t be passing a unified whole down through the generations. We would be parceling out pieces over generations, and ultimately there would be nothing left.157
Therefore, Green, with the help of his attorney, Bill High, created a family legacy plan that featured a family constitution and a management trust—the Green Stewardship Trust—that holds the entirety of the family wealth, replacing all previous estate planning devices in use.158 Green and High’s legacy plan also included a family vision, a family mission, guiding values, a giving statement, prerequisites for being a member of the management trust, and a plan for its implementation.159 The development of the legacy plan took a year and included the entire family. The Greens went on retreats, used the StrengthsFinder assessment to learn more about the personality types of each family member, and ultimately worked together to create a mission, vision, and value statement list for the family.160
A unique feature of the Green Stewardship Trust lies in what Green refers to as one of its “Safeguards.”161 The operative document of the trust states that if any of the trustees (all family members) attempt to sell or liquidate more than 10% of the company, the contents of the entire trust will go to charity.162 Although this provision bears some similarity to the inflexibility of incentive trusts, Green explains that the provision removes any incentive for a trustee to sell the company for personal gain, as he or she would not receive any of the proceeds.163 Green further explains that this provision reinforces his conception of the company and wealth as a “strong, fruitful tree,” which can “yield wonderful fruit” in the form of employment and money, but it does not, and cannot, belong to one person alone.164
Green’s decision to replace traditional estate planning devices with a family legacy plan and the Green Stewardship Trust embodies the importance that Green places on his values and other forms of intangible wealth.165 Green, through his estate planning and business succession practices, captures the necessity of including tangible and intangible assets in an intergenerational transfer.166 Green says: “A seen legacy looks like those things we manage in this world, like our money and physical resources or assets. An unseen legacy, however, possesses so much more power because it stirs within our hearts and minds. It’s our character, values, and beliefs.”167
Green follows the values he incorporated into his family legacy plan, both in his personal and professional life. Green has taken home the same salary for the past eleven years (as of 2017).168 Hobby Lobby donates roughly half of its profits to charity per year.169 Green holds a family meeting on the first Wednesday of every month to discuss charitable giving.170 Green’s grandchildren attend these meetings to observe and absorb the family’s emphasis on generosity.171 Green requires his children to work.172
In sum, Green practices what he preaches. Not only that, but he exemplifies how a legacy plan can work and why it matters: “Transferring wealth or the wisdom of a family vision from one generation to the next can be tricky. But it can be done successfully if a vision is in place. A vision for the Green family carries philanthropic, ethical, and spiritual implications.”173
The Rothschilds and the Greens accomplished what the Vanderbilts, and a vast number of other families and family-owned businesses, could not—a preservation and continuation of wealth and business among multiple generations—because they incorporated intangible assets into their plans. Estate planning practitioners should follow their lead and do the same.
C. How to Create a Legacy Plan
Following an exploration of what a legacy plan is and an examination of how legacy plans, or their absence, affected three different families, estate planning practitioners should familiarize themselves with the basics of creating a legacy plan. Although the mechanics of creating a legacy plan vary in the contexts of personal wealth and family-owned businesses, and there is no one-size-fits-all approach, enough similarities exist to provide an overview of tactics that estate planning practitioners can employ in such a creation.
In terms of the individual context, where testators hire estate planning practitioners to devise a method of passing down their assets, the most important step for estate planning practitioners is to educate their clients on the bigger picture of estate planning.174 A helpful definition for practitioners to share with their clients during the initial stages of creating a legacy plan is that of legacy itself—namely, “Anything handed down from the past, as from an ancestor or predecessor.”175 This definition reminds clients that a legacy plan is not the same as an estate plan, and it includes the intangible assets lacking in a will or a trust.176 Legacy planning cuts to the core of the individual by inspiring reflection on important values that in turn affect how he or she wants to impact future generations.177
Once the estate planning practitioner establishes a baseline understanding of legacy planning in the mind of the client, the practitioner should focus on the three primary factors of an effective legacy plan—communication and trust, preparation of heirs, and family purpose.178 Elaborating on these factors, the family consulting firm The Heritage Institute offers twelve “elements for sustaining family wealth and unity for multiple generations” that a practitioner can use as a detailed roadmap for accomplishing the aforementioned three factors of legacy planning.179 These twelve elements are as follows:
- Foster strong and effective communication, and build trust between generations.
- Develop, maintain, and regularly re-visit the intended vision for the present and the future.
- Be sure the family meets regularly.
- Promote a balanced definition of the meaning of ‘wealth.’
- Keep the family business (including investments) separate from the business of being a family.
- Identify the roles necessary for the family to be successful (non-financially as well as financially).
- Inspire individual family members to participate—for their own individual reasons.
- Train and mentor each generation.
- Facilitate the genuine transfer of leadership from generation to generation.
- Require true collaboration between the professional advisors.
- Create mechanisms for ongoing family governance.
- Do it now.180
Importantly, these twelve elements hammer home the notion that a legacy plan is a collaborative process that involves the entire family.181
Aided by the twelve elements, practitioners can then assemble a plan to accomplish the three factors of an effective legacy plan.182 In the realm of communication and trust, practitioners can suggest regular family meetings that focus on unity and shared values, fostering bonds between the generations, and providing a foundation for open and honest commun-ication.183 Additionally, practitioners can suggest regular family vacations to supplement the bonds of family members and contrast with the potential seriousness of official meetings.184 Practitioners can help families accomplish the second factor, the preparation of heirs, by suggesting that older generations educate the younger generations on how wills, trusts, and investments work.185 Older generations could also guide younger generations through real-world philanthropy projects to instill the values of responsibility and stewardship.186 Finally, practitioners should assist clients in the creation of a family purpose statement, asking the family to identify its core values and then translate those into a statement, “a compass that aligns them toward the family’s common purpose.”187
Although the above process requires significant emotional investment on the part of the family and the estate planning practitioner, and estate planning practitioners likely will not have the time or the expertise to walk with their clients through every step of the process, practitioners should educate their clients on the process and explain its relationship as a supplement to the estate plan.188 With their influential platform as estate planners, practitioners can accomplish a seismic shift in the fate of their clients’ descendants merely by helping their clients identify their core values.189 While most people live according to a set of values, very few of them take the time to write them down, and the practitioner’s assistance in this simple step could be the difference between an effective estate plan and a fulfillment of the shirtsleeves paradox.190 Practitioners do not need to be therapists to affect positive change in a family tree; they just have to provide a path for that change to occur.
When shifting to a legacy plan for family-owned businesses, practitioners should similarly explain what a legacy plan is for their clients and how it relates to a business’s succession plan.191 Next, the practitioner should assist the client in creating the three core aspects of a family business legacy plan: a statement of core values, a vision and mission statement, and a code of conduct.192 Similar to their role in the legacy planning process for individuals, estate planning practitioners are most useful to a family business by serving as a catalyst for reflection on and identification of values.193
The first aspect of a family business legacy plan, the statement of core values, helps reconcile an inherent problem of a family business—the divergence between family and business values.194 Families tend to favor treating everyone equally, while businesses tend to favor treating people based on performance.195 Families operate more from an emotional standpoint to ensure relations remain intact, while businesses make decisions based on logic to account for the comings and goings of hiring, firing, and retiring personnel.196 An estate planning practitioner should encourage a client to create a statement of core values that integrates these divergent practices (where possible) and eliminates the beliefs and differences that cannot be reconciled.197 Examples of core values that transcend the divide between family and business values are “respect, integrity, quality, humility, passion, modesty, and ambition.”198 No matter the exact wording of the values, as there is no right or wrong answers, the values should be clearly communicated and continually reinforced throughout the family and the business.199
To draft a vision and mission statement, the second aspect of a family business legacy plan, the practitioner should encourage positive, realistic, and future-oriented statements that describe the business’s “target customers, the products or services that will be offered, in which markets such products or services will be offered, and what makes the company’s products or services unique.”200 Additionally, the practitioner should advise the business that missions, unlike core values, should change over time to reflect changes in the business, and, therefore, should be evaluated at consistent intervals.201
The third aspect of a family business legacy plan, the code of conduct, should establish standards for how members of the business treat each other, management, and the public.202 Specifically, a practitioner should encourage the client to include provisions to deal with disagreements, such as a mandatory “cooling off” period.203 A well-drafted code of conduct, based on the input of the entire family, should foster collaboration and support among the members of the family business, reflecting the values identified in the first aspect of the plan.204
Finally, the practitioner should assist the family-owned business in preparing a document that integrates these three aspects—a “family constitution.”205 Like the process involved in the creation of a legacy plan for an individual family outside of the business context, the preparation of the “family constitution” should involve all family members within the business, a collaborative effort that should unify the family and solidify the business for generations to come.206
Both the family legacy plan and the family business legacy plan shift clients’ focus from the transfer of tangible assets to the transfer of intangible assets, encouraging families to determine the values most important to them. Determining these values provides a strong defense against the shirtsleeves paradox and enhances the ability of estate planning practitioners to accomplish meaningful, positive change in the lives and businesses that they serve. While the planning process in the family or family business legacy plan certainly will not be as straightforward as following a simple three-step process—there is no such thing as straightforward when dealing with families—the processes likely will set the framework for increased communication within the family and, at the very least, self-reflection.
Twenty-First Century estate planning practitioners face an extraord-inary opportunity to change their practice for the better and impact not only their clients’ lives, but those of future generations as well. With the introduction of the Tax Cuts and Jobs Act in 2017 and the rapid rise of automation in the first two decades of this century, the landscape of estate planning is experiencing a tectonic shift. The Tax Cuts and Jobs Act temporarily removes federal estate tax considerations for 99.9% of Americans,207 and the rise of automation eliminates mundane, time-consuming tasks from the estate planning practitioner’s duties.208
Both of these changes liberate attorneys and clients to focus on the intangible assets of an estate plan. Instead of fearing that these changes signal the end of the need for estate planning attorneys, savvy practitioners will take advantage of this shift to improve their ability to serve clients and perhaps put an end to the shirtsleeves paradox. An attorney is a counselor by the nature of the profession; the aforementioned developments in the Twenty-First Century give attorneys the ability to lean into this role.
In contrast to the positive developments of the new millennium, the historical practices of estate planning practitioners leave much to be desired. The traditional estate planning devices of wills and trusts, though still necessary, have proven futile in the preservation of family wealth and family businesses. The shirtsleeves paradox has haunted families for centuries, with limited exceptions, and practitioners clearly need to change their approach. Why not seize the inertia of the changing landscape of the estate planning practice to incorporate legacy planning on a wide scale?
The case studies of the Vanderbilt, Rothschild, and Green families illustrate the necessity of legacy planning. Two of those families made the effort to include values in their intergenerational transfers. One did not. The impact of those decisions is plain to see in the relative fates of each family. The Rothschilds and Greens have thriving, intergenerational businesses and unified relationships, while Commodore Vanderbilt’s fortune and railway empire are extinct.209 As Irish politician and philosopher Edmund Burke explained in his reflections on the French Revolution, “In history a great volume is unrolled for our instruction, drawing the materials of future wisdom from the past errors and infirmities of mankind.”210 Estate planning practitioners should, therefore, study the lives of the Vanderbilts, Rothschilds, and Greens to understand the impact of including intangible assets in intergenerational transfers.
A legacy plan requires thoughtful consideration and effort from estate planning practitioners and clients. That effort will transform not only the role of the practitioner, but also the outcomes of countless generations. Practitioners’ decisions to adopt legacy planning, with its corresponding focus on the values of their clients, will forge a new bond between practitioner and client. More importantly, legacy planning will forge a new bond between generations.