Strategies for Successful Legacy Planning: Q&A With Keith Whitaker

When you’ve worked hard to build, protect and preserve significant wealth, you want it to create opportunity for your heirs. While having a well-thought-out estate plan is a key component of transferring your assets to the rising generation, it’s important to remember that your wealth isn’t purely financial. You’ve also built an intangible type of wealth: qualitative wealth.

Qualitative wealth can take many forms but may include your family’s values, wishes, hopes, aspirations, relationships and ties to the community. Passing on these intangibles alongside your financial assets requires more than just estate planning. It necessitates planning with the rising generation, not just for them. This is what legacy planning is all about.

Done well, a legacy plan helps increase the chances that your financial wealth is leveraged in a way that both honors your values and wishes and positions rising generation family members for success. To help you as you approach your legacy plan, we spoke with Dr. Keith Whitaker, president of Wise Counsel Research Associates, a firm specializing in family wealth and legacy and estate planning. In his role at Wise Counsel, Dr. Whitaker consults with family wealth creators as well as members of the rising generation to help build legacies that stand the test of time.

Through our questions and Dr. Whitaker’s answers, we hope you’ll uncover strategies to help you navigate common challenges and scenarios you may face as a wealth creator when building your legacy plan.

You’ve counseled families around the globe on legacy planning. In your view, what are the most important factors in long-term family success?

For more than seven years now, my firm, Wise Counsel Research Associates, has been conducting what we call the 100-Year Families Study. As a part of this study, we have had the privilege to interview nearly 100 families from around the world that have successfully transitioned major family enterprises through at least three generations. Passing a family enterprise across one or even two generations is difficult, so this is an incredibly rare group of highly successful families from whom to learn what works.

From our research, we have identified five key factors for long-term family success:

1. Fostering resilient family members focused on personal growth and development
2. Common values and purpose
3. Cross-generational engagement and support
4. Governance policies and structures that guide wise decision-making
5. Commitment to community beyond the family

In our practice, we help families to identify the forms of qualitative wealth in the family that align with these success factors. Then we lead them in process of measuring, managing and growing their qualitative capital with the same intentionality that they apply to their financial wealth.

Communication with rising generation family members is critical to successful legacy planning. In your view, what is the most important piece of information a wealth creator should communicate to his or her heirs?

As you begin the conversation with your heirs, it’s critical to convey the spirit of your bequest or gift: the reason for it and the meaning that the bequest or gift holds for you. This enables your wishes and aspirations to be passed down alongside your wealth by helping make the bequest or gift feel complete and ensuring that the recipient is in a position to receive it well.

To do this effectively:

1. Clarify your own reasons for making the bequest or gift, and be honest with yourself about your goals.
2. Share your reasons for the bequest or gift with your heirs. You can do that in a conversation, in written form (such as a legacy letter or a letter of wishes to accompany a trust) or even via video or audio recording.
3. Let go. Don’t try to control every outcome of your gift — it’s impossible. Communicate your plans, and then listen. What concerns or questions does the recipient have? Ideally, your communication about the gift turns into an ongoing dialogue about what really matters to you and the recipient.

What advice do you have for wealth creators to effectively engage rising generation family members?

As you embark on your legacy plan, engaging the rising generation effectively is critical. Generally, this means developing a strategy that is appropriate based on your heirs’ level of development.

In many cases, age is the primary consideration. For young children, the best way to engage may mean using an allowance or trips to the grocery store to instill lessons about keeping track of money, saving and spending wisely. For teenagers, you might consider ways to encourage habits of work via a summer or after-school job and talking about the values behind big purchases. For adult children, it may mean introducing them to your advisors, so they can begin to educate themselves about investments and planning.

Above all, engagement depends on believing that your children should have a voice in the financial decisions that affect their lives and then doing what you can to listen to what concerns or questions they might have.

Many wealth creators have grandchildren. What unique opportunities and challenges do grandparents face in legacy planning?

Grandparents and grandchildren enjoy a sort of unconditional love that is untroubled by the same responsibilities of a parent-child relationship. As a result, grandparents and grandchildren can sometimes come together around important topics even more readily than children and their parents.

For example, I have seen grandparents present at family meetings about their early lives, the struggles they faced and the successes they had, with young and adult grandchildren listening with rapt attention. Simply put, grandparents’ words about legacy hold special power.

But at the same time, grandparents need to exercise that power responsibly. Sometimes grandparents want to “spoil” their grandchildren with continuous gifts, even large gifts like a car or down payment for a home. This behavior can undermine parents’ authority and upset plans parents have made to instill responsibility and hard work into their children’s habits.

As a grandparent, it’s important to talk with parents first before planning large gifts to their grandchildren. That goes for estate planning even more. If a grandparent is planning to set up a generation-skipping trust (GST) to benefit their grandchildren, be sure to talk with the parents first before doing something they may have to live with for decades to come.

Many families use trusts to transfer wealth to the rising generation. How can parents use trusts more effectively?

In our practice and research, we have seen one thing above all else determine whether trusts turn out to be a burden or a blessing in families’ lives: Do the family members see the trust as a living, human relationship or as a dead, legal construction?

Most of the time, it’s the latter. People experience the trust as a convoluted, confusing restriction on their choices. Many beneficiaries say, “A ‘trust’ means my parents didn’t trust me!” This is an attitude sure to lead to resentment and dependency.

So how do you make a trust a living, human relationship? One way is to make sure to explain to beneficiaries your purposes in creating the trust. List those reasons. Tell them about it — maybe write a letter of wishes explaining to the beneficiaries what you hope the trust will achieve.

I have a colleague who was a fifth-generation estate planning attorney. In his practice he would not write for a client a trust that did not begin with the sentences, “This trust is a gift of love. The intent of this trust is to enhance the lives of the beneficiaries.” Come up with the language that feels right to you, and express it. Then make sure that the trustee understands these purposes, too.

When it comes to choosing a trustee, choosing wisely is a critical step in ensuring that the trust is a human relationship. You want someone who balances good technical knowledge and competency around trusts with a deep understanding of you and your children. You want someone (or an institution) you have complete confidence in and who will be loyal to your beneficiaries.

Finally, consider giving your beneficiaries the power, as they get older and develop their own skills and knowledge, to choose their own trustees. If you make the trust a lockbox to keep beneficiaries away from the money, then they will likely spend much of their time trying to open that box. It’s far better to make the trust a vehicle for the continued growth and flourishing of your beneficiaries’ lives.

One of the practices you recommend for families is to hold regular family meetings. What do effective family meetings look like, and how can family members prepare to make them successful? What role can their trusted advisors play in family meetings?

Families that succeed over generations make a habit of having regular family meetings. Family meetings can be used to strengthen family members’ relationships with each other, make effective decisions together about important matters and educate family members in topics relevant to financial or business management.

The key to a successful family meeting is preparation. The more preparation, the better the family meeting is likely to be. Some important matters to consider in preparing include:

1. What is the goal (or goals) of the meeting?
2. Who needs to be present to achieve these goals? Does that include only biological family members? Spouses? Your financial advisor?
3. What is the meeting agenda?
4. Will the meeting make time for breaks and for recreation time for family members?
5. Where can the meeting take place to provide a confidential, comfortable environment?

Financial advisors can play a critical role in successful family meetings. Many times, the family needs the financial advisor’s input on technical matters that they want to learn or make decisions about. More broadly, a financial advisor with the appropriate experience can help the family facilitate the meeting discussion. This facilitation role requires that the financial advisor step back from being an “expert” and seek to help the family members share their views in honest, direct ways that lead to clarity of thought and action. The facilitator can even help the family devise ground rules to keep the meeting discussion focused and respectful. A facilitator is especially important for families that have not had family meetings before.

Keith Whitaker and Wise Counsel Research Associates are not affiliated with Northwestern Mutual and the views expressed by Keith Whitaker and Wise Counsel Research Associates do not necessarily represent those of Northwestern Mutual or its subsidiaries.