Estate planning has become a pressing issue for many families as the federal tax exemptions are set to sunset at the end of 2025. While tax implications are often the catalyst for estate planning, focusing exclusively on them can result in a plan that fails to support the intended goals, or even does harm. For families with shared business ownership and economic interdependencies, the estate planning landscape is even more intricate, demanding a comprehensive approach that balances both financial and human considerations.

Estate planning involves making conscious choices with multigenerational implications. It should be approached thoughtfully and intentionally. Although maximizing tax efficiency to preserve wealth is a priority to many families, beginning with a shared vision of what success means for your family, both within and outside the context of the family enterprise, often leads to more effective and harmonious outcomes. This approach not only safeguards financial assets but also promotes family unity, aligns with core values and ensures that your legacy is preserved for future generations.

Estate plans should be perceived as gifts of love rather than mere transfers of assets. Effective planning requires preparing beneficiaries through education, skill development, and clear communication about the intent behind these gifts. This is particularly important in cases where some family members will assume greater ownership or control of the family business and others are not involved. Such preparation helps recipients understand and appreciate the purpose of the inheritance, fostering a sense of responsibility and stewardship.

This article provides an overview of the key human elements in a holistic estate planning process. To illustrate these concepts, we are pleased to join the Family Enterprise USA membership for a webinar on July 10, where we will discuss “the good, the bad, and the ugly” in estate planning approaches and outcomes. We hope you will join us for this insightful event.

Exploring Your Family Vision

When initiating or revisiting the planning process, it’s vital to articulate your vision of success, core values, and the purpose of your wealth. This reflection helps clarify your estate planning priorities and decision-making criteria. For those who are engaged in or influenced by a family business, the dynamics can be particularly complex, encompassing a vision for the business, broad family goals, and individual needs and aspirations. We regard these steps as key to a successful process:

1. Establish Overarching Vision: What does success mean for your family? Reflect on the principles and aspirations that drive your family, encompassing areas such as business continuity, community involvement, education, philanthropy, and personal fulfillment.
2. Define Purpose of Financial Wealth: How do you see your financial wealth serving your family’s needs and goals? Understanding the purpose of your wealth allows you to use it as a tool to achieve broader objectives, rather than simply focusing on accumulation and preservation.
3. Set Specific Goals for the Estate Plan: How can your estate plan help achieve your family’s vision of success both for its business and on a personal level? Focus on specific strategies and structures that support your vision, ensuring your wealth is used effectively and meaningfully.

A well-crafted wealth transfer plan advances the values, goals, and aspirations of those affected. Although this discovery process may feel awkward if you have not explored those ideas before, it prevents costly decisions or actions that might harm the family’s non-financial goals.

Vision-Driven Planning: Real-World Examples

Scenario A: You are the founder of a highly successful business whose children have taken over the reins. Your core values center around self-reliance, career achievement, and giving back. You’re ready to pay forward the success you’ve achieved by shifting your energies to building a nonprofit organization. You see the purpose of your financial wealth as providing the means to explore this next chapter. Your estate plan might pass just enough financial capital to provide a safety net for your family while moving the majority of your estate now into the philanthropic efforts that have become your life’s focus.

Scenario B: You have a large multigenerational family that is active in the local community. A number of family members work for the family enterprise, but others do not. You want a way to bring the younger generation into the family dialogue around wealth outside of the business context. In this case, you might consider establishing a family foundation or set of Donor Advised Funds as part of your estate plan, in addition to trusts for financial security and wealth preservation.

Scenario C: Your core values are around creativity, fulfillment, and togetherness as a family. You might see the purpose of your financial wealth as giving your kids the financial boost they need to work hard in whatever career field they are drawn to, regardless of what it pays. And you might see your financial wealth as a tool for creating experiences for the family to play and grow together. As such your estate plan might provide some money to your kids today to supplement their incomes now, reserve some retirement funds for them in trusts, and perhaps include a trust intended to fund family retreats or travel.

Communication and Co-Creation

Decisions about wealth transfer can trigger questions about fairness, the impact of wealth, and the readiness of beneficiaries. Addressing these issues up front clarifies your intentions and guides your planning process, helping prevent misunderstandings and conflicts.

Effective estate planning involves transparent communication with those affected. Co-creating your estate plan with family members can strengthen relationships and ensure alignment with your shared vision. This collaborative approach fosters a sense of ownership and commitment among family members, increasing the likelihood of successful implementation.

Conclusion

Estate planning is a deliberate set of choices guided by family values and goals. Effective planning aligns financial and tax management to serve the family’s best interests, ensuring that values drive the strategy rather than the other way around. This alignment helps avoid over-planning and potential regret. Although the upcoming expiration of certain provisions may influence decisions about gifting and utilizing available options, planning should remain values-driven.

Don’t miss out on more insights and practical examples at the Family Enterprise USA webcast on July 10. Registration information will be available soon. If you have any questions about this article, please contact us at WPG@Pathstone.com.

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