Family Wealth Counseling: How To Motivate Your Wealthy Donors To Take Action

Family Wealth Counseling: How To Motivate Your Wealthy Donors To Take Action

Article posted in Practice on 5 April 2000| comments
audience: National Publication | last updated: 18 May 2011
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Summary

"Family wealth counseling" is a revolutionary approach to working with wealthy families that has swept the country over the past several years. In this edition of Gift Planner's Digest, Denver Certified Financial Planner Peter Tedstrom outlines this process and how it motivates his clients to make significant planned gifts.

by Peter Tedstrom

Family Wealth Counseling is a revolutionary approach to working with wealthy families that has swept our country over the past several years. The press, professional advisors, and the affluent have been impressed with the uniqueness and the power of this human approach to planning. Imagine a question-based, purpose-driven, life planning process. Contrast that with the traditional estate planning process that many times is unfulfilling and often only serves to minimize damage.

The most frequent comment from America's financial and legal advisors is that everybody's talking about this kind of estate planning, but nobody is actually doing it. Sadly, they are absolutely correct. There are many advisors out there selling some piece of the puzzle-some inventive tool, powerful trust, clever strategy, or hot financial product-but they are not doing much comprehensive planning.

Professional advisors in the financial and legal industries continue to ask us one question whenever they see the work we do with our clients: "How are you getting your clients to do all this?"

For example, we recently received a call from an attorney who is the head of planned giving for a major hospital in Denver. He is a brilliant technician and committed to his organization. During the past year, through referrals, several of his wealthiest donors had retained us to take them through the Family Wealth Counseling process. The results we achieved were beyond the wildest dreams of these families. We recovered millions of lost dollars, and most of the money is now on its way to this planned giving officer's organization. After each report of a major unsolicited planned gift, he would ask the donor, "Who has helped you do this?" He got the same answer each time. The donor would tell him about us. He called us and told us that he had been talking with these people for years about doing something like this but had never been able to get them to take action. He asked how we were getting his donors to make these major planned gifts. The answer is that Family Wealth Counseling motivates clients to implement these sophisticated plans and empowers them to take control of the process and enjoy the fulfilling results the plans produce.

In this article, we will outline the Family Wealth Counseling process that leads our clients (donors) to take action. We will explain the three aspects of wealth, the importance of growing a strong family tree, helping clients find their life purpose and the psychological pyramid of priorities when it comes to giving. Time and time again, guiding clients through this process leads to plan implementation instead of the never-ending period of evaluation, hesitation, and uncertainty that is common with traditional planning.

Traditional planning leaves families with a tax, inheritance, or business-continuation plan, but clients are not always clear about what has been done. Further, the traditional planning process does not generate any degree of excitement for clients. Once our clients complete the Family Wealth Counseling process, they understand how everything fits together into one big picture. They have built a master life plan that they actually understand and find fulfilling and motivating.

The Three Aspects of Wealth

Because Family Wealth Counselors are relatively new to the planning scene, one of the very first questions we are asked by both potential clients and professional advisors is, "What makes the Family Wealth Counseling approach unique?" Family Wealth Counseling is much more than simply looking at a financial statement and an estate tax table and then "running the numbers." There are actually three distinct aspects to each family's wealth: financial, social, and emotional. By fully exploring and incorporating all three aspects into the overall planning process, we can hope to achieve superior planning results and maximum benefits to the family.

Financial aspect of wealth. The first facet of wealth, and arguably the most mundane, is the financial aspect. This aspect addresses the tangible material benefits that a person's wealth provides to him/her and the family. It is made up of balance sheets, profit and loss statements, bank accounts, investment summaries, tax returns, etc. Very little of the planning for the very wealthy goes much beyond this first level. Most of the planning seems to be simply a matter of improving the numbers.

Since most professional advisors are analytical types, it is understandable that most of their planning is done at this analytical level. However, when determining an appropriate plan of action, family wealth planning does not stop with a look at a balance sheet and a tax table. If the planning process only addresses this financial aspect, then affluent people will end up leaving far more benefits on the table than they will ever take off.

Social aspect of wealth. Most professional advisors who regularly work with the very wealthy do not fully understand the far-reaching ramifications of the social aspect of wealth in America. Consequently, they seldom, if at all, explore adequately these issues and opportunities with their clients. Consider this:

My Multi-Million Dollar Wealth

Most people see their wealth as one block of wealth-owned and controlled by them. This, however, is not really the case. A person or couple's wealth is actually divided into two distinct categories: social capital and personal capital. The personal capital is what they get to pass to the next generation without restriction, and social capital is the portion of their wealth that does not belong to them, even though they have temporary control over it. This is the portion of their wealth that must be allocated to provide benefits to the general welfare of this country. It is the law.

Chart: Social & Personal Capital

With no planning, the "default" option leaves this social capital to the federal government in the form of estate taxes. What if, instead of relinquishing all social capital to the IRS, it would somehow be possible to disinherit the IRS? What if families could choose to self-direct that same social capital to worthwhile charitable causes and organizations they genuinely care about and want to help-to charities they believe do important work?

They can. If charities must compete with the heirs for personal capital, charity will often lose. However, when charity is put in competition with the IRS for the family's social capital, charity always wins. If charities and families understood this, the amount of wealth flowing to worthwhile charitable causes would be staggering.

Chart: Social & Personal Capital

Everyone with wealth is going to be a philanthropist in one form or another. It is very important to realize that charitable organizations, other than the federal government, can be the recipient of social capital.

Chart: Social & Personal Capital

Since the government cannot create all the needed solutions to America's problems, the wealthy of this land, over the next 30 years, can take matters into their own hands and do it themselves. As they elect to take control of their social capital when passing their $10+ trillion in accumulated wealth to their heirs, they have the financial capacity to literally transform this nation. If their family wealth plans are set up to direct their social capital, it is beyond imagination what good could be done to help this country. If done properly, it need not cost these wealthy families one penny of their accumulated wealth. In fact, in many cases, these families can often end up wealthier in the process. Once they fully understand the power inherent in this social aspect of their wealth, it can immediately open up a tremendous variety of new and creative planning possibilities that they have probably never seriously considered.

Emotional aspect of wealth. The most intimate and critically important aspect of wealth falls into the emotional realm. It is with this aspect of their wealth that each person must struggle to answer the question, "What is the purpose for all my work and the accumulation of all this wealth?" During the first half of a person's life, the answer to this question seems relatively easy-to become financially independent, or some like sentiment.

As people find themselves moving into the final chapters of their lives, having already accumulated far greater wealth than they ever imagined possible, often the simplistic answer of their youth no longer seems fully adequate or satisfying. Unfortunately, very wealthy people are seldom discussing these emotional issues with their existing advisors. In fact, many advisors strongly believe that it is definitely not their place to bring up and discuss these intimate and personal issues with their clients.

Advisors seem to rationalize that if the client is really interested in these topics, then they will bring them up for discussion. But how can a client bring up such sensitive issues with all the accompanying planning considerations if they do not even know what questions to ask or what tools exist? Who will tell them? Who will challenge them? Who will help them dream beyond themselves and their fleeting mortality and find the significance they desire out of the wealth they possess?

Growing A Strong Family Tree

We often ask our wealthy clients what they want most for their children and grandchildren. The answer is always the same, "We want our children and grandchildren to be happy."

Nothing is more gratifying than watching your own children grow up to be happy and productive members of society. This outcome is not a matter of the luck of the draw or the result of some good seed/bad seed explanation. It is often the direct result of the condition of the family tree.

There are three parts of a family tree: 1) the root system; 2) the tree itself; and 3) the fruit of the tree. The root system represents the primary virtues upon which the family tree is built and upon which the tree draws its life. The tree itself represents the core values that are a natural part of the root system. Core values are those activities and priorities in life that the members of the family choose to pursue. The fruit on the tree represents life purpose.

Life Purpose, Core Values, Primary Virtues

When speaking of "values" and "virtues" as parts of a family tree, people often struggle to define the difference between a value and a virtue. To us, a value is defined as what we believe to be important or has worth for us, something that has utility. It is something we prize; it is valuable to us. Money, for example, is said to be a value because of what it can do for us. Cars, homes, baseball, and skiing are all considered of value.

Virtues, on the other hand, are what we believe to be right, good, and proper. There is a considerable component of "rightness" or "goodness" that is missing in the definition of value. Money, real estate, and cars are not thought of as right or good. They are valuable, useful, or important. However, virtues address character, integrity, and principal. All parents want virtues to be present in their children's lives. Wouldn't any parent love to hear their child described by others as honest or generous? If an overriding goal of parents is for their children to be happy, there is no better way to achieve that goal than to etch these primary virtues into them and into their planning. The sooner they learn these virtues, the better. But it is never too late, no matter how old children are, to go to work on this task. One father said, "I don't care what my children's tree grows to look like or even what kind of fruit it produces, as long as it is growing from the same root system as mine."

In our opinion, passing on virtues in the process of passing on wealth through a multi-generational wealth transfer plan will enable children to grow as human beings and pursue their highest and best purposes in life.

Finding Life's Purpose

Human beings have four fundamental desires that must be fulfilled to find meaning and purpose in life. When these fundamental desires are equally met, a person will be healthy, focused, balanced, happy, and fulfilled. These desires are:

  1. The desire to gain independence (financial). We do not want to be obligated to anyone.
  2. The desire to help others (social). The motivation to help someone who needs what we can provide.
  3. The desire to feel significant (emotional). We need to feel important and appreciated.
  4. The desire to find immortality (spiritual). We want to be remembered by someone for something meaningful.


Typically, we see these four fundamental desires as separate and distinct aspects of our clients' lives. This is called the compartmentalized approach to finding one's life purpose. Clients often feel that they can never do enough in any one area because the other desires are calling on them. They find themselves running from one area to the next-doing their best, but never really feeling satisfied that they are accomplishing all that they can in every area.

Life

An alternative is the synergistic approach. Instead of treating each area/desire separately, they should merge into one. So, by finding those activities, causes, relationships, and opportunities that are common to all four fundamental desires, families can begin to identify their life purpose. Not only will they begin to discover the purpose for their life; they will also discover the purpose for their accumulated wealth.

Life Purpose

A unique way Family Wealth Counseling helps clients discover their life purpose and use it to map out their planning is through the client retreat. Of all the pieces of the Family Wealth Counseling process, the client retreat is the most important. The client retreat is what's really different from how most professional advisors begin working with their clients. No other type of advisor takes such an intense and comprehensive approach to helping wealthy families discover and fulfill missions for their lives and wealth. Most advisors have little or no training in helping wealthy parents address life's soft issues. Often, their primary specialties are the hard issues-tax and financial matters.

During the client retreat, usually held at the client's home, we discuss each spouse's responses to a questionnaire (the life on purpose questionnaire) that we have developed. This questionnaire is designed to delve deeply into the lives of our clients. These questions:

  • help us get to know our clients;
  • help our clients get to know themselves and their spouses in many new and important ways; and
  • help both spouses make sound decisions regarding the effective use of their remaining time, unique talents, and accumulated treasures-producing the greatest possible benefit for them, their children, and the world.

By working through our questionnaire in the retreat, our clients gain enhanced clarity as to what they want to do with their lives and their wealth. They gain greater confidence that they can articulate to their advisors what they want to do and can effectively evaluate their advisor's plan designs. The motivation that drives them now comes from recognizing the increased leverage that they have at their disposal. The power is in the questions.

The Psychological Pyramid Of Priorities

One of the most powerful and important planning concepts is in the psychological pyramid of priorities. It identifies how people prioritize when it comes to giving.

This pyramid has three levels. The first priority of most people is to take care of themselves. It is the most basic and instinctive priority, and it stems from fear and anxiety. The second level is taking care of their children (heirs). This priority comes from deep love. The third level is taking care of others. Once parents feel completely secure that they are going to be able to maintain their lifestyle, and are providing for their heirs with an appropriate inheritance, what can they do with what is left?

Obviously, charitable giving is a wonderful answer, but one that is rarely used. In our experience, it is because most charities approach wealthy donors with an inverted pyramid. Charities approach donors to explain their needs-asking that the charity's needs be met. However, based on the psychological pyramid of priorities, donors will not meet the charity's needs until they are certain that their needs will continue to be met, and their heir's needs will be met. If they don't know how much they need to accomplish these higher priorities, they will be reluctant at best, or completely unwilling at worst, to bestow a major gift to charity.

The charity may ask, "Well, then, why are we able to acquire multimillion dollar planned gifts from our donors if what you are saying is true?" The issue is not whether they have acquired major gifts, but whether those gifts are as major as they could have been. Was there any wealth left on the table that could have gone to the charity but went to the IRS instead? The answer, we believe, is usually yes, because the psychological pyramid of priorities was inverted and violated in the way the charity asked for donations. Until families determine how much they need and how much their heirs need, they will always give less than they can or maybe even should.

For example, some years ago, we were referred to Dr. and Mrs. Jim Hohlt. They were one of the few clients we have had that already had a charitable trust established before we met them. He was on the board of trustees of a regional university. A couple of years prior to meeting us, Dr. Hohlt was approached by the director of development about making a planned gift to the school. After some reflection, Jim and his wife, Liz, decided to fund a charitable trust with $100,000 of highly appreciated securities.

Do you think the director of development was pleased to accept this planned gift? Of course! However, two years later, Jim and Liz met with us. We took them through the entire Family Wealth Counseling process. When we were done, we set up and funded a second charitable trust with $1.7 million more of appreciated assets-17 times more than he gave two years earlier. What was the difference?

It is simple. We followed the psychological pyramid of priorities and helped them answer the two questions that had never been asked by any of their advisors, "How much is enough for us, and how much is enough for our heirs?" Once they had satisfactorily answered these two questions, Jim and Liz discovered they had extra wealth left over-$1.7 million extra, to be exact. Now, the couple was emotionally willing to make a second planned gift because they saw that this part of their wealth was truly surplus.

This psychological pyramid of priorities expresses our most basic human instincts of: 1) taking care of ourselves; 2) taking care of our own; and 3) taking care of others. Moving through these planning priorities in the proper order, not only simplifies the entire planning process, it also makes it more rewarding. It is worth the effort.

So when other advisors ask, "How are you getting your clients to do all this?" or when clients ask, "What makes the Family Wealth Counseling approach unique?" we explain all of these different aspects of Family Wealth Counseling. The concept of three aspects of wealth helps people understand that there is more to money than what it can buy them. Explaining the importance of building a strong family tree and finding a life purpose compels people to think about what is truly important to them. The psychological pyramid of priorities lets people know that with proper planning, they and their heirs can always be financially secure, and still be able to significantly contribute to their community and world. Family Wealth Counseling goes beyond traditional planning, not only telling people the methods and products they can choose, but helping to empower them to create meaningful family legacies.

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