Legacy Planning

The Family Mission Statement

Legacy. The word itself carries connotations of solemnity and weighty resolutions. But across the nation the subtext of legacy planning is changing; new approaches bring together financial professionals, tax consultants, attorneys and family members in an effort to shape the direction of communities – and the world – for years to come.

You can ensure that your wealth continues to do good work long into the future by establishing financial structures that create a legacy of financial unity and success. To do that, you’ll need to come up with a legacy plan. The foundation of your plan could well start with something new: the family mission statement.

What Is a Family Mission Statement?

When we consider the term mission statement, most of us think of such statements created for business enterprises. For a small company, this mission statement is a written explanation of the values and beliefs that have led the business to its current success; it’s a plan for organizing the financial and human assets of the business to ensure its future success. The family mission statement works in much the same way. It is a statement of family identity: who you are, what you believe in and what you will do in the future.

This simple exercise can make a serious topic easier to discuss. You can start by stating your goals and discussing the legacy you want to leave. Your children and grandchildren can offer their insight into the important values they’ve received from you, and they can provide ideas about courses of action that will honor those values. And for those who are dedicated to the idea of helping others, a mission statement can assist future generations in continuing the philanthropic journey you’ve begun.

Your family mission statement is also the ideal venue for those who wish to establish a family tradition of giving. When a family has unspoken assumptions – about a good education, comfortable retirement or quality of life – it can be more difficult to set limits and, therefore, more necessary to articulate values and beliefs and behave accordingly.

Ideally, these questions should be clearly defined, with thought given to checks and balances within the structure of the family. The more clear the process is, the less chance for conflict among family members. You may find that the best way to create clarity is to involve your family members in the process right from the start, so that the end result is truly a guided, collaborative effort.

Regardless of the choices you make concerning the delegation of your estate, discussing your intentions with your heirs is essential. It’s important that they know you are passing down more than just money to them. You are bequeathing the values, responsibilities and traditions you

have instilled throughout a lifetime. That includes your legacy of helping others. With proper communication and family planning, you can help ensure the money you give to charity will provide an equally valuable gift for your heirs.

There are ancillary benefits to these discussions about the family mission: children learn how to responsibly manage their money as they learn to set aside some money for current spending, some money for saving and investing, and some money to help others. Meanwhile, you help the next generation learn to identify with people in need and to involve themselves in causes that matter. You help them to develop confidence as they learn to see themselves as individuals capable of making a difference in the world. Personally, you will have the satisfaction of the knowledge that your children know exactly which principles are important to you, and why these values matter.

Remember, your family mission statement isn’t etched deeply into stone. Rather, it’s a living document that reflects the reality of each successive generation. In other words, as the structure of your family changes and the structure of your family’s wealth changes, your family mission statement can change as well.

Reaching a Purposeful Balance

Along with crafting your family mission statement, you’ll also want to review your estate plan. In many ways, your estate planning process determines what your legacy will be. Will you be remembered for what you did for your family, for your community ... or both? A purposeful balance requires that you take an objective look at issues that impact your children if you decide to include a charity in your estate plan. Here are three philosophies:

1) “Just Enough” for the Kids

You may determine that your legacy to your children is to teach them the value of service to community, church or fellow man, giving away part of your estate to charity rather than to them. In other words, the children are expected to make it on their own for the most part, and you’re okay with that. In most families, the children are okay with it, too. You might agree with Warren Buffet, who has said that he wants to leave his children “enough that they feel they can do anything, but not so much that they feel they can do nothing.” Once you have made your children as financially secure as you feel is appropriate, you’re free to determine what you are going to do with the rest of your estate.

2) A Commitment to Charity

Perhaps you elect to leave your money to a charity that can involve your children, such as a national donor-advised fund like the Raymond James Charitable Endowment. With a donor-advised fund your gift would be placed in a “foundation” account and your family, as “donor advisors,” would be able to suggest how the balance of the account will be distributed over time. Donor-advised fund accounts can be created to last “in perpetuity,” essentially creating a permanent legacy. Generous individuals have for years created private foundations, which in many ways operate like public donor-advised funds but allow for greater family control. The trade-off for this greater control, however, is greater complexity and cost. Typically, private foundations are created with gifts in the millions, while donor-advised accounts can be created for as little as $10,000.

3); Creating Balance

You might decide to take a more middle-of-the-road approach by leaving some of your money to charity and some to your children. There are basically three ways to accomplish that. First, you can use life insurance, with either your children or your designated charity named as the beneficiary. If you name your children as beneficiary, leave some part of your estate to charity. If the insurance is owned by the children or an irrevocable trust for their benefit, the death benefit can be both income- and estate-tax free. If the insurance is owned by your designated charity, you can deduct the gifts you make to pay the premiums. Second, you can create a charitable remainder trust (CRT), which provides an income stream to your children for their lives (or a fixed period not more than 20 years), with the remainder going to charity. Third, you can create a charitable lead trust (CLT), which is essentially the mirror image of a CRT. Including a CLT in your estate plan creates a trust that pays an income stream to charity for a fixed term, with the remainder of the trust going to your children.

It should be noted that all of these techniques have complex potential pitfalls and should not be implemented without consulting with an experienced attorney specializing in wills, trusts and estates.

However you strike the balance, one thing is certain: the process of creating a family mission statement can be revealing as families come together to share their feelings about the meaning of charity, community and philanthropy. Because it clarifies objectives and is a compelling way to bring home your family’s ability to affect the future, this kind of legacy planning process can have profound effect.

The best statements of family mission are those that involve all generations in the articulation of a shared identity and shared goals, so consider raising these topics with your family this holiday season. Your financial advisor can offer some insight into what to expect from these conversations, how to best prepare and what’s involved in the design of a meaningful legacy plan.

Creating a Family Mission Statement

The development of your mission statement is a personal experience with no magic formula, although most effective statements cover three distinct areas: values, communication and information, and action. You might consider the following when crafting your own family statement.

Values

Perhaps the most important part of the family mission statement is the articulation of common values. Since this can be a rather broad topic, it is often best to break down the discussion into several themes.

Wealth values: To what end will the family manage and build its wealth?

Business values: How should the family business operate? In what industries? For what purposes?

Philanthropic values: What is the role of the family in the community? What should members of the family do to ensure the community remains healthy?

Interpersonal values: How should family members behave toward each other? How should disputes among family members be resolved?

Remember, it’s not unusual for family members to have different ideas when it comes to values. But these differences can be the starting point for a positive and meaningful conversation about the specific values your family does share, and why.

Communication and Information

The importance of communication should be emphasized when it comes to family unity, which is why your family mission statement should include specific guidelines on how family members will communicate with each other. You can start this process by asking some of the following questions:

How will your family govern itself? Will there be a designated leader, or will family interests be managed by consensus?

Does your family meet on a regular basis? If so, what should the structure of those meetings be? What subjects should your family discuss at these meetings?

Will these meetings include outside professionals and/or counsel to your family?

Formal communication guidelines can help your family avoid many of the conflicts that may arise when one branch of your family doesn’t know what the other is doing.

Action

To effectively implement your family’s values, you will need to have a system for managing its various interests. For a first-generation family, this is fairly easy as Mom and Dad generally decide how to manage the family’s wealth, at least until the children are old enough to have input. For larger, multigeneration families, it makes sense to consider how decisions will be made regarding family wealth, businesses and giving; who is in charge of what regarding the management of family wealth, family businesses and family charitable efforts; and how family members report back to the group with results or other information.

This article is excerpted from the Winter 2005-2006 issue of WorthWhile magazine, published by Raymond James Financial.