My name is Mark Goodfield. Welcome to The Blunt Bean Counter ™, a blog that shares my thoughts on income taxes, finance and the psychology of money. I am a Chartered Professional Accountant. This blog is meant for everyone, but in particular for high net worth individuals and owners of private corporations. My posts are blunt, opinionated and even have a twist of humour/sarcasm. You've been warned. Please note the blog posts are time sensitive and subject to changes in legislation or law.

Monday, May 30, 2016

Financial Ethical Wills - For Estate Planning and Managing Family Wealth

Last week, you read about the benefits of an ethical will. These wills are a way for you to share your personal beliefs, spiritual values and hopes for the future with your family. Today you will discover how some people are using ethical wills, to set forth their financial principles and values.

As a parent, a financial ethical will can help you accomplish one or all of the following:
  1. Allow you to explain your estate planning
  2. Assist your family in maintaining the wealth you created
  3. Provide your family guiding principles of how to conduct business
  4. Set forth how you hope your monetary legacy is to be used 
  5. Discuss your philanthropy values and principals.

Estate Planning - Explaining Your Decisions

As you may have read in my blog titled One Big Happy Family - Until We Discuss the Will, I am a proponent of family meetings to discuss your estate planning (or at least parts of it). Given that many people are uneasy with having a family meeting to discuss money and inheritances, an ethical will provides you the opportunity (albeit after you have died) to clarify for your family your thinking and decision making process in respect of your estate planning.

However, be mindful; if the objective in writing your ethical will is to be positive and motivating, you may need to consider whether the clarity you wish to provide to your family relating to your estate planning decision making process, is in keeping with this objective.

Business - An Ethical Will Provides Guidance for a Family Business

Given the tremendous failure rate of second and third generation businesses (only 30 percent of all family-owned businesses survive into the second generation and only 12 percent will be survive into the third generation), an ethical will can be used to convey the guiding principles of your family business, and even set forth the challenges and opportunities you foresee for the company going forward.

In his article "Reintroducing the Ethical Will: Expanding the Lawyer’s Toolbox", written for the American Bar Association, author Scott E. Friedman provides the following insightful comment:

“In contemplating the scale and variety of intra-family conflict, we have come to the conclusion that many such conflicts are, in part, attributable to the death of a leader who had not thought to clearly transfer his or her intentions, wishes and wisdom to the surviving family members. Lacking direction and the benefits gleaned from a legacy of insight and wishes passed on by the patriarch or matriarch, surviving children often become absorbed in the negative emotions of selfishness, resentment and jealousy, which all inevitably leads to trouble for the business”.

Thus, any guidance and direction you can provide to your children may be invaluable as they try to navigate through the issues of succession of a family business.  

Philanthropy - Setting the Tone for Family Giving

You can use an ethical will to ensure your philanthropic values are carried forward by your children. Here is a quote taken from an article by Eric L. Weiner, Ph.D. written for the practice management section of the Financial Planning Association, in which a parent said the following:

“I would love to see you become responsible members of the community and philanthropists. To that end, I have set up a donor-advised fund as the main conduit for our philanthropic interest. This fund will give you and possibly your children the ability to make grants to worthy causes. I want portability so that you can direct grants to your own communities, as well as to national and international interests”.

Alternatively, instead of setting up a charitable fund, you could just encourage philanthropy by speaking to the importance of charity in your ethical will and hope you lead by example and your children follow in your charitable footsteps.

Ethical wills provide you with a tool to impart both your spiritual and financial values and beliefs and principles to your children. You may therefore, wish to consider using an ethical will in addition to the traditional Last Will and Testament.

This site provides general information on various tax issues and other matters. The information is not intended to constitute professional advice and may not be appropriate for a specific individual or fact situation. It is written by the author solely in their personal capacity and cannot be attributed to the accounting firm with which they are affiliated. It is not intended to constitute professional advice, and neither the author nor the firm with which the author is associated shall accept any liability in respect of any reliance on the information contained herein. Readers should always consult with their professional advisors in respect of their particular situation.

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