Choices, it’s all about choices.

This is a case study about a curmudgeon client best known for the attention he lavishes on the bottom line of his businesses.  He is known to be opinionated, completely wrapped up in his business activities, unwilling to give up control and notoriously difficult to work with, previously going through six or eight estate and financial planning teams.  His tax and legal advisors were frustrated since they’d been unable to put a plan in place, having failed to move him off center into a decision making mode, but his pressing health concerns prompted them to take another crack at solving the problems.

Jeff Anderson arranged for a wealth counseling session after being exposed to a seminar program on zero estate tax planning.  Considering how a little creative, nontraditional thinking might solve some of his estate tax problems, he decided to pursue some options.  Jeff, in his mid 60’s, is a self made entrepreneur who made his money in the hardscrabble oil and gas industry, making and losing several fortunes along the way.  Sitting down with the client and his advisors, we reviewed his past estate plans and goals.  He started off by saying, “I don’t like insurance, I don’t want to buy any of it and every planner who sees me tries to sell me something.  What have you got to offer so I don’t have to pay any tax?”  A good response might be, “I don’t know, tell me about your goals and concerns first.”  A lot of his prior planning had been short sighted, but by rearranging pieces on his financial chessboard, it appeared that there were several new options available to the family.  So after doing a quick snapshot review of the balance sheet, income and estate tax liabilities on that day, it was agreed that with his current plan, his family would receive 46.7% of his estate and various government taxing authorities would receive 53.3%.   Asked how he felt about that inequity, and he said he was very upset about that distribution fact pattern. 

Jeff and his wife Ellyn have children from prior marriages, and each has divergent interests and planning goals.  Jeff, who has the bulk of the estate assets in his name is in remission from a past bout with cancer and is somewhat concerned that if he doesn’t get proactive with his planning, a significant portion of his estate will default to the IRS.  What was unsaid, but was an issue is what would happen if he predeceased his wife and his wealth passed to one of her ne’er do well children instead of his family. 

The traditional estate planning approaches weren’t motivating, as he didn’t feel like he had unneeded wealth to give away.  He was unwilling to sacrifice significantly in his lifestyle in order to pass wealth to heirs.   Jeff wanted to provide a comfortable income stream for his surviving spouse, but she was inexperienced dealing with investments and he didn’t want to enrich her at the expense of his children or lose control of his family’s wealth.  For a client like that, it’s easiest to separate the issues of control from ownership, since it’s what’s owned is what’s taxed.

We discussed his priorities in life and tried to foresee how his family’s concerns would develop over the next ten or twenty years.  Asked how he would redistribute his estate if given a choice, he opined that if he could avoid paying any tax at all, he’d split his estate 80/20 between his kids and charity, especially if he knew the charity was going to be sensible with his money.  Jeff said, “I’m not all that charitable, although I give something to charity every year.  I don’t think they respect the amount of work it took me to be able to make that gift and they fritter my money away on silly projects or poorly supervised programs.  If I could direct those funds, I could do it better.” 

While his heirs possessed varied talents, Jeff felt that being exposed to a family foundation might help his grandchildren develop a better value system, improve their business skills and independence.  Although his estate was significant, the charitable component of this plan made more sense with a donor advised fund (DAF) inside a community foundation instead of a private foundation.  These organizations are 501(c)3 public charities with sub-accounts through which families can make recommended grants to community organizations of interest to them.  While the family DAF still has the ability to help research and fund charitable interests, it offers professional assistance, infrastructure and should prevent the heirs from abusing the authority to make grants to inappropriate causes.

Planned giving is situational; few clients come into a planner’s office to ask about doing a FLIP NIMCRUT any more than a patient is likely to walk into a surgeon’s office and ask for a cholecystectomy.  Professional advisors and development officers need to help their clients meet personal goals by passing down a value system.  Good interviewing techniques and an empathetic approach to coaching clients about their opportunities will elicit those values driven responses that point to specific tools that will help build successful plans.

Will every client become a philanthropist, albeit a reluctant one?  No, but if a client fully understands the available options, most opt to do something that benefits a community project if it’s properly presented.  While there’s no philanthropy gene, there is a desire amongst many people to create some sense of significance, and leaving something to charity is one way of making a mark that will last.