Use inheritance coaching to increase asset retentionArticle added by Jason Ryan on October 1, 2009
Jason Ryan

Jason Ryan

Denver, CO

Joined: August 21, 2010

My Company

After the death of a client, it is often common for the client's heirs to take their newly inherited wealth and future financial business elsewhere. Many investment firms find that only a small percentage of the accounts that are held in house stay with the company after the death of the original account owner. That means a large majority of children or other loved ones typically close the current investment accounts, and then quickly turn around and open similar accounts with someone else. Quite often, they will even use the same investments and asset allocation mix that were used in the original account. Very likely it is someone with whom they have had a much closer relationship. This loss of business happens to far too many advisors in the estate and income tax planning chain, whether it's the certified financial planner, the attorney, the CPA or the insurance professional.

One reason for the loss is because estate planning is often conducted in secrecy. Upon receiving his or her inheritance, the adult child may be surprised at the limitations on the inheritance (e.g. everything is held in trust with limited access to funds) or sometimes at the size of the inheritance.

Of course, problems dealing with the inheritance size can fluctuate in either direction. Maybe the child was expecting more money, or the child is unprepared for how truly wealthy his parent turned out to be. Either situation can result in disaster. An insufficient inheritance can be a problem for the child who had already mentally (and at times actually) spent the inheritance before receiving it or is pursuing a high-maintenance, high-debt lifestyle where he envisioned the inheritance would serve as a "bailout" at some point. Conversely, receiving an inheritance that is far larger than expected may result in a type of overspending euphoria combined with financial mismanagement.

Quite often, there may even be a loss of self-worth. A beneficiary may lose their sense of direction in life when, as a result of another person's efforts rather than their own, they suddenly become so financially comfortable that they no longer need to work. Not having to work may also prove to be socially isolating. The heir may feel a lack of motivation or inability to determine how they can contribute to the world or achieve any real personal level of success comparable to what their parent achieved. The social isolation that results from being so well-off as to render employment unnecessary can be more dramatic than it seems. "What is it that you do?" is often the first question asked when meeting a new acquaintance. For the suddenly very wealthy, answering this question may result in sheepishly vague responses that hinder a new friendship or relationship rather than building one. Most people react to the plight of the wealthy with a distinct lack of sympathy. "Oh poor you, you don't have to work for a living," or even worse, there may be a request for funds -- whether it's for their favorite charity or for their own debts and aspirations. ("Just fund my new business venture. I'll do all the work, and we'll split the profits 50-50.")

A prime example of the isolating and ambition-crushing nature of wealth can be seen via Hugh Grant's character in the 2002 movie "About a Boy," by Chris and Paul Weitz. In the movie, the protagonist, Will Freeman, receives ongoing royalties from a wildly successful Christmas song his father composed. The size of the royalties removes any financial need for him to work. Subsequently, his life becomes a series of aimless wandering events that are composed of half-hearted dabbling in various charities or other shallow activities. Of course, his primary goal through all of this was to meet women. Naturally, once the realities of Will's lack of motivation and immaturity become clear, the doomed relationships often came to a quick and ugly end. His life is reduced to one of social disconnectedness, an inability to bond with others and generally nothing to do from one day to the next. He spends the majority of his afternoons watching game shows until a young boy shows up and forces him to engage in the messy relationships and obligations that comprise the majority of life. Although the movie is presented in an amusing way, the situation for Will in "About a Boy" is a common scenario for inheritors of sudden and substantial wealth. Unfortunately, for many, the motivation to engage in life does not come in the form of a well-meaning-but-needy child, but rather in the form of negative lifestyle choices, such as substance abuse and addictions.

As a life insurance agent or financial advisor, you're in a unique position to help several generations of a family prevent such a result. When most clients are discussing their achievements and wishes for their loved ones, it is with a sense of pride and satisfaction that they are able to provide for their families and leave a substantial inheritance. However, many clients aren't considering the negative effect wealth may have on their children. The agent or advisor can point out the negative effects for unprepared heirs and also help prevent such an outcome through the use of various planning tools. Although there are many, three such unused but highly useful tools include family mission statements, letters of intent and legacy trusts with incentive provisions.

Family mission statements

Similar to corporate mission statements, a family mission statement helps to define the values and cohesiveness of the family. It can help identify goals which can serve as guideposts when making group decisions, as well as helping to foster a feeling of belonging and connectedness. Generally, it takes a group of randomly related individuals pursuing separate lives and lifestyles and puts everyone on the same page, with similar identifiable objectives and priorities. With a family mission statement, the members quickly realize that the family is a unit in and of itself, with its own identity and purpose. All the members of a family -- including children, parents and extended family -- need to engage in the process of drafting the mission statement. When this happens, both the process and the actual completed statement can help balance the lives of the people involved and enable them to see a pattern for living out their commitments, relationships and work-related responsibilities.

More importantly, the family mission statement can give direction when engaging in estate planning, and help in several ways. First, by ensuring that the inheritors are involved in the process of drafting the mission statement, there is less chance for a misunderstanding or surprise when the deceased's final wishes are made known, even if the specific dollar amounts of the inheritance remain unknown beforehand. Subsequently, the beneficiaries will already have an understanding of what is expected of them and how they are to use their inheritance to further the family's values and goals. This can help to reduce the chances of a child's loss of purpose in their life. Secondly, involvement by the inheritors in the mission statement drafting process helps the agent or advisor build a relationship with the children of the client. By working with the children, helping them get on the same page as the parents, and sticking to those views, the advisor builds rapport and trust with the children and lessens the likelihood they will move their accounts or business to a different advisor after the death of the parent or primary client.

Letters of intent

With comprehensive planning, parents can attain the peace of mind that their loved ones will maintain their quality of life and pursue a life plan according to the parents' wishes after they have passed. An effective means of securing such a vision of the future for a child is by writing a "letter of intent". A letter of intent is not a legal document, but it still serves a significant purpose. The letter, which would be drafted by a parent, lays out all the information, wishes and desires for the family members. Letters of intent are particularly important for parents of children with special needs. The parent or primary caretaker best knows the disabled loved one and knows what information needs to be passed on in case they become incapacitated or die. Therefore, when a new caretaker such as a relative, trust officer or bank assumes responsibility for caring for the loved one, they will have all the pertinent medical information and contact information for professionals who deal with the loved one, as well as decisions as to medical care, lifestyle, residence and values that the parent or caretaker would want to support. The letter serves as a type of reference guide to and for the loved one.

Legacy trust with incentive provisions

Many people who have worked hard to earn and build their wealth are reluctant to leave it to beneficiaries who may be carefree in their spending or who don't share the same values as the donors. There are a number of incentive provisions that can be added to a legacy trust in order to provide a blueprint of the grantor's own values and wishes, as well as to benefit any future generations. These incentives will ensure that beneficiaries meet certain goals before they receive funds from the trust. Examples of such provisions include distributions for furthering one's education, starting a new business, purchasing a first home or engaging in volunteer or low-paid work with a high emphasis on public benefit, such as becoming a teacher, social worker or artist.

Note that some provisions may not be legally enforceable. For example, it's unlikely that an individual would be able to "disinherit" a beneficiary if the provision were such that no distributions would be made if he or she never marries, but a provision may be added to the legacy trust limiting annual distributions to a certain amount -- such as $10,000 -- if the beneficiary marries a specific person.


The agent and advisor have a unique opportunity to guide the client through their planning process and to not only focus on solving for estate tax liquidity or purely monetary issues, but also to consider the pitfalls that may occur with the transfer of wealth to their heirs. By identifying and providing strategies to such future issues, the advisor not only protects the client, but also builds a relationship with the next generation in order to help guide them in managing their inheritance and maintaining purpose in their own lives.

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