Great article. Personally, I call my practice “family protection” law and the author appears to be on the same page as me.
In its most fundamental state, estate planning should support the family (or the individual) first, and thereafter concern itself with the transition of their assets. Simply put, it seems to me that “estate planning” is a multidisciplinary process where planning professionals are collaboratively engaged in protecting, preserving and enhancing the family through the accumulation, conservation and distribution of one’s assets and values.
Four (Plus One) Capitals
One’s assets, common sense tells us, must consist of economic and non-economic assets alike. Estate planning encompasses more than just dealing with financial assets or financial capital. Who among us would voluntarily trade our life, a limb or a loved one for financial capital? A families’ greatest asset is seldom the amount of financial capital it possesses. Jay Hughes in his seminal book, Family Wealth: Keeping it in the Family, proffers four capitals as follows:
- Human — refers to the individual family members: their knowledge, talents, spirituality, values, passions, dreams and aspirations. Most importantly, the term also refers to their defining who they are called to be and what they are called to do.
- Intellectual — involves how individuals learn over a lifetime and how families communicate, resolve conflict, make joint decisions and mentor one another.
- Social — refers to an individual’s connections with his communities. It typically shows care and civic engagement.
- Financial — reflects the more traditional definition of wealth, such as property of the family, its financial assets, trusts and partnerships and other investment and estate planning arrangements.
Hughes’ account in Family Wealth was that financial capital alone can’t promote long-term wealth preservation. When families and their advisors narrowly define and approach wealth in terms of financial capital, they routinely fall victim to the proverb of “shirtsleeves to shirtsleeves in three generations.” They fail to properly invest in the other more fundamental capitals that can also help bolster a family’s long-term financial capital. To bring Jay’s published list of capitals up-to-date, there should be a fifth capital that both Jay and I have implored for many years, as mentioned below.
- Spiritual Capital — refers to an act in which an individual discerns and deploys his unique gifts and strengths, dreams and desires, with spiritual (enlightened) self-interest. It’s about guiding the family to flourish so that its members must balance their own individual needs with those of others, both familial and societal.
One’s values, and importantly our understanding and recordation of them, is critical to the context of financial capital and to what inheritors say they want. Studies consistently show that passing along personal and family values is the most important legacy that can be left for heirs — more than twice as important as money and financial assets.
As we wait for professional and academic organizations to collectively bring about a much-needed makeover to “estate planning,” practitioners may do well to retool their skillsets to have a broader focus beyond financial capital.