Goal Oriented Planning

The Greek philosopher Aristotle formulated the four causes, which he used to explain how the world works. The fourth of those causes, the final cause, described human behavior which he defined as “the end, that for the sake of which a thing is done.”

Aristotle depicted final cause to explain the difference between humans and other life forms. Animals are reactive and instinctual in their actions, the direct byproduct of their environments and impulses. Humans, in contrast, are intelligent for the very reason that we can consciously choose our behaviors and actions based on desired ends and outcomes.

Which leads me to my favorite topic, estate planning. I often begin client conversations with a simple question – “What’s your estate planning goal?”

Clever clients often respond with, “I want to spend my last dollar on my last day of life!” Others will say, “I don’t know, I just want to divide my assets equally amongst my children.” While many assert, “I want to minimize taxes.”

None are true goals when discussing the very human elements involved with the loss of a family matriarch or patriarch and your hopes over what you worked hard to earn over a lifetime is used and consumed by successive generations. Discussing one’s demise isn’t anyone’s favorite topic, so I’ll step in with more detailed queries that will lead to goal making:

“I assume you want to provide for each other (meaning the surviving spouse) and if there’s anything left for the children and grandchildren, so be it?”

“Are you concerned that the survivor of you will remarry and direct inheritance away from your children and grandchildren?”

“Is family harmony important to you?”

“Would you like to protect the inheritance you’re leaving your children from a divorcing spouse, creditors or predators?”

“Are you concerned that the inheritance you leave behind will inhibit your loved one’s drive and ambitions?”

“Do you want the inheritance to be used primarily as a safety net for medical and educational expenses during their lives or would you want your children and grandchildren to enjoy a better lifestyle than you were able to afford for yourself?”

“Are there religious, medical, scientific, educational, natural preservation, or other charitable causes that are important to you that you hope to fund?”

And on and on.

It’s these conversations that lead to a goal-oriented estate plan. With all goals, they’ll change over time as you mature, and as your family ages. My children are in their twenties, just beginning their adult lives. My goals for them now will likely change as they have families and careers of their own and approach middle age.

Hopefully my wife and I will be around to witness their maturation, and that’s why a good estate plan isn’t static. An estate plan should be reviewed often to determine whether it reflects your loved one’s current situation.

Note that I haven’t said word one about taxes yet. Keep in mind that I’m a board certified wills, trusts and estates attorney and also hold my license as a CPA. Taxes are vitally important. But an estate plan shouldn’t let the tax tail wag the dog. The problem with most estate planning practitioners is that they’re technicians. Their first thoughts center on technical aspects such as taxes and strategies.

I believe that’s why many clients first focus on the technical. That’s how their attorneys have guided them. My philosophy is to first determine the client’s goals, review the types of assets that they own, and then suggest strategies that may then minimize taxes.

When gifting large sums of money, goals are also important. Many clients don’t realize that when making large gifts they should include their estate planning attorney in the conversation. As an example, assume Sally wants to gift her daughter Rachel a large sum for Rachel to purchase her first home. A few goal oriented questions that drive how this is accomplished may include:

“Do you want to protect the equity that you’re gifting from a divorce?”

“Are you concerned that Rachel will, after purchasing the home, mortgage it to draw equity out for other uses?”

“Does Rachel have the income necessary to cover the home’s carrying costs? If not, are you prepared to help with those expenses into the foreseeable future?”

“Is this gift considered an advance on her inheritance? In other words, would you want to equalize this gift to your other children in your estate plan?”

“How will this gift affect your estate tax exemption? Should we review your estate plan to decide if there are any adjustments that we need to make?”

You get the picture. The answers to these questions will drive how the gift is made.

Greek theatre in Aristotle’s time considered the inevitability of fate as a crucial element. The free will of the characters, whether exercised or not, is overpowered by omnipresent, preordained fate. Hence, tragedy occurs despite a character’s brave efforts and noble intentions. To ensure that tragedy doesn’t occur for your loved ones, make sure that you consider your goals when considering your estate plan and lifetime gifts.

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