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Ethical wills: how to add morals to estate planning

Suzanna de Baca is president of Private Capital Solutions Group.

Family business leaders across the globe are increasingly incorporating ethical wills into their estate plans to communicate their values, hopes, and dreams to future generations. Suzanna de Baca finds out how they can help your estate planning process

You've worked hard to be a faithful steward and role model to your family members, but how can you convey to them the values and ideals that have defined your life and guided your direction of the family enterprise? Increasingly, family leaders across the globe are opting to communicate their beliefs and philosophies to future generations through the use of ethical wills. Ethical wills are non-legally binding tools used by dynasties throughout the ages to express values, hopes, forgiveness, or dreams to heirs.

Heidi Steiger, president of Lowenhaupt Global Advisors, an international advisory firm that serves ultra high net worth families, recounts the story of a matriarch who realised her adult children were not prepared to inherit responsibility of the family business and wealth.

"She was extremely forward-thinking in her use of an ethical will – although she didn't call it that – during her lifetime to pass on some of her most important values," says Steiger, explaining that the woman endowed each child with a sum of money along with her wish that they use the funds for philanthropic causes of their choice. Over time, the adult children came to the conclusion that they could be more effective together, joined forces, and eventually demonstrated that they were not only ready to manage the wealth, but were united in the family's historical principles and priorities.

 "Families in all cultures use tools to pass down values to heirs … not just to manage the wealth or the business, but so they can become good people and effective leaders," observes Steiger.

"An ethical will is really about the process of creating an expression of love, values, heritage, and connectedness," says Patricia Angus, chief wealth advisory officer at Shelterwood Financial Services, LLC, a multi-family office that advises US and international clients with family businesses or other shared assets. Angus sees a growing use of these instruments by families who control significant business interests and wealth worldwide. 

"I think there is a trend," remarks Angus. "I think people are more aware of the multiple facets of leaving a legacy and are now realising that material wealth is only the beginning."

"There is definitely an interest in ethical wills in many countries across the world," says Dr Barry Baines, author of Ethical Wills: Putting Your Values on Paper. Baines notes that these communiqués can be a vital part of the estate planning process.

An ancient tradition modernised
Mentioned as early as 3,000 years ago in the Hebrew Bible, referred to later in the Christian Bible, and described in parts of Asia as "end notes", versions of ethical wills have existed for centuries among numerous cultures and religious traditions worldwide. 

Once transmitted orally, these instruments have evolved into written or multimedia communications that are read, presented, or given to family members both during the individual's life or after death. Whether in the form of a letter, video, recording, or book, an ethical will might address lessons from the past, comment on the present, or offer thoughts about the future.
 
Baines himself was the recipient of an ethical will, a letter written to him by his father before he was stricken by lung cancer. His father wrote about the importance of honesty, education, altruism, and loyalty to family. Baines reads the letter every year on the anniversary of his father's death.

"His voice just leaps off the page when I read it," says Baines of the handwritten document. "It's clearly the most cherished gift I have from him."

Non-legal reminders
Where a legal will addresses tangible assets, an ethical will addresses the spiritual and ethical side of a person's estate. Despite the fact that they are not legally binding, many attorneys and advisors urge individuals to write ethical wills as supplements or codicils to their regular wills.  

"While ethical wills are not enforceable," comments Baines. "They have a way of informing some of the things that have been included in legal wills."
 
As part of an overall estate plan or process, these statements offer a moral guide that further clarifies legal and financial documents and serve as reminders of an individual's wishes. They can explain to heirs why an individual decided to set up certain trusts, divide the estate in a particular manner, or leave money to various people or philanthropic entities. This information can be helpful as successors confront decisions that involve jointly-owned assets or interests.

As the medical director of a hospice, Baines has witnessed painful situations where heirs have challenged legal wills, claiming inequity, favouritism or bias.

 "Then an ethical will or document comes to light that explains an apparent inconsistency or something they feel is unfair … after reading it, they understand. It makes more sense."

A compass for the family business
For family businesses, an ethical will can be a compass that aligns the values of multiple owners and generations with their enterprise.
 
"An ethical will is a powerful tool that a patriarch or matriarch can use to keep traditions and business within a family," comments Steiger, noting that problems in family business succession are often about the clash of an older generation's traditional cultural notions with the more modern sensibilities of the younger generation. 

Baines agrees, observing that many family businesses fail over the course of several generations because values and bonds are not transmitted.

"A big barrier to successful wealth transfer and family business transfer is lack of real communication," he comments. "An ethical will can serve as a continuity tool, a link from generation to generation which clearly identifies values and life lessons as they relate to that business. A business stands more chance of surviving if families do a better job of conveying their values, as well as their love and even forgiveness throughout the process."

Angus is more direct, noting, "If a family business is not operating in line with the family's overall values, it's unlikely that the business will last."

Angus has seen ethical wills used in numerous situations, but says she tends not to use the term "ethical will", but instead to talk about the substance and process.
 
"Family members will give great importance and credibility to written documents or a filmed message, but the message will be more meaningful if conversations have taken place among them along the way," says Angus. She counsels family membersnot to think about it as a product or strategy. "It is the process that matters," she says.

Baines notes that an ethical will is not meant to replace a lifetime of open communication with heirs. However, he recognises that it is difficult for many people to express themselves when it comes to matters of the heart, mind, and spirit. He stresses that a permanent record of one's thoughts can also be a meaningful, tangible treasure for heirs well into the future, even those who have not yet been born.
 
"Ethical wills are meant to be more enduring than just one generation," concludes Baines, "It's like planting a tree where future generations can taste the fruits of your wisdom."

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