My Thoughts on Wealth 3.0 - An Introduction

How to better prepare the rising generation of professionals within the domains of family wealth

Introduction

I have long thought about my estate planning philosophies - why I do what I do, and how I serve clients.  In fact, a lot of what I now do is the result of an existential crisis during the COVID-19 lockdowns - a realization that I was not meeting my full potential in my ability to help clients.  But, it is hard for me to get into my estate planning philosophies without realizing one hard truth - my views are somewhat reactive to the status quo, and are tinged with a dose of spite for multiple systems, thus making them somewhat immature.  I will discuss systems in a minute, but for now it helps to start with my one big truth or belief.  

To start, I am a strong believer that the next generation should have a voice in how wealth is received, and perhaps this voice should be afforded (slightly) more weight than the voice of the people creating and transferring the wealth.  However, this rarely happens, and even bringing this up is controversial.  

Notwithstanding the ethical and economic disincentives attorneys may feel they have in this vein (an outcome of systems thinking), there is this pervasive idea that the person who transfers wealth has the absolute freedom to call the shots.  It is, after all, their money.  While this is logically true, there are emotional ripples to this absolute position, similar to throwing a rock in a pond.  Nobody likes to acknowledge these emotional ripples.  Especially for attorneys, these are inconvenient considerations in the face of pressure to satisfy the client, collect fees, and keep your billable hours up.  

But, at best, this is short-term thinking.  At worst, it reflects reactive and possibly toxic attitudes from both the client and the attorney that compound when combined in the estate plan.  I say this knowing that perhaps my own attitude and reaction could themselves be toxic, but this self-awareness (if you can call it that) actually represents my sub-thesis.  We are stuck in multiple feedback loops of anxious systems around estate planning that are rarely acknowledged.  

Wealth 3.0 and Systems Theory

I had the privilege of attending a class taught by Kristin Keffeler at the University of Denver last week on the principles of Wealth 3.0, and the central idea I took away was that there is too great of a culture of fear and anxiety in wealth and legacy planning.  While family systems theory was a central component of the discussion, I have long thought that there are multiple systems outside of the family which also affect the planning process.  Attorneys become part of systems in both law school and law firms, and it is hard to unlearn subconscious reactions to these systems even after attorneys leave law school and their “law firm of origin” (more to come on that later).  While I have not been a financial advisor, CPA, insurance advisor, or trust officer, I’m sure there are similar systems around employment and service in these fields.  

Another central idea discussed in Wealth 3.0 is that wealth cannot be the glue that holds families together.  Instead, something else must take its place.  However, in most systems (family or otherwise), the glue that holds the system together is anxiety.  As a result, there is a constant flow of anxious energy both within the family system and (as I realized) within the systems of advisors who serve the family.  What is the outcome?

Don’t Cross the Streams

If you remember the original Ghostbusters movie, I am reminded of the rays used by the Ghostbusters to control and contain ghosts.  The character of Egon, played by the late Harold Ramis, admonished the Ghostbusters to “never cross the streams” of these ray guns.  The outcome of doing so could be catastrophic.  

What relevance does this have?  Well, when we cross the “streams” of anxiety from multiple systems, the results can also be catastrophic.  They can exacerbate existing problems, or even create new ones.  

Now, since I am an attorney, it may seem like I am picking on fellow attorneys here.  That is not my intent, and my analysis can extend to multiple fields and disciplines of wealth management and wealth transfer.  I am reminded of the admonition of the Hippocratic Oath: “First, do not harm.”  Attorneys have a corollary, in the form of the rules of professional conduct (which are fairly standard from state to state).  Within the rules of professional conduct, there is one overarching duty - the duty of independent judgment.  While this is often thought of as an intellectual duty, I believe it is also an emotional duty.  One cannot let themselves be influenced by their client, by other attorneys in their firm, or even by their past or current experiences with other attorneys or clients. 

Regardless, we have all heard stories of attorneys getting too emotionally invested in their clients’ cases, leading to lapses in judgment.  Usually, these mistakes pop up where there is an adversarial conflict.  The process of estate planning, however, is not adversarial - at least it shouldn’t be.  Yet, many attorneys and advisors approach estate planning with a (sometimes self-fulfilling) prophecy that it will become adversarial at some point.  This assumption creates anxiety in the estate planning attorney, which is present from the moment a client walks in the door for a consultation.  There is a simultaneous (often self-created) pressure on the attorney to both close the sale on the creation or update of an estate plan, and to limit to the greatest extent possible the chances that the estate plan will become adversarial, and when the streams of the attorney’s and client’s anxieties are crossed, the results can be unpredictable at best.   

Avoiding this unpredictability is not always possible.  To quote Sir Patrick Stewart’s character, Captain Jean-Luc Picard from Star Trek - “It is possible to make no mistakes, and still lose.”  Often, the risk of the estate plan becoming adversarial existed long before the client stepped foot in the attorney’s office.  And, the risk of litigation may not even be the client’s fault.  But, it exists nonetheless, and is usually a result of the family system.  While the attorney’s independent duty of judgment might keep actual litigation from occurring, it cannot prevent the emotional ripple effects of the core reactions to the family system that might have created the risk of litigation to begin with.  The seeds of these reactions, and the resulting and potential conflicts, were often planted years and perhaps generations before the attorney met the client.  And, the planning designed to mitigate its effects may actually exacerbate it.  

Logical Versus Emotional Outcomes

In this vein, what is often thought of as “good” planning is only good for two primary purposes - avoiding litigation (including creditor’s claims) and taxes.  These are things the attorney wants, because this is where the attorney makes their money.  But, are they things the clients want?  And, are they things the beneficiaries want?  Too often, the attorney assumes that the answer to both questions is “yes.”  

There are two offshoots of the attorney’s duty of independent judgment.  One, the attorney cannot substitute their judgment for the client’s judgment (and in this vein, the attorney is relieved of the duty to second-guess the client’s intent).  Two, the attorney has a duty to inform the client of their options.  These duties, unfortunately, are often glossed over.  

Everything in life has trade-offs, including the planning needed to avoid taxes and litigation.  There is a great irony, however, in planning which is centered around these two ideas - when done correctly, they will eventually put attorneys out of a job.  If you are a two-trick pony - creating dynasty trusts to avoid both outcomes - the next generation will not need you once their dynasty trusts are set up.  The trustees might, but if the trustees are members of the next generation, do you really think they are going to want to work with the attorney who created the restrictions leading to the trust to begin with?  

In other words, how often do we stop and ask whether the next generation actually wants to be bound by the trust we are creating?  Will they want to work with the person who threw fuel on the fire of their parents’ anxiety? 

Entitlement? Or Differentiation? 

Some of you may be responding with the sentiment that it doesn’t matter what the next generation wants - they are privileged to even get a penny of wealth to begin with, and the expression of anything other than extreme gratitude and deference is entitled and narcissistic.  

This is, to me, the core toxic attitude that Wealth 3.0 seeks to correct.  And, it is a reflection of the family system.  (And, ironically, it is pot meeting kettle.)  

There is, however, a corollary in the systems of professional advice.  Similar attitudes are pervasive - that younger employees (associate attorneys, junior advisors, trainees, etc.) are privileged to have a job, and that the expression of anything other than extreme gratitude and deference for their opportunity is entitled and narcissistic.  

The COVID-19 pandemic sent its own ripples through the legal world, as for the first time in at least two decades, a change in supply and demand shifted power to the next generation of law firm employees and potential partners.  Collectively, the legal world seems to have lost its mind over this threat to the system.  Terms like “The Great Resignation” and “quit quitting” were parroted by media outlets, perhaps cynically out of a desire to appease their reader base (older attorneys) by demonizing those upsetting the system.  

Luckily, for now, Wealth 3.0 has not become a media darling.  But, you can see the same effect in the attorney-client relationship as in the media’s reaction to its reader base above.  Out of an effort to appease the current generation of wealth creators and transferors, it is easy to criticize the next generation’s resistance to the family system as a quick and cheap way to build rapport with clients (and thus close business).  The method of wealth transfer is really just a projection of the reactions to younger people in both the family system, and the law firm system.  

The Power of No

And, it is here where I cannot help but take an existential path.  One of my biggest theories, which I may have absorbed from somewhere, is that the quality of your life is determined by your ability to say no (and, more importantly, to whom you can say no).  And often, our greatest fear is saying no to the people within the systems we have come to rely upon, because to do so means the loss of the benefits of that system (and the relationships within it).  Within the system of the practice of law, this benefit may even be somewhat imaginary - it is based on reputation and prestige.  

It is that very reason why I have had this article in me for over 10 years, but I am just now writing it.  Why?  Because it is my act of saying “no” to the legal establishment, and the systems they have created.  It is, in a sense, a criticism of my own law firm of origin from long ago.  I spent too long hoping to become big enough that I wouldn’t have to say no, instead of having the courage to simply do so.  But, the time has come to face the criticism that is bound to come my way, in hopes of improving things for the rising generations of both high net worth families and early- to mid-career professionals within the ten domains of family wealth (promulgated by the UHNW Institute).  

Calls to Action, and What’s Next

So, if you are reading this, and your knee-jerk reaction is not blinding anger and rage at what I have written, you are probably wondering what you should do next.  Perhaps you are an attorney in estate planning, who wants to do better but fears the loss of business or damage to reputation.  Perhaps you are a member of the rising generation, who wants a greater say in how you will inherit wealth, but you feel afraid to rock the boat due to the risk of loss of that inheritance.  Perhaps you are an attorney or advisor who wants to better connect with the rising generation, as you realize that the short-term thinking of demonizing them as part of your estate planning process will ultimately lead to the loss of business.  

My takeaway is simply, first, to say no.  If a client refuses to consider the effect of their estate plan on the next generation or to disengage from systems thinking, perhaps they are not the client for you - what if you say no and turn down the business?  If you fear the loss of your inheritance, what is the cost of staying in the system to receive that inheritance?  

(Now, I don’t bring this up to have you throw caution to the wind.  I respect that some of you may be in systems where your physical, mental, and/or economic health is threatened if you stand up for yourself.  If that is the case, please do not take my advice as gospel.  There are resources much more qualified than me to assist you.)

I completely understand, however, if you are not ready to make that leap to say no.  If so, that is OK.  Whether or not you are in this position, my second call to action for you is to become conscious of where you might be “crossing the streams.”  In other words, are you letting your own anxiety (in reaction to the systems in which you find or previously found yourself) cross with your clients’ anxiety from their own family systems?  

More on Differentiation

Finally, another takeaway I had was the idea that I do not have to take a binary view - in fact, I (and you) can swing too far the other way in our efforts to appease the next generation, if we assume that our reaction should be saying “yes” to everything they want.  If it seems like I am advocating for parents to just give their wealth away with no strings attached, that is not the case.  Trust planning, and dead-hand control, can be good planning regardless of the negative connotations attached.  But, what I plan to start developing are ideas around the creation of trusts within the rubric of family systems theory.  The outcome is a shift from the two-trick pony trust - avoiding taxes and creditor claims - to a trust that supports the differentiation of a beneficiary not just from their family system, but also from career, social, and political systems.  

In other words, instead of just saying “I hope my child becomes a productive member of society and not just a trust fund baby,” how can family wealth be used to create the character needed to achieve this outcome?  Instead of telling a child what values they should adopt as a condition to receiving wealth (and, correspondingly, to stay in the family system), how can we use that wealth to give them the tools to create and articulate their own values outside of the influence of the family system (or reactive peer systems)? 

Wealth 3.0 recognizes, in its implementation, that further training is needed to break wealth professionals within the domains of family wealth from the systems that hold them back.  But, doing so starts with saying no to these systems, both within our respective professions and within the families we serve.  We will struggle to help the rising generation to become differentiated, if we are not ourselves differentiated.  I will have more to come on this, but for now, I hope this article gives you the courage to broaden your perspective and consider the ripple effects of the planning you undertake for your clients.