I often feel compelled to complain about young people. I envision millions of unemployed Millennials sipping $5 coffees while playing video games on their MacBooks as I work on weekends. But Millennials in particular have faced a difficult set of circumstances. Boomers worry about sequence of return risk if they retire in the wrong year. Millennials got the short end of sequence of maturity risk. They faced a recession as they began to enter the workforce. They have seen slower economic growth than prior generations. Young people with entry-level jobs and education debt haven’t seen a lot of benefit from the policy response to the recession. Monetary policy has probably just inflated asset prices and made wealth inequality worse. This has resulted in Millennials having less wealth at their age than the last three generations. These circumstances affect their lives, not just their bank accounts.
Over the last decade we have seen large-scale social changes, worldwide populist movements, an exponential growth in technology, and now a global pandemic. Perhaps these events mark the end of a cycle that has been repeated over and over – a “fourth turning” as described by William Strauss and Neil Howe. We don’t know what tomorrow will look like. But there is a guarantee that it will not look like yesterday. It is at least possible that the world will feel much different to your children and grandchildren than it has to you. That means the legacy you leave them could be more important than you thought.
We all like to credit our success to our hard work. But success means different things to different people. And the truth is that no matter how you define success, achieving it requires some combination of hard work, intelligence, capital, timing, and luck. No one can make basic sociology as interesting as Malcom Gladwell. His book “Outliers” drives home the timing and luck issues. There are a lot of smart hardworking people you have never heard of. If you dropped Steve Jobs into a different environment when he was 12 years old, those Millennial gamers might be playing on a Tandy or a Commodore. Careful estate planning won’t make your kids lucky or change structural biases, global economies, or tax policy. It won’t prevent accidents, illness, or tragedy. But proper planning can mitigate the impact of future unknown problems. It can minimize the importance of luck in the equation. It can give your beneficiaries opportunities that they otherwise would not have had.
In most cases, estate planning focuses on assets and the tools used to transfer them. It addresses the how and not the why. If you — like most people — think of estate planning as finding the most efficient way to make gifts to your children when you die, you are taking for granted that a lot of things will happen. You may be assuming that your assets won’t be affected by the changes in society or that nothing bad will happen that is beyond the control of your beneficiaries. You may be assuming that your children will use everything you taught them and their earned wisdom to allocate inherited capital such that it will produce benefits that haven’t yet been articulated. It may be a good idea to connect the dots. If you think about what you want for your children, you can align your assets with your principals and coordinate human capital with economic capital. You can ensure that your beneficiaries will have a better shot at independence and self-sufficiency by giving them the means to create their own ends. Careful planning is not about imposing your will on your descendants, manipulating their behavior, or ensuring a particular outcome. It is about creating opportunities in a world where opportunity may become more scarce.
No one will remember much about your estate plan or administration in 50 years. But if the family trust pays your granddaughter’s college tuition, she will be able to maximize Roth IRA contributions throughout her 20s and 30s instead of paying for school loans. If your grandson borrows startup capital for his new business from the family LLC, he may have opportunities that were otherwise unavailable. When he pays back that loan at a low interest rate, his children will have those same opportunities. If your grandchildren meet every year to determine how to best support the causes your family believes in, there will be lasting effect. These aren’t solutions for everyone. But they are possibilities. What is important is that your legacy matters. Your money is part of that legacy, but not the only part. Your estate plan will do the most good if you address why you are planning to begin with.