The most trending tax and financial industry issues.

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Lane Keeter, CPA

Partner: Tax Consulting, Estate Planning, and Heber Springs Managing Partner

Ethical Wills

When it comes to transferring assets from one generation to the next, there are many commonly used strategies, including life insurance, "transfer on death" accounts, trusts of various kinds, beneficiary designations, durable power of attorney, charitable gifts, and business succession plans. Usually, the main focus is the passing of personal or real property, or financial assets while minimizing tax exposure.

Many people, however, view wealth as more than money or their "stuff". Wealth, for these people, includes passing on their values, spiritual beliefs, family heritage and wisdom. But how does one do that?

One way to leave this lasting legacy is by writing what is known as an ethical will.

Ethical wills have a long and rich history. From the ancient scriptures to today, ethical wills have served to more fully explain the deeper intentions someone may have of the passing of wealth.

One of the earliest accounts of an ethical will might be considered to be one found in the Old Testament, when over 3,000 years ago the patriarch Jacob, from his deathbed, addressed his twelve sons. He told them stories, predicted their futures, and imparted his life lessons and values.

Actual written ethical wills can be traced back to the 12th century, where the custom was to write directions for the religious and secular guidance of children.

These days, it is becoming more and more common for ethical wills to be used in tandem with a basic legal will or other planning documents. They may take the form of a preamble that accompanies more formal documents, or they can be a separate document. Generally, they contain statements of values, beliefs, blessings, wisdom and family stories. What an ethical will is not is an enforceable legal document.

Most ethical wills contain statements of things like hopes for the future, lessons learned from life experiences, appreciation for heirs, religious beliefs, and comfort thoughts such as statements of forgiveness, acceptance of death, and the like. While many are written, video recordings are also used.

One reason ethical wills have appeal is that for many, talking about inheritance issues is hard. Tough questions about the future, who gets which prized possession and how assets are distributed ideally should be planned and discussed before documents are prepared. However, raising these sensitive topics is often unsettling for families.

Unaddressed, these issues can have long-term consequences that are not healthy. Studies show that when families fail to discuss what is important, they put both their wealth and family unity at risk. Family feuds, little or no direct communication, secrets, ruined family relationships, and litigation all contribute to a bleak picture for the family, much less asset preservation.

Writing an ethical will may aid in this difficult discussion by helping the writer clarify their beliefs and the decisions made in their basic will and/or trust documents. Difficult emotions can be more easily expressed in this format, and it may aid in improving communication and family relationships in a big way.

A great idea is to have the ethical read to others, such as at a family meeting. Some will read the ethical will of a deceased member at the start of a family meeting, and this can result in an easing of tension that helps establish a positive atmosphere and a moral compass for important decisions that need to be made.

So how do you get started? The main ingredient is to speak from the heart. As such, anything goes. No professional writing skills required, but creativity and imagination encouraged.

The primary caveat is to avoid writing a "grudge from the grave", as I've heard it put. In other words, if the intent is to guilt or shame someone, don't do it here. These are issues that need to be worked out in some other way.

To help, resources on the writing of ethical wills are available on the internet, and many financial firms are now promoting their use and offering suggestions for getting started. There are also guidebooks published on the subject.

Ethical wills are gaining in popularity as a tool that promotes family conversations and the passing of legacy assets to heirs. Ethical wills appeal to those who want to include the intangible assets that comprise their legacy, and can play a vital role in promoting family unity for the future.

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