No matter how perfect your estate planning structure might be, family culture all too often eats all this great planning for breakfast – “and then spits out the bones.” I love that last line, which comes from a fascinating blog post by Matthew Wesley entitled Culture Does Indeed Eat Structure for Breakfast. Here’s an excerpt:
Trusts fail and litigation ensues. Family behavior undoes financial plans. Tax strategies sit on the shelf because of lack of political will. Family feuds destroy otherwise healthy businesses. And the structural work of family governance specialists is a hollow shell that does not begin to address the family dynamics that, as it were, stand back, smirk, and then eviscerate all of this good work. . . . Why? Because culture eats structure for breakfast.
So what’s the fix?
Wesley’s solution is to work on improving family culture (which he describes as closed or “tribal” in nature), rather than focusing exclusively on beautifully designed planning structures that often get ignored when inheritance feuds break out.
So if this is true – if culture does eat structure for breakfast – then what is the answer? How does one change culture in wealthy families? To find the answer it is useful to look at the nature of family cultures.
Families are often “closed” systems. Families, in this sense, are “tribal”. Being tribal, families often operate in rote ways. They repeat mythic stories, each tribe member has defined roles, and the tribe operates out of these roles often in well-worn, almost scripted ways. Families enact and then reenact their comedies and dramas as they move forward – often with each comedy or drama having a similar feel to those that came before much like formulaic TV writing where every episode follows the same templated arc of development. These tribal systems are inevitably disrupted by key “kinship” events: marriages, divorces, births, deaths, sickness, youth, maturation, old age. In resilient tribal cultures, these events are culturally assimilated and in brittle cultures these events can fracture the unity of the tribe. In either case, the tribe adapts or simply falls apart.
A “structuralist” response to tribal warfare: mandatory arbitration clauses:
So what can estate planners (the ultimate structuralists!) do to help family tribes “adapt” rather than “simply fall apart” when tested by disputed inter-generational wealth transfers?
Step one: accept reality. A certain percentage of estates will be disputed (maybe 70%), no matter how perfect your estate-planning advice might be or how many family counseling sessions may have taken place while the senior generation was alive.
Court battles turn small smoldering disputes into life-altering conflagrations. So step two needs to be: pre-emptively “opt out” of an overworked and underfunded public court system that asks our state court judges to juggle thousands of cases at a time. (In Miami-Dade – on average – each of our probate judges took on 2,848 new cases in FY 2012-13, and in Broward the figure was even higher at 3,105/judge). And how do we keep family disputes out of court? Think arbitration. As I’ve previously written, mandatory arbitration clauses should be incorporated into all wills and trusts — especially in Florida, which was the first state in the nation to specifically authorize them by statute (see here).
If Wesley’s right about family culture overwhelming even the best laid plans (and I believe he is), planning structures need to have flexibility built into them to allow for changing family dynamics over time. Which means planning for a better dispute resolution process is essential. And mandatory arbitration clauses are the single best tool we have to make that kind of pre-emptive planning actually mean something in the heat of post-death “tribal” warfare. In the absence of this kind of process planning, all it takes is one side to believe he or she will gain some kind of advantage by keeping the case in court. If that happens, no matter how sensible mediation or any other form of alternative dispute resolution might be for all concerned, the family’s going to get sucked into court. And when that happens — all bets are off.