Social capital is the money or time you contribute to worthy causes that improve society.  A favorite saying around charitable causes is the phrase “give or get” which means members can either contribute an amount of money toward the goal or they can go out and raise that sum of money from people they know.  The saying recognizes that the time expended raising money is often as important as contributing the money itself.

But the social capital I want to talk about in the context of estate planning emanates from my friend’s philosophy that “money is only a tool.”

Although it is often unexpected, when I initiate conversations with estate planning clients my goal is to begin each relationship by learning what each new client values.

Commonly, they are proud of the manner in which they have provided for their family and their intention to provide financial support after they die. However, they often worry that their descendants won’t use their inheritance wisely; and sometimes clients feel that their descendants don’t really need an inheritance anyway.

The concept of social capital solves many issues.  It allows you to contribute money to causes you believe in and set up your descendants to be caretakers of the capital for the future.  It benefits the descendant that doesn’t need your money by speaking from your heart to their own.  It benefits the spendthrift by substituting personal responsibility for temptation.

There are 2 schools of thought about the use of social capital.  Some clients are just not interested in the concept, believing they have supported their causes during their lifetime and it is their descendants’ turn to decide how to act.  Others see the use of social capital as a key tool to building a legacy through strength of character.  Depending on the client’s perspective there are different ways to use this tool.

One way is to purchase life insurance and name a favorite cause as the beneficiary.  This allows small amounts of premium dollars to blossom into a large gift that can provide major support for a favorite cause.  This works well in many situations, but it does not build responsibility in your descendants.

There are tax motivated strategies such as naming a charity as the beneficiary of a retirement account that has not yet been taxed.  Leaving the descendants post-tax assets and gifting the as of yet untaxed retirement plan can yield a good income tax and estate tax result.  Creating charitable remainder trusts as a technique to avoid capital gains on appreciated property is a good strategy when contemplating the sale of highly appreciated real estate or a business.  These strategies share the defect of providing social capital, but not involving your descendants.

A good way to speak to your descendants is to set aside a portion of your wealth in a donor advised fund and name your descendants as the advisors to the fund.  Your voice comes through because you leave your descendants the responsibility of making decisions about how, when, and to whom to give money.  It encourages them to honor your legacy by becoming involved in the causes they support.

However you choose to create a philanthropic legacy, you will be speaking in a clear voice to your descendants about your values and making a difference the way you decide best suits your own perspective.

I am a trust based estate planning attorney.  That means for a variety of reasons, I believe that most clients are best served if the centerpiece of their estate plan is a trust.

However, that said, a friend who recommends my services to his clients recently complained that after extolling the virtues of trusts and my services to his clients, he discovered that I had not recommended a trust based estate plan.  He wondered aloud if I had wandered from the true path.

Because in 1995 Arizona was the first among, at last count, 12 states to create a beneficiary deed statute, you may pass your assets at your death without a Will or a Trust.  Using a combination of a beneficiary deed for each parcel of real property, transfer or payable on death (TOD or POD) designations for investment or bank accounts, and naming competent adults in your beneficiary designations for retirement accounts, life insurance policies, and annuity contracts, you can avoid both probate and a trust administration.  Using an affidavit for collection of personal property will allow motor vehicles to be transferred and other items such as jewelry and collectibles can be distributed among your heirs by agreement.

This plan can work well for you if the objects of your bounty are competent adults without spendthrift habits or creditor problems and, in the case of real estate transfers, if the several recipients will cooperate with each other.  The problem is that in many families more structure is necessary to handle interfamily affairs and personalities and in some cases lifetime protective trusts will benefit your family more than the simplicity of the “no trust” or “no probate” plan described above.

The plan takes some prior thought and regular periodic review if you acquire new assets or the characteristics of your intended recipients change, but all other things being equal, these arrangements with adequate financial and health care powers of attorney may be all you need to have a viable estate plan.  I encourage you to also have a Will that will be effective if necessary to address unforeseen circumstances or otherwise omitted assets, but in all likelihood, no probate proceeding will be required and the Will will not be used.

Of course if you don’t fit the typical profile or have additional concerns, then you will be better served by a good inter vivos trust as part of your plan and you’ll make my friend happy.

I am frequently asked why I emphasize keeping estate plans updated.  There are actually two answers to this question; the standard answer, and a more practical reason.  Both answers are true, but one is much more personal.
The standard answer to why update your estate plan comes in five related parts:

1. Laws Change. Federal estate tax laws change with uncomfortable regularity, especially when a new president takes office. State laws affecting estates change much less frequently, but still often enough to need regular review.
2. Circumstances Change. You have more children or grandchildren, minors become adults, you have more or less wealth to distribute.  Life is constantly changing and your estate plan must change with it.
3. Financial Powers of Attorney Become Stale.  Somewhere between 6 months to 3 years is the standard shelf life of a financial power of attorney, and courts and banks are reluctant to accept them after that.  Even if nothing else has changed, your Power of Attorney should be signed regularly refreshed.
4. You May Move to a Different Jurisdiction. Different states have different laws. Moving from one state to another requires a review and update of your plan.
5. Attorneys Get Better.  Just like you, attorneys are constantly learning and improving.  The advice we gave you five years ago was good.  The advice we have for you now is better.

These are the standard reasons to update your estate plan.  But there’s a better practical reason that is quite different and much more personal — it has to do with family.  Few of us are lucky enough to have a family dynamic that is structurally and emotionally functional. I have met some couples of modest wealth, in their first marriage, with responsible adult children; but I have met more couples who are: in second marriages, with blended families, with one or more child with destructive habits or tendencies, or worried about a son or daughter in-law (the “outlaws”) whose motives conflict with our own values.  For these families, change will come swiftly and be overwhelming; frequent reviews and updates will ensure that your estate plan keeps up with these swift changes and continues to function as you intended — protecting you, your spouse, and all your children, even if it is sometimes from themselves.