This week I want to talk about the “4 D model” that I’ve heard David York speak about on a few occasions.
Now, lest you think that the word “model” is being used here in a positive sense, as in “a model that you should follow” or “role model”, please erase those thoughts immediately.
And furthermore, if you think that I’ll be arguing against York’s views, again, that ain’t it either.
York coined the term “4 D Model” to describe what has been going on for far too long, and we are in full agreement that there is a better way to go.
Background and Context
I first met David York in Denver a few years ago, at the annual Rendez Vous of the Purposeful Planning Institute (PPI).
Regular readers know that PPI is one of my absolute favourite organizations and that the Rendez Vous in July each year is the one gathering each year that I never miss.
I personally see York as one of the rising young stars in this field and love the way he conveys his important message. This TED Talk of his is a great example. His books are great too.
Traditional Estate Planning
York has long described the traditional “4 D Model” as follows:
Dump, Divide, Defer and Dissipate.
He’s also well aware that many of his estate planning attorney colleagues continue to follow this model. Let’s look at the 4 D’s one by one.
This is the part where the assets of the parents are transferred to their offspring upon death, usually after the second parent has died. Little is done to transition any wealth while the parents are still alive, because that might require some real thought.
This refers to the fact that upon death, those assets will be automatically divided equally between the offspring, regardless of any other circumstances, like ability, needs, etc.
The deferring is mostly about trying to avoid paying any taxes until absolutely necessary. So delaying any transfers of assets is part of that strategy too, because if you can’t avoid paying taxes, deferring them as far off into the future is the next best thing.
The final D is mostly about the results, as the family’s wealth dissipates after applying the first three D’s.
When the wealth has been treated in this way, with financial wealth as the sole issue of concern, and where no effort was ever made to involve those who would inherit it, it shouldn’t be surprising to learn that in many instances, that financial wealth will be handled by the inheritors in ways that could be described as sub-optimal at best.
More Purpose, Please
So far we’ve spent lots of time on how NOT to do the work necessary to transition wealth from one generation of a family to the next, and now it’s time to look at some positive moves a family could make to do a better job.
Notice that I said “moves a FAMILY could make” because ultimately the onus is on the family to do what is right for them.
Unfortunately, most families rely on outside experts to help them with this important work, and if a majority of advisors are stuck in the “old ways”, it can be very difficult for families to get the kind of help they really need.
Involving More Parties – Inside and Outside
If the Four D model has survived this long, it’s largely because it’s very efficient. It’s quick and relatively easy.
Making purposeful plans involves a lot more people so it naturally takes more time.
The first group of extra people are the other family members. How can you make important plans for the next generation without involving them?
I don’t know, but most families have done it that way.
The other group of extra people that need to be part of the solution are the advisors.
Every great plan will need to include input from a variety of outside specialists. Ideally they will collaborate for the good of the family.
But most importantly, most of them should only be brought in after the family has figured out the most important questions around how they want the wealth to serve the following generations of the family, not before.
Rendez Vous 2019 will feature a breakout session featuring David York as well as one featuring Steve Legler and Joshua Nacht. We all hope to see you there.