I believe that there is a hierarchy of values that would help our planning for the accumulation, preservation, and distribution of wealth.

For most of us, our first objective is financial independence--to accumulate through work or investments what we need to maintain our desired lifestyle.

Generally expressed as a unique combination of annual income and a minimum resource base, financial independence answers the question, "What do I want from my wealth for the rest of my life?"

Your particular answer to this question might be different from others; people have very different needs, values, and assumptions about the world. But, your financial planning will not reach its full potential without first answering this question for yourself and setting your own targets for wealth accumulation and preservation.

Setting such targets and achieving them allows you to shift more of your attention to the next level: wealth distribution. This second level of planning determines, first and foremost, your "family legacy"--what you will leave your heirs. During this phase of the planning process, you deliberately specify an inheritance amount for each beneficiary of your estate. The specifics of these bequests might be different from what others might choose, even if they have the same net worth and number of heirs as you do. The point is to think through this important question in light of your own values and to come to your own decision.

The final level on this hierarchy is your "social capital." Social capital represents that portion of your estate not required to maintain financial independence and not designated for family legacy. It represents the financial potential you have to make a lasting impact on society, the legacy you can offer to the common good.

It is a rare advisor who fully appreciates this concept of "social capital." For most advisors, social capital consists only of dollars that are involuntarily extracted from their clients and mandatorily redistributed to the government. Social capital is thus viewed as something to reduce, rather than as something to capture and direct consciously. What is missing from this old paradigm is the realization that there are two forms of social capital-- voluntary and involuntary. Voluntary social capital is made up of those dollars over which we make a conscious decision to direct, either as philanthropic contributions or as the taxes we choose not to avoid.

Fully understanding this concept of voluntary social capital allows you to see that the financial resources you will not be allowed to keep, or do not need, can be captured and redirected to those organizations and causes that support your personal value system. This three-tiered approach to financial planning offers an enormous opportunity to move from a position of financial success to one of social significance.

As noted psychologist Ernest Becker said, what we really fear "is not so much extinction, but extinction with insignificance."

--Scott C. Fithian

Adapted with permission from The Seven Principles of Values-Based Estate Planning, published by Legacy Advisory Associates, 1998.