Estate Planning For Foxes And Hedgehogs

A proud red fox scans the surroundings for threats and opportunities.

FINANCIAL ADVISOR MAGAZINE-

Isaiah Berlin, the 20th century philosopher, said people act either like hedgehogs or foxes when making decisions. The foxes tend to know something about many small things while the hedgehogs know everything about one big thing.

Most estate planners think like hedgehogs. They know everything about estate planning. That works well for most clients, but others need the more difficult help of a fox, especially entrepreneurs (and people with attention-deficit/hyperactivity disorder).

In other words, clients who make impulsive, sub-optimal decisions, whose choices are guided by smaller, immediate rewards instead of larger, long-term ones, and who make such errors in their planning, organization, self-regulation and prioritizing when choosing courses of action.

To think like a fox is hard for such clients because it presents them with too many choices. With all these options in front of them, they end up with “analysis paralysis”—and avoid decisions altogether because they are too worried about making the wrong ones, maybe repeating a mistake from the past. When they can’t take action, there’s no progress, and somebody else ends up doing it. In the estate planning process, this other person is often the state or federal government.

It’s important to differentiate between risky behavior and sub-optimal decision-making. The people we’re talking about here, entrepreneurs and those who otherwise don’t have the attention spans to make decisions, often actually dislike risk more than other people. But they are prone to making snap decisions in the heat of the moment anyway if the future is unpredictable and they don’t have the time for a long, thoughtful process to move forward. After they make those decisions, they end up adapting to unpredictable new situations on the fly.

What they need is to be comfortable thinking sometimes as a fox and sometimes as a hedgehog (or at least getting a hedgehog to work for them). That means having one of two processes, one in which they are comfortable taking actions and one in which they are comfortable making predictions.

Take the fox-like approach for the first process, one based in action. The clients in this case should follow this list of items:

1. Ask themselves: “What is it that you want?”
2. Ask themselves, “What are you willing and able to put at risk?”
3. After that, they should act quickly and quietly.
4. Later, they should ask themselves, “Are the results what you wanted?” If yes, then the process should be repeated. If not, then they have to review what they want.

Now, here is a hedgehog-like decision process that relies more on predictions about the future.

1. First, they must define their decisions. They have to write down what their goals are.
2. Next, they have to define the objectives that move them toward their goals.
3. Then they should ask themselves about those objectives they are most likely to miss if not pursued.
4. After that, they must consider alternative strategies that help them achieve their future objectives, asking:
    • Is it sufficient to achieve your objective?
    • Is the strategy necessary to achieve your objective?
    • Is the strategy even possible under the current circumstances?
    • Is there an action plan for implementing it?
5. Next, they must determine the risks and trade-offs that come with the strategy they’ve chosen.
6. Finally, they should select and implement an action plan for it.

A Tale Of Two Approaches
This is how I integrate the two approaches when working with clients wary of decisions:

1. I help them determine what their goal is—what they need now, and how that gets them to what they want in the future.
2. I help draw up scenario plans of what they would need to do that achieves their goal.
3. I look at the immediate situation: Is their goal both urgent and important?
4. I help them take the actions they can take now—with the people, skills and contacts they have on hand and with the resources they are willing to put at risk—and thus help them reduce uncertainty in the immediate situation.
5. I help them integrate what they learn from their actions into one of their scenarios.
6. When the crisis is tamped down, I help them take the next step to achieve the objectives of their scenario plan.
7. Lastly, I help them deal with the next emergency.

These are the tips I leave for clients when they need to do estate planning (or any type of decision-making for that matter):

• Write it down: Writing your goal and your scenario down requires you to think through the process. Remember, if it is not in writing, it does not exist (at least as far as the probate court is concerned).
• Make snap decisions: In times of crisis, it is better to do something, even if it is not the optimal thing, than to do nothing.
• Have a dictator: Find someone to whom you declare your goals and objectives. Give them the right to impose firm standards from the outside.
• Record what you have learned: When you do get something done, record it and learn from it, good or bad.
• Set a public deadline: I have a paralegal whose job it is to start prodding clients well before document deadlines so that they get things done.
• Change your perspective: Estate planning is not about dying, it is about living—how you want to live the rest of your life.

So, if you are a fox and you find the hedgehog estate planning process does not work for you, do not despair: There is a process. If you are suffering from analysis paralysis, then get a fox to help you make snap decisions and see what you learn. If you are making impulsive decisions, find your hedgehog dictator and have them slow you down before you act on your impulses.

Finally, always remember, doing something is always better than doing nothing.