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Focus on Life: A Framework for Estate Planning

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By Ross W. Nager, CPA and FBA Contributor

It just isn't fun to think about death. Ever wonder why most advisors initiate estate-planning discussions with techniques to beat Uncle Sam out of a few bucks? It is to motivate you to tackle the estate planning chore. But, most people know that there are no great rewards in reducing Uncle's take if, as a result, the kids squander twice as much. At least Uncle Sam is a happy heir. He takes his share and goes away. I wish the same was true for some family heirs I meet.

Don't misunderstand, I believe in minimizing taxes. But even doing that requires consideration of numerous mind-numbing issues. Few people do more than a basic will because they can t deal with the complexities inherent in more aggressive tax-reduction planning. Or, they do the more complex techniques and later bemoan the unanticipated effects on the family or business.

Let me suggest a very different approach to your estate planning. It is a process that I have called family wealth planning for almost 20 years because it is quite different from estate planning. It focuses on life, not death. This 13-step process requires a lot of thought because it addresses both tax and non-tax objectives. Because the process addresses taxes, investments, business and family in an integrated manner, it has the potential to improve your family's situation both while you are alive and after you head to that great family business in the sky.

Step 1: Enunciate Your Objectives

Start with a clean sheet of paper and identify your concerns, hopes and dreams for your family's future. Don t just think about things after your death. You can accomplish a lot more while you re alive than after you die, so think about what you want life to be like for you and your family.

Some issues may be financial, like whether you and your spouse will have enough income given the uncertainties of life and the economy. Many people want their businesses to continue with family ownership. Other objectives are softer, like your hopes for your heirs motivation, abilities and work ethic.

Whatever your objectives may be, you should prioritize them. You'll concentrate on the most important ones first. It is too easy to get lost in the maze of planning techniques and forget your objectives. Therefore, review this list periodically throughout the family wealth planning process. Each family wealth planning action should be consistent with achieving as many of the objectives as possible. Naturally, avoid actions that are inconsistent with the objectives.

Step 2: Gather Facts and Assess Needs

You must gather and realistically assess your family and financial facts. What is your estate worth? What income and principal can be used for retirement needs? Which of your heirs really has the ability and motivation to lead the business? What evidence do you have of your spouse's and children's ability to manage money? What is their knowledge of the business, its operations and operating philosophies?

Correlate those facts with your dreams and objectives listed in Step 1. The focus of your planning will be where the facts, dreams and objectives don t reconcile.

Step 3: Seek Facts from Others

You might think I'm crazy, but it can be extremely helpful to seek input from your spouse and adult kids. I am not saying that you should ask your kids how much they want to inherit from you. Rather, I'm suggesting that you can benefit from knowing the hopes, dreams, aspirations and concerns of those whom you love.

Your trusted friends and business associates also might have valuable input relating to aspects of the family or business that are relevant to your objectives and concerns.

The point is that other people have facts and perceptions of facts. By talking with others, you add to the knowledge you will need to create and, ultimately, to implement your plans.

Step 4: Use Heavy Doses of Realism

You must be realistic in your assessment of the facts and in reconciling them to your objectives. For example, if your kids are in their 40's and they don't get along, you probably are being unrealistic in your hopes that they will cooperate in the future. Certainly, merely hoping won t do the trick. Your plan will require an immediate focus on possible actions to improve their relationships. You don t have forever, so set a timeframe for that aspect of your plan to demonstrate success or failure. In the meantime, think twice about stock gifts that will force them to become uncooperative business partners.

I understand that facts are not static. We've been through tough economic times and will see them again. Grandkids come along. Business ebbs and flows. However, you must not let life' s uncertainties stop planning in its tracks. You should consider objectives under both good and bad scenarios, but you also must be realistic. For example, your worst case scenario should not be some sort of financial-market Armageddon requiring your entire $100 million nest egg for your future living needs! Conversely, if your 55-year old son is just not quite ready yet to run the business, your optimism about his future prospects might be a bit misplaced.

Step 5: Talk with Competent Advisors

Now it is time to start talking with competent advisors who are experienced in helping people with your types of needs. Make sure that you select advisors who have successfully helped families with your complexities and level of net worth. Fully discuss with them the results of Steps 1 through 4 and capitalize on their knowledge, experience and wisdom. If they lack any of those three characteristics, it might be time to try someone else.

Wow! Can you believe we re almost half way through the family wealth planning process and I have yet to discuss wealth transfer and estate tax planning? Will we get to that next month? Keep an eye on your mailbox, but hang onto this edition so I don t have to repeat myself.

Part Two

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