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Family Wealth Planning, Part III: A Framework for Estate Planning

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Ross W. Nager, CPA and FBA Contributor

We're now in the homestretch of our discussion of family wealth planning. As you hopefully have seen in the first two articles in this series, (Part One & Part Two) family wealth planning integrates more traditional estate planning with accomplishing your non-tax objectives, hopes and dreams for your family.

Let's wrap this up so you can get started developing your family wealth plan.

Step 11: Bring Your Family into the Process

It's true that you can do whatever you want with your estate. But, what happens if your heirs do not understand why you did what you did? What happens if your plans are inconsistent with their dreams and objectives?

We see the answers to these questions on soap operas: Unhappy kids who misinterpret deceased parents motives and resent their siblings and other relatives.

I'll never forget my first meeting with the children of a father who had died six months earlier. The meeting's purpose was to decide where to go from here with a business that the three sons and a daughter inherited in equal shares. Half way through the meeting, the daughter burst into tears. She explained that she knew her father's dream was to keep the business in the family. However, her dream was to start a business of her own. She needed to sell her stock in the family's business for the capital to start her own. However, selling it would sabotage her father's dream and be disrespectful to his memory. I could only speculate, but I assured her that her father loved her and that he would never have forced his will on her. She ultimately acted on her dream by selling her stock. She now has a successful business of her own. But, deep down inside, she probably will always feel that she let her father down. What a shame that they never talked!

Bring your adult children into the process and explain your desires. Understand their views. Try to get them to understand yours. Help them think through the possible results of your plans. If necessary, make some changes.

Step 12: Experiment with Small Doses

Only death requires you to transfer all of your wealth at one time. Indeed, death is the worst possible time because you won t be around to provide counsel. If you are not sure how the kids will react with large amounts of money, try giving them a small amount. Of course, you should help them understand how to manage it and you should explain your views. (By the way, many kids learn better and more willingly when someone other than Mom or Dad is the tutor.)

Then, sit back and see what they do with it. If they do well, give them some more and enjoy the ride. If they screw it up, try teaching them some more. Isn't it better to know how they'll handle it while you're still alive and able to do something about it?

Step 13: Start All Over Again

The family wealth planning process should never end. You should go through all of the above steps again at the earliest to occur of:

  1. A major family event, such as a birth, death, marriage or major health change
  2. A significant change in your business or other assets,
  3. A major tax law change, and
  4. The passage of three or four years from your last look.

Your family wealth plan cannot be static because your family and business are not static. Hopefully, you reexamine your business plan periodically. Competition and the economy force you to do so. You should not assume that something as important as your plan for your family's future is any less susceptible to change.

Family wealth planning is a lifetime process of explaining, educating and experimenting. Done properly, your plan includes management succession and the preparation of your heirs for their roles in the business. It really should not be focused on death. Instead, view it as an integral part of preparing your children for their lives, while recognizing your needs for the future. Accompany the material gifts with the gifts of understanding and appropriate values.

Don't let your plans be a surprise revealed by your attorney after you're gone. Presumably, you leave what you choose to leave out of love for your heirs. You should be able to experience the joy of seeing your children act responsibly with what you give them. But, you will only experience that joy if you are willing to take calculated action while you are alive. Make sure that they are prepared to appreciate and responsibly handle the material evidence of your love.

Part One

Part Two




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