Keeping It in the Family

More than money is at stake when assets transfer to clients’ children. High-net-worth clients are particularly concerned about reducing their taxes, preserving their wealth and providing for their heirs.

November 15, 2007
by Lewis Schiff

This is a two-part series of articles about how financial professionals, including advisors and CPAs, can leverage a private wealth platform to facilitate their top clients’ concerns regarding the transfer of their hard-earned assets to the next generation. It is adapted from an article that appeared in the August 2007 issue of Investment Advisor Magazine.

If you’re a CPA who doesn’t have a network to help you address the concerns of advanced planning clients, it may be time to bring in a private wealth specialist. The private wealth specialist, who has a network of experts and work exclusively with high-net-worth clients, solves typical planning issues such as preserving wealth for the next generation, as well as atypical, highly specific issues, such as resolving intricate business succession issues, taxation in multiple jurisdictions, valuing artwork or creating foundations.

A wise person once said, the greatest concern of people with money is how to keep it. Overall, those with an investable net worth of more than $5 million (minus the value of their primary residence) worry most about protecting the assets they have, according to the 2007 Survey of Affluent Americans by U.S. Trust.

Since 84 percent of survey respondents say their wealth is self-made, not surprisingly they want to know more about tax laws, estate planning and trust funds. This interest in wealth protection flows naturally from their drive for wealth accumulation — and their desire to leave money to their heirs.

READER NOTE: Lewis Schiff will be holding workshops to introduce the newest solutions for your high-net-worth clients at select U.S. cities. For more information, click here.

Advanced planning clients wrestle with the best way to transfer assets to their children — as well as their children’s ability to manage those assets (96% in this survey believe it’s important to teach their children how to manage money, while 61% report that their children are already actively involved in managing their wealth).

Estate plans can positively influence heirs’ future behavior and reduce family conflicts — or they can reinforce unproductive behaviors and create poor communication with lasting wounds. Clients will exhibit the range of family dynamics from healthy to challenging. It’s not the job of the advanced planning team to change a client’s personality or resolve decades of conflicts, but solutions can be devised that serve both the parents’ needs and those of the children.

Emotions vs. Wise Planning

Advanced planning clients don’t set out to create problems for their children, but private wealth specialists and family counselors have observed some common false steps. Gary Buffone, a psychologist who counsels families about business succession issues and is the director of The Family Advisory Group in Jacksonville, Fla., has observed four categories:

  • Parents plan to distribute money before the children are emotionally ready.
  • Parents wait to plan too late, such as the point when one parent is disabled or has died, an emotionally difficult time to navigate with a formal planning document.
  • Parents hold on to assets too tightly, even when the children are emotionally mature adults.
  • Parents give too much, thereby forfeiting tax savings through multi-generational planning and philanthropy.

The Family Chat

Good communication can avoid many of the potential planning conflicts between parents and children. In their book Silver Spoon Kids, psychotherapist, Eileen Gallo, and estate attorney, Jon Gallo, of Los Angeles discuss a well-to-do couple with two young children from their marriage and two older stepchildren from previous marriages. The oldest son was successful and wealthy on his own. The parents told him they were thinking of leaving all of their money to the other three children. He didn’t need the money, so he agreed. Since the discussion took place before documents were signed, there was no resentment later on.

It’s easy to imagine the son’s response being quite different. Many planners have counseled parents about the inherent challenges of leaving unequal amounts to siblings. Because children mature at different rates — or may have continuing emotional problems — equal is not always possible or smart. When a client does want to create separate distribution plans, the family chat at the time of planning provides a forum for discussion. It helps prevent future sibling friction, strained relations between a surviving spouse and the children and even legal battles.

Next month, we’ll look at some specific strategies utilized by advanced planning teams to ensure the successful transfer of assets to a HNW client’s children.

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Lewis Schiff is the principal of Advanced Planning Group, a family office network for advisors. His forthcoming book, The Middle-Class Millionaire, will be published in February 2008.