In our last article we visited the Alvarez family. In this sad case the parents had left the shares of the business in unequal amounts to the four surviving children. There was substantial conflict between the two boys who worked in the business. The two children who did not work in the company were given significant shares and ultimately became the deciding votes on major issues. In this case, although they had wise tax planning the whole family disintegrated as the family conflicts eventually destroyed the company and wealth as well.
What is the right way to plan for succession and the transfer of wealth. How can a family and the parents particularly create a plan that not only avoids family warfare but actually enhances the values and welfare of all family members? Particularly, how can this be done when most of the assets are tied up in a family business?
Of course every family is unique and has its particular history. All families when probed have a rich background of colorful characters, those who surpassed great difficulties and those who were not able to do so. Each husband and wife bring their unique family culture to the marriage and formation of a new family that includes the roles of men and women, how money is distributed, how major financial decisions are made, how family members have been interrelated with financial decisions and what money is used for. Every couple faces the multitude of tasks of distributing funds for various needs from business investment to college education or lifestyle enhancement.
Most parents want to utilize their financial wealth for the betterment of their children, grandchildren and perhaps local community. Typically estate planning is done in secret. In way too many examples the decisions about transfer of wealth to the next generation are done in secrecy by the patriarch and his attorney without any knowledge by the family members. In a family business I recently interviewed, the two successors of the business (cousins) at the age of 45 still do not know what percentage of shares they will inherit from their father. This is almost a guarantee of creating deep disruption in the next generation.
Doing It the Right Way is a take a full book, but here are a few initial principles:
1.) Identify your and your family’s values about money and wealth. This should be a very interesting discussion or series of discussions where family members talk about how major financial decisions have been made in their lifetime and the positive and negative consequences of this. Most interesting to do this over two or three generations.
2.) Determine as a family the values you as a family ideally would like to have and make decisions from.
3.) Determine as a family your “Family Wealth Mission Statement”.
These three steps are perhaps the most avoided and the most difficult! However it is only through the family’s ability to deeply dialogue these kinds of questions that they can address the issues of their family bonds, historical difficulties and begin to make a wealth transfer plan that deeply supports the values that the parents most want to transmit.
These issues are much too complex for any one professional! Insist on three top professionals to assist you in this journey – the attorney for tax and legal advice, the financial planner for financial advice and the family advisor/consultant for family advice. Isn’t that expensive? The answer is yes but regardless of the cost of these advisors it will be between 10 and 100 times cheaper then the destruction of family harmony like family lawsuits over that most inconsequential item – money.
Marc@sii-inc.net