Home » Estate Planning

Category Archives: Estate Planning

The Idea of Family Wealth

The Idea of Family Wealth

 

This topic is absolutely foreign to the middle class, and even many high income earners. I myself have never experienced it;, my education comes directly from speaking with wealthy individuals and observing some of the richest families in history.
The Idea of Family Wealth.

Preparing Heirs by Bill High

Preparing Heirs by Bill High

 

Young family

 

What is it about our kids that prompt such great emotion – from elation to depression? Certainly, there is no greater joy than to see our children flourish and no greater agony than to see them wander from our values and our beliefs.

 

Irony: neglecting the “soft” side

 

The greatest irony in family estate planning: spending countless hours on the “hard” side of assets while giving lip service to the “soft” side of people development. 

 

The tendency in estate planning is to prepare legal documents that transfer financial wealth without preparing our children for true legacy. What does preparing our children for true legacy mean?

 

Preparing children for true legacy

 

Life is often a blur in the child-raising years. In the same timeframe that we are raising kids, we are building our careers. And frankly, some of us tend to do a better job of building financial wealth than “family wealth.” Much of what our children learn is left to chance: whatever they observe along the way.

 

When things finally settle down a bit, the children are graduated, off to college, or even absorbed with starting their own careers and families. 

 

What is family wealth?

 

In his book, Family Wealth, James Hughes discusses the importance of human capital that includes the following outcomes – ideally for all family members:

 

  • They are thriving
  • They have a strong sense of purpose, passion, and calling
  • They have a strong sense of work ethic and character qualities like integrity, honesty, and compassion
  • They have interpersonal relationships both within the family and externally
  • They understand that life does not revolve around them but that instead they are part of a greater whole, a greater cause
  • They have spiritual grounding
  • They are generous.

 

These are big ideas, which go way beyond transferring financial capital. They go to transferring intellectual capital, social capital, emotional capital, and spiritual capital as well.

 

Good relationships require intentionality

 

It’s time spent with children with intentionality – making sure they understand our story and that we understand theirs. It is time spent repairing relational damage that is unintentional but inevitable. It is making sure they are healthy, thriving, and feeling fulfilled. 

 

Giving together creates unity

 

One of the best tools I’ve found to bring families together is giving together. Structurally, that may take the form of creating a foundation or a donor advised fund. But practically, it simply means doing some giving together.

 

Giving is the great equalizer. Suffice it to say that giving prompts conversations that everyone can participate in regardless of age or experience.

 

Investing in legacy

 

So what do you want when you think about your heirs – great joy or great agony? It will take great effort to achieve the former. It must go beyond estate documents. Estate documents are a part, but they really should be guided with the influence of all forms of capital – intellectual, social, emotional, spiritual, and financial.

 

To learn more about the Center for Family Conversations and the new book, Unheritage, click here.

 

 

 

WHY YOU SHOULD LISTEN TO BILL?

 

Kansas-City-MO-Insurance-Defense-High-832968

 

William F. High is the Chief Executive Officer of National Christian Foundation Heartland.

 

He works with families, individual givers, and financial advisors to help facilitate God’s call to generosity. Much of that work includes advising on issues of income tax planning, business sale planning, and estate planning. Bill is a visionary leader energized by people and ideas. He loves to learn, innovate, and strategize on how new ideas or new approaches to current methods might escalate growth. As a former lawyer, the law taught him how to ask great questions to find the truth.

 

Bill is also the founder of iDonate.com, a fundraising software company serving the nonprofit community. iDonate.com provides an online marketing solution for nonprofits to market and receive gifts of all kinds, including cash, text, credit card, and non-cash gifts. Bill is also the President of Generous Life, a legacy consulting organization with the aim of making generosity generational. A published author and conference speaker, he is the general editor of Grants and More for Christian Ministries, and a contributing author to Why the Conservative Mind Matters. He recently authored Stories of the Generous Life and is currently working on the follow up to that book.

 

Bill has been married to his wife, Brooke, for 25 years. They have four children: Ashley, Jessica, Nathan, and Joseph.

 

 

Understanding and Valuing Perspective by Tom Conway

Estate-Planning-Attorneys-870x400

 

How does estate planning disconnect couples? Certainly there may be many issues where a husband and wife are on the same page. They may be happy with their marriage, with their current lifestyle, with the common friends they have, but when it comes to making an important decision within estate planning, they are not in alignment. Let’s look at some of the possible reasons for misalignment.

 

Different Assumptions related to Upbringing

 
Different family backgrounds influence the way people see life. Those who grow up in wealth are likely to see an expensive lifestyle as normal. Naturally, they would expect the same for their children. Many beliefs and attitudes grow out of early life experience.

 

Differing Values
 
Your values are the things that you believe are important in the way you live and work. They play a significant part in the the way you view life, generally determining your priorities. Whether you recognize them or not, they are there, and they are the measures you use to tell if your life is turning out the way you want it to.
 
Although it is challenging to examine how your emotions intersect with your thinking, this level of self-awareness is necessary to identify the values that motivate you. Once you recognize and acknowledge your values, you can make plans and decisions that honour them. Understanding each other’s values can easily help a couple come to agreement on decisions.

 

Differing Perspectives
 

Our perspective – the viewpoint we bring to any consideration – influences our perceptions. You have probably heard the expression, “Perception is reality.” We are satisfied that the way we see it is the way it is, and we are unwilling to entertain the thought that our view is distorted or incomplete. 

 

Lack of understanding leads to loss of communication
 
When spouses don’t agree on certain topics, they often avoid the subject. This false peace can lead to devastating consequences in the future.

 

Pride
 
All of us deal with an internal nature that wants our own way.  We often feel that our way is the best and that if everyone would just do as we say, or believe as we believe, the world would be a much better place. This pride can cause us to become defensive when we are challenged. It can also lead to a closed mind.
 
The opposite of pride is humility. To be humble means to be willing to listen to thoughts and opinions of others with an open mind. It means being willing to submit your own ideas to the scrutiny of others. So many conflicts in life can be resolved if two people approach the issue with a listening ear and an attitude of humility.

 

So how can a couple resolve the issue of goal incongruity? Often they cannot do this alone. Their differences often bring on heated discussions that lead to anger, hurt feelings, shutting down by one spouse, and pain. An impartial advocate can have a huge impact with a couple. 
 
Often the advocate guides the family through a values discussion. This helps them understand why their spouse holds the position they do. Once they see and understand their values, they can be helped to see the ones that may be contradictory to their core beliefs.

 

 

To learn more about the Center for Family Conversations and the new book, Unheritage, click here.

 

 

 

WHY YOU SHOULD LISTEN TO Tom?

 

0e363d5

 

Tom Conway leads Conway and Associates in assisting families to get clarity around what they believe God wants them to do with their resources.

 

 

A CPA by training, Tom has held numerous ministry and financial service positions with such organizations as Ernst & Young, Campus Crusade for Christ, Ronald Blue and Company, Perimeter Church, Generous Giving Inc., National Christian Foundation, Kingdom Advisors, and the Haggai Institute in Atlanta.

 

 

Tom has a passion for legacy planning that encompasses five areas: personal, family, financial, business, and philanthropic. As he helps people quantify their needs for the future, what they wish to leave for their family, and how the remainder of their resources can be released to organizations that reflect their values, it often leads to zero-estate-and-IRD-tax situations.

 

 

Living and serving in Africa for a number of years and ministering extensively in Europe, Asia, and Russia enhanced Tom’s Christian global perspective.

 

 

Tom and his wife, Susan, have been married for thirty-five years, have four children and four grandchildren, and live in Atlanta, Georgia.

The Family Compass by Jerry Nuerge

The Family Compass by Jerry Nuerge

 

home-1b

 

Families often lack a compass for navigating through potential distractions. Most high net worth people believe that if they have signed all their trust documents and wills, they have taken care of their future. After all, their attorneys and CPAs have assured them that the maximum amount of financial assets will be transferred to their spouse and then to their children with as little loss to the tax man as possible. Unfortunately, research shows that only ten percent of financial assets make it to the fourth generation.

 

A family’s values are just as important as those of a corporation, but they receive far less attention. I have found it more beneficial to families to focus on three often ignored components that have the potential to extend a legacy indefinitely:

 

1) What are your values?

 

2) What virtues will we pursue?

 

3) What do we want our family story to be?

 

Collectively, these are family brand equity, the core of a family’s culture. The values define the family, the virtues build the family, and the story describes the family.

 

 

VALUES

Rather than elevate whatever human values are currently in vogue in our culture, we identify our family’s values based on the evidence of our calendar and pocketbook. 

 

 

VIRTUES

Virtues are frequently underestimated in importance. Aristotle argued that substantial happiness and human flourishing could be grasped only through the virtues. King Solomon stated it this way: “My son, do not forget my teaching, but keep my commands in your heart, for they will prolong your life many years and bring you peace and prosperity. Let love and faithfulness never leave you.” (Proverbs 3:1-3)
 
The battle of morality is not so much about knowing what is right as it is doing what is right. 

 

 

STORY

The family story is a crucial component. Think of the family story as an ongoing stream of past, present, and future stories of family members woven together. These stories, infused with the family’s values and virtues, provide a sense of identity as well as motivation to not be the generation that weakens the heritage.

 

 

Imagine the priceless joy when family brand equity is the focal point of our transfers to the next generation! These assets empower families to live intentionally productive lives for multiple generations.

 

 

 

To learn more about the Center for Family Conversations and the new book, Unheritage, click here.

 

 

 

 

WHY YOU SHOULD LISTEN TO JERRY?

 

JDN_Website_Portriat

 

Jerry Nuerge is founder and owner of the Financial Independence Group. He is also the creator of the Wealth Integration and Transfer System™, the Generation Connection Process™, as well as the Revenue Retrieval System™. Jerry holds a BBA and MBA degree, holds the Chartered Advisor in Philanthropy (CAP), is a Chartered Life Underwriter (CLU), a Chartered Financial Consultant (ChFC), a Certified Family Wealth Counselor (CFWC), and a Registered Investment Advisor (RIA). He is a lifetime member of the Million Dollar Round Table (MDRT), and has qualified for its “Top of the Table.” He also belongs to the National Estate Planning Council, the Society of Financial Service Professionals, the National Association of Insurance and Financial Advisors (NAIFA), and is a past-president of the local chapters of these organizations.

 

 

Jerry is a member of Kingdom Advisors (KA) and a charter member of the Int’l Association of Advisors in Philanthropy (AiP), which he served as president in 2009.

 

 

Jerry has been married to his wife, Sharon, since 1967, and has three children and eight grandchildren, all living in the Fort Wayne, IN area.

 

 

Co-author of Family Wealth Counseling: Getting to the Heart of the Matter and author of The Priceless Gift, Jerry is active as a consultant and national speaker.

Family Farm succession planning – equal or fair? by John Mill

Family Farm succession planning – equal or fair? by John Mill

 

6a00e5540bff8a88340133f0cb0553970b-800wi

 

The recent appeal decision in Mountain v. TD Canada Trust is a classic example of how badly things end up without proper business succession planning. The case involved a farm that had been in Mountain family for five generations since 1830. Gary the son had been working on the farm for 24 years since high school and had received less than average wages so money could be used to build up the farm. Gary said that his father Jack had promised to pass the farm onto him. Gary’s sister Louanne never worked on the farm.

 

A universal problem in family farms and businesses is that there are usually children who do not work on the farm or in the business. The question becomes how do you treat these children fairly? A common misconception is that the child on the farm or in the business will be getting a very valuable asset; however if the farm or business is not to be sold then what the child really gets is a job.

The problem in this case was that Jack and Helen Mountain had identical wills. Each left all of his/her estate to the other absolutely, or if either spouse died first, the estate would go to Gary and Louanne to share and share alike. This is the default will pattern employed by most families. But in family business succession cases the default will pattern creates havoc as happened with the Mountains.

After Jack’s death Gary’s sister Louanne took the position that under the will she was entitled to half the farm. So Gary started a lawsuit to enforce what he claimed was an oral agreement that the farm was to go to him.
In the period between January 2000 and November 28, 2001 when he died, Jack had made a number of attempts to transfer the farm to Gary. First Jack saw Mr. Riley his bookkeeper and tax preparer. Mr. Riley had detailed notes of their discussions about how to transfer the farm to Gary. The Judge ignored these notes because Jack did not act on them.

In October 2001 Jack was hospitalized. He was first visited by retired lawyer Don Elliot who referred him to another lawyer Chris Moon. Mr. Moon prepared powers of attorney to be used if Jack was disabled but he did not recall discussing any land transfers. It seems odd that this lawyer would not have asked about Jack’s intentions for the farm.

In mid November Jack met with Mr. Riley again. Mr. Riley sent a letter addressed to Jack, dated November 13, 2001. The letter says:

This letter summarizes our discussion of the farm rollover from you and Helen to Gary. If I understand your desires correctly, the two farms, the 46 acre lot with the helper house and the trailer on the 97 acre farm are to be rolled over to Gary. The one-acre lot at Conc. 4, WHS Pt Lot 33, is to be rolled over to Louanne.

Jack asked his sister if he could meet with her lawyer and an appointment was made for November 15th.  Unfortunately Jack was readmitted to hospital and died on November 28th.

Gary did not have luck in court, after an 11 day trial the trial judge made a factual inference that Jack intentionally did not transfer the property to Gary before his death and ordered Gary to pay $275,000 in costs to Louanne. As the trial judge put it:

While I am doubtful of Jack’s competence, if he was [competent] as Gary submits, Jack had thoughts about how to arrange his affairs, knew that they had not been put in place and did not put them in place. Since he did not do so, I can safely infer that that was intentional.

From a common sense perspective if Jack wanted the farm to stay in the family for the sixth generation then he had to give it to Gary. If it was split evenly then it would have to be sold. There were other assets that Louanne would have received including insurance. The appeal court allowed the appeal finding that the trial judge had made a palpable overriding error of fact as follows:

[75]      The trial judge did not explain why this inference was safely drawn given the following evidence indicating that it was the swift deterioration in Jack’s health that prevented him from completing the farm transfer:

  • Several witnesses, including Louanne, testified that while Jack was in the hospital, he indicated that he wanted to meet with a lawyer.
  • The Monkmans offered Jack an appointment with their lawyer, Mr. MacDonald, for November 15, 2001. Mr. MacDonald would have met Jack were it not for Jack’s unanticipated hospitalization that same day.
  • Reverend Lekx testified that on November 18 or 19, 2001, Jack told him that he had just “told Gary to take the farm and get a lawyer to have it settled.”
  • Mr. Riley testified that Jack passed away before they were able to finalize the rollover of the farm to Gary, so he followed the will and transferred Jack’s half to Helen with the intention that it would then be rolled over to Gary.
  • Mr. MacDonald testified that when he prepared his memo of November 27, 2001, he was expecting there to be an inter vivos transfer of the farm property, milk quota and vehicles.

[76]      The trial judge’s inference that Jack did not intend to transfer the farm to Gary before his death also inexplicably fails to give any consideration to the uncontradicted evidence of Mr. Riley, which he had set out at paras. 20-22 of his reasons. As the trial judge noted, at para. 20, Mr. Riley testified that in 2000, Jack and Helen decided that “it was time to act to roll the farm over to Gary.”

The appeal court ordered that the matter be sent back to trial to be heard all over again setting aside the $275,000 costs award and ordering Louanne to pay Gary $40,000 in costs for the appeal ; however, they did so with this warning:

[113]   I must stress that a new trial is in neither side’s interest. This case cries out for a mediated, consensual resolution. This is a rare circumstance where in the interests of justice, I would direct that mediation be conducted prior to any new trial.

So what did the parties get for their more than half million in legal fees and months of effort preparing for trial? This case is a classic lesson in the value of proper planning.

 

The New EBITDA: Emotions Before Interest Taxes and Depreciation

The New EBITDA: Emotions Before Interest Taxes and Depreciation by Tom Deans, Ph.D.

 

Everyday Business Tom Deans

 

Sitting in the departure lounge at LAX, I couldn’t help but overhear a conversation between an investment banker and his younger associate. I learned two things. First (and most business travelers can relate), it is amazing how cavalier people are about discussing confidential details in public places. The second confirmed something I had been thinking about family businesses for some time.

 

The older of the two bankers was whining about how he thought the slam-dunk deal they had just presented was now probably never going to happen. On and on he grumbled about the time he had spent running the numbers, lining up partners and generally bringing the deal to a crescendo, only to have the business owner change his mind about selling.

 

The investment banker was completely perplexed about why the offer, the numbers, the multiples that looked so good weren’t enough to entice the owner to do the deal of a lifetime.

 

It took everything I had to stop myself from leaping into the conversation and selling him a copy of Every Family’s Business (it wouldn’t have been the first time). But I exercised extraordinary restraint and settled back and listened to him talk about the clever structure of the deal, the tax that could have been saved and the instant wealth the owner would have secured if only he had been smart enough to take the deal.

 

Emotions are Squishy – Not the Stuff of Deal-Makers in Suits

 

The funny thing about listening in on a conversation is that the longer you listen the harder it is enter the conversation. So I bit my tongue and instead simply wondered how many other business brokers, M&A professionals and investment bankers expend such effort trying to bring deals to fruition only to have sellers back out. I wondered how an entire industry of intermediaries could so badly underestimate the emotional connection that owners have to their businesses, and also fail to understand how these emotions can scupper so much good work and extraordinary planning and lead the owner to ultimately destroy the business’s value.

 

When really bright finance experts hear the word “emotions” you can so often see their eyes roll back and the calculators shut off. Yet students of the greatest financiers of all time – deal-makers like Warren Buffett – know that these people get deals done by running the numbers and then engaging business owners in the one corner of their life where most number crunchers don’t go – their family. It is the rare rainmaker who has both the left and right brain firing on all cylinders.

 

warren buffett

Warren Buffett

Buffett and other great deal-makers know that the sale of a business will typically result in a “liquidity event” that will leave owners with more wealth than they feel comfortable consuming. Most business owners accumulate wealth precisely by denying themselves consumption. Sellers will often kill deals, blaming a low bid price, but there’s almost always much more at play.

 

Reducing An Owner’s Life Work to a Number is Depressing

 

Most deal-makers underestimate the guilt and remorse sellers feel when they reduce their life’s work to a single number. It feels so crass and empty and hollow to imagine that decades of risk-taking, relationships and earned status in their community will end the day a check is cut and control is relinquished.

 

That’s why so many business owners don’t do their last deal. That’s why so many let their death be the event that triggers the transfer of controlling interest of their business to family – typically ill-prepared family members uninterested in continuing the business.

 

With universities, associations and institutes granting so many awards dedicated to perpetuating family businesses at any cost, it’s the duty of intermediaries to serve family business owners with a counterbalancing narrative that places the preservation of capital at the center of more intelligent estate plans.

 

Preserved capital from the sale of a family business – capital a former owner can then deploy for philanthropic endeavors and for funding the next generation’s own businesses – and not an operating business that’s well past its shelf life is what pays homage to the most enduring legacy: family and community.

 

Buffet is Both Psychotherapist and Financier

 

I really wanted to tell the two guys in the airport that Buffett’s best deals had come after he cemented his own family business succession plan. Buffett can easily look into the eyes of any family business owner and talk with authenticity. He can empathize with a business owner’s struggle and can explain why selling the business is the key to securing their greatest and most enduring legacy – their family and their philanthropy.

 

I didn’t have the guts to chime in and say, “Fellas, I’ve really been enjoying your conversation but there’s way more to doing deals than running the numbers.” Deals get done based on trust and respect earned by intermediaries paying homage to the things in a business that transcend money. Intermediaries who approach this emotional subject like one more thing to check off on their due diligence list will be outed before the coffee is poured. Business owners can feel the disingenuous long before they actually hear it.

 

For most owners, the sale of their business represents the end of their professional careers and a major overhaul of who they are and where they fit in. Anticipation of the disappearance of their status as business owner, employer and boss often means the sale never gets completed.

 

Intermediaries who can honor the risk-taking that has gone into creating a business and connect that risk to something more enduring, like family and philanthropy, will themselves be participating in something that transcends money. A guy like Buffett, who is still driving hard deals while giving away half the wealth earned from those deals, tells you precisely what motivates him and his family.

 

Wealth with purpose: scoff at this soft, simple idea, diminish its importance in closing deals, and you’ll be the one sitting in an airport lamenting the one that got away.

 

PS: Most people wearing earphones in airports are only pretending to be listening to music.

 

Book Tom Deans As Your Keynote for your Next Conference Now

Why Do Family Business Owners Often Die at their Desk? by Tom Deans, Ph.D.

Why Do Family Business Owners Often Die at their Desk? by Tom Deans, Ph.D.

Everyday Business Tom Deans

 

I was speaking to a friend who owns a successful manufacturing business and asked him when he plans to sell his business”. His response echoed something that I’m hearing more and more from business owners in my audience. “I can’t afford to sell – if I sell and take the proceeds and invest in this market, I couldn’t replace half my current salary”.

 

Of course the danger with this logic is that if unforeseen risk visits the business and it fails, my friend will neither have his salary nor the equity that he’s accumulated in the business over the past 20 years.

 

Misaligned financial interests of family members

 

But here’s the real problem. My friend, like so many, has other shareholders, namely other family shareholders who aren’t working in the business who want the sale proceeds now! His family dinners can best be described as a food fight waiting to happen. What to do?

 

What we do know is that doing nothing is a plan. Do nothing long enough and we know that a business owner will die at his desk. But where does the stock in the company go? Will it go to his or hers estate, to minority shareholders?

 

What usually unfolds is chaos especially when family is often left out of the planning loop. Financial advisors are doing a much better job these days of getting business owners to play the “what if” game. In fact there is a brand new breed of advisor brandishing a tough to acquire professional designation known as the Certified Business Exit Consultant — CBEC. I delivered a keynote to a recent convention of CBECs in Boston and they’re a rather impressive group of professionals committed to exit planning excellence.

 

The best advisors never stop reminding clients about the risks of business ownership

 

Asset allocation has forever been the first principal of sound investing. As investors near retirement, advisors constantly rebalance portfolios away from equity to income. The business owner who allows their high salary to cloud their thinking about the dangers to their equity in their business don’t need to travel Las Vegas to gamble – they’re already there!! Extraordinary advisors will keep this risk in focus for their business owner clients and work on divestiture strategies and timelines that meet the financial needs of both business owners today, their retirement tomorrow and the needs of surviving family.

 

Savvy advisors remind business owners that the sale process seldom unfolds quickly and even after the sale of a business, the new owners may either insist or welcome the seller to continue working and drawing a salary. It took our family 5 years to find the right buyer for our business and another 4 years to receive the full sale proceeds – that’s almost a decade from start to finish. Business owners in their 50’s, 60’s and 70’s often completely underestimate just how long and emotionally draining it is to exit their business.

 

A high salary can obscure your exit

 

You can and likely will draw a salary for many more years while actively pursuing your exit strategy. So get cracking by understanding that your high salary may be clouding your exit planning judgment and carrying with it extra risk. Risk is like stress: when you think you don’t have any, you almost always have too much. And too much a good thing is almost always fatal.

 

What will you do today to put your exit plan in motion?

 

Book Tom Deans as Your Next Keynote Speaker Today!

 

Connecting with successful children is key to legacy planning

Connecting with successful children is key to legacy planning

 

Vice President of Advisor Development, Doug Orton and Senior Managing Director of Global Retail Marketing, William Finnegan provide tips on how to identify the alpha child and why making this connection is important. Discover useful tactics that can be turned into actionable steps towards sustaining your business. 

A Family Wired For Perpetual Dependence by Tom Deans

A Family Wired For Perpetual Dependence by Tom Deans, Ph.D.

 

Everyday Business Tom Deans

 

When the sale of a family business is all about a founder becoming wealthy and their children losing their jobs, you can see why so few ever put themselves in play and sell.

 

The CEO – the Chief Emotional Officer (Mom, and increasingly Dad) – just can’t stand to see the family pull itself apart. Killing the business with love has always felt like a better plan.

 

With a wave of aging business owners trying to figure out how they’ll fund their retirement, you can understand the temptation to simply throttle back on their day-to-day involvement and draw a salary while Junior runs the business until the final curtain falls.

 

Of course, as I’ve discussed in previous articles, with owners living longer, it’s improbable that Junior is going to hang around the business into his or her 70s, when Mom and Dad finally reach their 90s and hand over the reins of control – not operating control, I mean real control, control of the voting stock transferred when the last parent dies.

 

How About an Exit Where Everyone Makes Money?

 

But what if an advisor could frame the exit of the controlling shareholder as the day when all family members become wealthy? Far too often, death is the triggering event for the transfer of stock. Few children are offered an opportunity to risk their capital to buy the stock of their parents’ business at an early age. I recommend that when a child is 14, the parents and advisors begin the process of implanting the idea that the family business will be bought, not gifted, and that employment is different from ownership.

 

For a variety of reasons, the majority of parents signal that there’s no real or pressing need to recycle dollars in the family: “Hang around long enough, Junior, and all this will be yours – for free.”

 

Of course we know that nothing is ever really free and that while the ownership question is left hanging, there are as many underpaid children working in family businesses, as there are overpaid children. My experience on the speaking circuit is that few overpaid children ever risk their capital to buy out their parents. Why derail the gravy train? Parents who use their business to purchase and control family harmony do more harm than good and always pay the greatest price of all – a family wired for perpetual dependence.

 

Family Business Math

 

The dysfunction around the issue of compensation percolates and festers because the stakes have always been high. When Junior complains about low wages, some parents simply say, “If you don’t like what you’re paid, leave.” Emotionally and financially, it’s never been easy for a child to quit a parent’s business.

 

Child Quitting Over Compensation + Aging Business Owner = Less Inheritance For Junior. 
You can see how family business math becomes really interesting when only one child working in the business quits and one or more siblings stay and toe the family line. Trimming the family tree, hacking off a limb, call it what you want, the family business too often becomes the fault line in relationships and turns financially advantaged families into emotionally bankrupt ones.

 

The equation for this scenario looks like this:

 

The Value of the Family Business When Child Leaves Over Compensation = More Money for Remaining Children

 

The Link Between Compensation and Wealth Protection Is Profound

 

What if the mathematics of a great exit has always been rudimentary? What if advisors could convince clients that all family members, both inside and outside the business, can build a great exit plan collaboratively? What if the key to this plan is asking children to risk capital and perpetuate the business for the right reason – because they think they can grow it and make money? Now there’s a novel idea.

 

For this to be successful, family members working in a business need to be paid for the value they add. There are significant risks to an owner’s successful exit when compensation for family members is too low or too high. Getting compensation right is one of the pre-conditions for leading a business to be sold to someone, either inside or outside the family – but sold nevertheless.

 

Dynastic Families Understand This Equation

 

Business Owner Paid Appropriately + Children in Business Paid Appropriately + All Other Relatives Outside the Business Not Paid at All by the Business = Business Sold, Wealth Protected, Happy Family

 

It’s simple addition – so simple it’s often overlooked. Treat your family business like a drive-thru ATM and pay family members not involved in the business for work not done, and your exit will be a tad complicated and painful. Keep treating your children as indentured laborers and you’ll get to the same place. If you’re a business owner, all of this can seem difficult. It is, but it’s not impossible and it’s definitely worth getting compensation right.

 

If you are an advisor, are you really prepared to leave your spreadsheets in your briefcase and talk to clients about important issues like compensating family members appropriately? Can you see the link between compensation and protecting your client’s wealth is an emotional issue? Can you see that the hard emotional issues are where advisors earn client trust?

 

Book Tom Deans Today For Your Next Conference, Click Here.

Long Odds That Family Is Best Suited to Lead Your Business – Tom Deans, Ph.D.

Long Odds That Family Is Best Suited to Lead Your Business – Tom Deans, Ph.D.

Everyday Business Tom Deans

It was on the 18th green that a friend who owns a successful executive search firm answered a question about family business leadership that had challenged me from the very first day I sat down to write Every Family’s Business. Finally the penny dropped.

 

As he stared at his improbable 60-foot putt he opined that his chances were about as good as filling a CEO position in only a week. His comment got me thinking about how difficult it must be to find the very best talent for the most important position in a firm – the CEO.

 

Picking up the conversation after he completed his painful third putt, I asked him how many candidates he would interview for a CEO position. His response surprised me. He explained that his staff would typically review more than 1,000 resumes, creating a shortlist of 100. A fresh set of eyes would then whittle that list down to 25 and subsequent telephone interviews would narrow the field further to 10 to 20 candidates selected for face-to-face interviews.

 

When I think about a process that starts with more than 1,000 candidates in a non-family business and compare that with a family with, say, four children, often with only the eldest male destined (ordained) for the corner office, the math seems a little lopsided.

 

You don’t have to be an expert in probability theory or regression analysis to discern that non-family businesses have the best chance of finding the very best talent. One only need look at the hyper-growth in the number of family business institutes and consultants obsessing over the grooming of talent to understand the magnitude of the problem, if not the futility of trying to hire the CEO exclusively from within the family.

 

The Family Still Needs to Oversee the Professionals

 

When the management gene pool in a family is shallow, you’d think that the obvious solution would be for the controlling shareholder to sell the business and protect family wealth to fund his or her long, expensive retirement and the financial future of the heirs. Instead, it has become fashionable these days for well-intentioned consultants to pander to the founder’s lust for legacy and to recommend that the family hire professional managers, thereby creating space and time for junior to grow into the position.

 

The juniors I meet in my audiences – who are often in their 40s, 50s, 60s and even 70s – tell me their hired-gun CEOs are there to stay – permanently.

 

The fatal flaw with this plan lies in the question of who will manage the hired gun. Thrusting the succeeding generation into positions of oversight when they have, or more precisely because they have, failed to demonstrate success in the leadership of the firm has got to be one of the most dangerous threats to a family’s wealth.

 

When a family has concentrated its wealth in one stock – the family business – you can see how high the stakes become. And just like a 3-putt, there can be no joy in placing children in positions of leadership and oversight for which they are ill suited.

 

Leadership succession planning is often confused with ownership succession planning – whether a leader is hired from within or from outside the family, the risk to wealth does not abate. The concentration of family wealth in one business remains a clear and present danger.

 

As a trusted advisor, how would you caution a family business client about their leadership choices, especially when it’s obvious that when the odds of landing the very best CEO are 1 in 1,000 with a proper search, the likelihood of finding that “one” when the search is limited to just the family is about the same as hitting a hole in one.

 

Have Dr. Tom Deans Be A Speaker At Your Next Event, Click Here.