Adam Chodos, Esq., CPA
Planning is a common phrase, but the definition varies. “Planning” is the proactive organization of affairs to achieve specific goals. For most successful families, goals are (1) to decrease taxation, (2) insulate family assets, (3) intelligent plan to manage assets on exit and/or death, (4) create a disposition program to empower multiple future generations, and (5) embed enough flexibility to adjust for changing circumstances.
Planning is a process. More often than not, planners short circuit the process and simply ask families what they want, presuming they have enough background information to make that decision. It is incumbent on professionals to provide guidance and the invaluable exploratory experience to make educated choices and design a plan that reflects values.
Planning should be coordinated with members of the planning team so each facet meshes. Planning in piecemeal leads to bandaid approaches of the unintended and avoidable. For example, a common tool is an irrevocable life insurance trust, specifically designed to own life insurance and avoid estate taxes on the death benefit. However, many times the life insurance agent and attorney fail to coordinate and insurance is personally owned thus none of the trust benefits apply.
Planning needs to recognize limiting factors so a change in expected outcome does not derail a plan, but rather provides an opportunity to refine goals. For example, a family with a total net worth of $20 million now has 15 heirs, which limits the ability to provide one heir a $10 million distribution to fund a new business, but if flexible, a loan can be made for $1 million to prime company equity so the business can raise additional funds.
A planning team usually consists of the attorney, accountant, asset manager, and life insurance specialist. Sometimes a financial planner, banker, or internal CFO. The full team is not needed for every task and involvement varies, but all should be aware of the planning steps taken so their activities work in harmony.
Some fail to complete planning as they strive to achieve the “perfect” plan, which likely does not exist for anyone. Even if all techniques line up impeccably, the personalities and familial relationships create issues and instead we aim for the best outcome possible with enough flexibility to adjust as needed.
Other than the amount of taxes saved, planning is difficult to quantify, making the value harder to understand. Considering the effort required to earn and maintain wealth, there is a significant value to ensuring the least tax erosion, assets stay within the family even if lawsuits or divorces develop, and eventually move down the to children and beyond in an intelligent manner.
Much of planning requires a family to contemplate the family unit working together but family cooperation and harmony are difficult to achieve for any family. More complex but more complete
Adam Chodos, Esq., CPA
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