The unique process used by our planning team has been very successful at identifying and implementing an integrated and balanced set of solutions designed to help our clients achieve their goals for all three types of family wealth: human capital, social capital, and financial capital. Our methods for managing tax burdens include very traditional concepts that are well established in the Internal Revenue Code and Treasury Regulations.
Our process begins with the creation of great clarity around the present situation, short and long term goals for all three forms of family wealth, and the identification of obstacles to goals. Once the planning team with our client family has achieved the level of clarity required, we work to create the new or enhanced capabilities required to achieve identified goals.
The estate planning techniques are built considering several basic concepts:
Ownership rights can be subdivided
Control rights
Rights to receive income
Rights to receive remainder values
Traditional valuation discounts for lack of liquidity and lack of control can be developed through proper entity and transaction design
Economic growth can be transferred to future generations
Current estate values can be frozen
Charitable strategies can be used to retain control of social capital, including estate taxes
Human capital can be enhanced using methodical customized life long learning programs
Income tax burdens can be reduced through tax efficient portfolio management techniques and through the use of private placement life insurance contracts
Underlying all of our consultation is the belief that in order to avoid the three generation trap a family must devote considerable effort and resources to developing the human capital within the family wealth system. As the understanding and capability within the family grows better decisions are made regarding the management of the other two forms of family wealth. We also believe that a long term system of family wealth system management must be put into place to help assure that the benefits of the integrated plan are realized. We have seen many very elegant estate plans provide limited benefits due to lack of attention to details within the terms and conditions of governing documents. We suggest a model for governance that manages and monitors the complex systems that are created within the wealth management plan, helps the family system grow effective and confident people, and assists in proactive adaptation in response to changes within the family (births, deaths, marriages, etc.) and to external changes (tax rules, financial capital markets changes, etc.).
The Family Board of Directors is designed to create a team for family leaders, key current advisers, and new advisers as needed that can serve as the overall management and monitoring function for the family. This process is fully described in the book "Master Plan: The magic of integrating your financial, legal and life planning" (Woodman & Hartley, Cambio Press 2006).
