WEALTH TRANSFER
Estate Tax Reform:
Goodbye Old Headaches, Hello New Ones

BY MIKE COHN

Estate taxes, long the bane of business owners and wealthy families, have provided at least one advantage: They motivated some people to implement estate and succession plans. But many were motivated by fear and by the understandable desire to avoid as much of the death tax as possible.

Very few approached planning from a strategic point of view: how they hope their wealth will impact heirs; how to prevent family wealth from discouraging future generations from being productive citizens; and how to focus the family's shared vision about charitable giving. Estate taxes are unlikely to go away with this administration, but they will likely be reduced.

While the advantages are obvious (families and businesses can keep more of their money), there are also some down sides:

• Some families and business owners will procrastinate even more about doing succession planning.
• There will be a greater need than ever for planning how the family will manage its assets in the future--either as an operating business or as liquid assets.
• Charitable giving may suffer.
• Aging owners who should let go of their business may be less motivated than ever to step aside.
• There may be more, not fewer, sales of family businesses, because matriarchs and patriarchs will procrastinate preparing their successors to take over. After the older generation's death, those successors (who may be in their 60s) are not likely to have the motivation or ability to assume control and may end up selling the business to address their own retirement needs.

I often hear that wealth ruins children. But as my colleague Mark Feldman says, "It's not wealth; it's parents who ruin children."

If parents don't have time or are unwilling to sit down and deal with the issues their wealth creates, their heirs will be ill-prepared to deal with the business or money responsibly. I'm not suggesting that it would be better to keep our current high estate taxes. I am, however, making a case for doing more, not less, planning.

If ever there were an opportunity and an imperative to make productive use of family wealth, now is the time. Business owners and wealthy heads of families rarely focus on their vision, and even those who do rarely plan how to set up systems within the family or the business to bring that vision to life.

There are five steps to do this effectively:

• Sit with family members to discuss and develop a family mission and vision.
• Decide how much is enough for each family member to live comfortably, and work with legal and tax experts to customize trusts that fit your family.
• Consider how much of your assets you want to devote to charitable causes, and explore setting up a family foundation, to be managed by the next generation.
• Consider creating a family entity to finance entrepreneurial and educational ventures of all family members with whatever assets are left over.
• Set up a family office as an umbrella entity that will oversee the family trusts, family foundation and family business.

The most exciting part of this work is the opportunity to work together as a family to explore ways to use your family wealth to make a significant difference in your community and your family. Whether your family assets include an operating business or not, this process provides opportunities for family members to play a meaningful older in addition to, or as the focus of, a productive career.

For some families, lower estate taxes will be yet another obstacle to do thoughtful planning. For other, more forward-thinking families, this will be an opportunity to harness your wealth, outline your family vision and prepare future generations to preserve the assets you have accumulated and carry forward your deepest values and vision.