Transferring vision, values and wealth

By Margery Engel Loeb

Using the light of a blue moon recession to illuminate and focus your estate plan.

Times have been particularly turbulent in late 2008 and 2009, with the stock market losing a great deal of value, trusted investment advisers turning out not to be so wise and once-secure business niches suddenly disappearing. The recent crisis in our economy has reminded owners of assets that we cannot fully anticipate the future. Estate planning is an opportunity to create a blueprint for gifting your worldly assets in a manner that reflects your vision and aspirations for the future.

Some are using this time when assets have been devalued for gifting; others are rethinking what they need to cushion their later years. The financial crisis has forced some difficult but useful reassessments about what owners have been building financially and what is structured in their estate plan.

The mechanics of estate planning can be complex for families with a multitude of legal and tax vehicles that help transfer wealth and ownership of assets. Assembling a top team well versed in working with families in business—including an attorney, a CPA and a family business adviser who guides how the family makes decisions congruent with their wishes and values—is an important step.

It is generally a given that a good estate planning team will be knowledgeable about ways to reduce taxes. Reduction of taxes is an important component of estate planning, but it is probably best addressed after first determining the larger goals and vision for the transfer of wealth and ownership. The tax planning drapes around the shape of what the givers want as their legacy as well as what will be communicated to their beneficiaries.

Consider your values

Among the most difficult questions for owners of assets to ask themselves are: What do I want to give? What do I envision surviving me? It is imperative to ask whether the complexity of the estate plan allows the transmittal of the givers’ values and mission. For some people the existence of the operating business is paramount; for others it is wealth that is harvested and managed in a family office. Some people view their wealth as reflecting the love, values and head start they give their offspring, while others want their money used as a motivation for achievement or as protection for their heirs. Philanthropy is an important component of many people’s legacy.

Each of the above wishes requires differing legal and tax vehicles as well as different business and financial decisions, depending on the state where you reside. A parallel process that is integral to the transfer of wealth and assets is a review of business, assets and investments and their legal structure in order to evaluate if they are congruent with the inheritors’ abilities and wishes. This often requires a dialogue between the generations.

If survival of the operating business is what you value most, you of course must address whether the business should be sold or passed down to children or even employees. If some of the next-generation members do not want to work in the business, do they want ownership? Are there enough assets to enable you to pass down a working business intact to some while still treating the others fairly? There have been many articles addressing this issue, so we will not delve more here.

Some owners of firms or wealth are most interested in motivating or protecting their heirs. This can be more paramount when the heirs seem vulnerable, whether through their limitations or behavior or because of the owner’s fearfulness and lack of trust. This can lead to the creation of complex governance arrangements, the use of trustees and the bequeathing of money with achievement strings attached.

Other families have developed a higher level of trust and communication. The givers want their inheritors to experience some control, and therefore some risk, with their assets. They may also use trusts to protect separate property, but allow for their heirs to become their own trustees at a reasonable age. One inheritor remarked that after becoming disillusioned with the decisions of her business advisers, she gradually took over her own investments. She was amazed to discover that she had also inherited the ability to create wealth.

In another example, a future inheritor went to his father and requested that his “portion” be put within a charitable foundation so the son could control the funds solely for giving. This was a novel idea for the father and was not immediately embraced. However, after many conversations in which they explored their mutual and separate values and visions, the father decided to honor the request.

Philanthropic options

Owners of firms and wealth may include philanthropy as part of what is considered in reducing estate taxes. For many people, philanthropy serves as a way to carve out a portion of their wealth for a legacy outside of financial support of their heirs or employees.

The philanthropic model used by the Rockefellers is one in which the generations come together and make a joint decision about how to disperse the income from their foundation. This project serves as a bond that allows a refreshing of values and vision in each generation. It requires great wealth as well as a commitment by staff and family to create anew a dedication for joint giving.

Others are deciding that imposing on future generations the obligation to jointly give is not what reflects their wishes or those of the succeeding generation. Some of these people are setting aside assets within a donor-advised fund, trust or private foundation with the intention of making a maximum impact by spending the amount down within their own lifetime. This imposes no obligation to the next generation and also uses the owner’s skills, intellect and wisdom accumulated along with the wealth.

A growing number of people are also starting to look at how their money is invested within trusts and foundations. The same careful eye that was used as they created the money is being cast on the impacts of those invested funds. They are beginning to question if the invested money is supporting the goals of their philanthropy or values and are asking investment advisers to factor that additional consideration into investment decisions as part of their fiduciary duty. This enlarges the scope of responsibility of the financial advisers and often is specified in legal documents.

For families in business, many who have worked for years and some through several generations, the accumulation and transfer of wealth is a responsibility as well as a source of great satisfaction. The present recession brings into focus how unpredictable business and investments can be, making planning all the more critical for the successful transfer of assets. Tailoring the estate plan so it reflects the wishes of the givers, as well as strengthening and supporting the inheritors, is a noble ambition. This occurs only when values and goals are carefully assessed and then evaluated for how they fit with the needs, capacities and ideals of the intended inheritors.

Charitable giving must be carefully thought through as well, to accurately reflect all that the giver is trying to accomplish. This must then be communicated to a receptive estate planning team who are dedicated to seeing that the legal complexities provide the working drawings for this blueprint for the transfer of values, vision and wealth.

Margery Engel Loeb, president of Loeb & Associates LLC in Victoria, Texas (, consults nationally to families in business on a variety of issues related to transition, change, communication and planning. She has 30 years of experience working with families and business and was a third-generation non-working owner of her family business.

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Agenda 2009