How Annual Reviews Can Keep You Out Of Court- Advance Estate Planning

Posted on October 10, 2012 by thecomplexestate

As luck would have it in a recent court case (Thomas Lane Keller, et al. v. United States, Case No. 10-41311 (5th Cir. Sept. 25, 2012)). coming out of Texas (not ours) the tax payer was victorious even though there were holes in the planning documents.  Victorious was an understatement to the tune of $115,375.59. Now that was some refund! 

I can only imagine the feeling the trustee had when he opened the letter from IRS demanding of $147 million in estate tax, chest tightening and stomach churning. How about the look on the advisory team’s faces when they received the news, pale and stunned?  Did they warn the client and the trustees about a potential audit? Maybe and maybe not.  Were they aware of the possible enormous malpractice claims that could come as result of potential negligence? Who knows.

Not to long ago we left it up to the advisory teams to schedule the annual estate and tax planning review meeting for clients that we created design plans for. That was until we started getting calls from advisors saying that their clients were being audited. It did not take long to realize that the plans we created, which the teams implemented, had no annual oversight.

Two years ago we made a change. We started by telling every new client and their advisory team that there would be a maintenance phase to the plan design and that it would be facilitated annually for a fee. This put us on a path towards much happier clients and very pleased advisory teams.

Clients today need to be prepared for the good, bad and the ugly. They also must know that they have a competent team to support them, one that is diligent about annual meetings, oversight and cares more about their clients than the fee they receive.

Kim Hamilton

InKnowVision LLC

Filed under: Advanced Estate Planning, FLP | Tagged: , , , , | Leave a Comment »

To Be or not To Be? – That is the Family Office Question

Posted on September 4, 2012 by thecomplexestate

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Thinking about becoming a family office? Think again.

Often InKnowVision is approached by the management teams of family offices to review a family’s current planning. It could be the planning that the existing family office team put in place or a review for a transitioning new team. Either way the result is always the same, not good.

That is correct. Not good. First, the review reveals holes in the data. There are assets missing from the balance sheet, which are on the annual tax returns. There are outdated planning documents that should have been reviewed and amended annually. There are investments funded to the wrong tax structure. There is wealth leakage due to lack of advanced income tax planning. The list goes on and on.

Yet at the end of the day when we’ve completed our review and delivered our analysis of risks and missed opportunities, we receive a heart felt thanks but no thanks and off they go. Yes we collect a check for our services but the family office team now feels threatened. Instead of asking for help they run for cover.

There is a lot to be learned from the family office arena. Experts are needed in every role of the family office team. The next time you think you may want to start a family office there are several things you may want to consider. Richard Wilson, of the Family Offices Group, has done a great job outlining them in this Family Office Report.

 “I believe that a family office is defined by how they operate and what solution they provide to the family, and not by their asset size.”

Richard Wilson –

Family Offices Group

 

Kim Hamilton

InKnowVision, LLC

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Advanced Planning – New Risks for the Wealthy

Posted on August 13, 2012 by thecomplexestate

I was recently part of a discussion on topic of new risks facing the wealthy conducted by Attorney Patricia  M. Annino of Boston MA.

As she highlights, families and family owned businesses are not only subject to the traditional risks in advanced planning such out of date business and estate planning documents, liquidity, divorce or remarriage, lack of effective communication among key stakeholders, for example but also for new risks that are born by social media, Google, globalization, the speed of innovation,  pre and post nuptial agreements,  attacks by the IRS,  and turbulent economic times to name a few.

Just last week we saw Michael Dell’s teenage children on their way to Fiji, tell the world through Instagram and Twitter where they were jetting off to, what they were eating, and gave the location, time and date of where they would be in a few weeks time.

How did Michael Dell deal with this issue?

Dell did something dramatic.  He took down his teenage children’s social media pages.  Even at the annual cost of $2.7M for security protection, which includes virtual oversight, it isn’t enough to protect his family’s privacy from his own children use of social media.  How many clients do you know that could be in this very position?

Too many I suspect.

What as planners should we do to help mitigate these risks or at a bare minimum to educate our clients so that they can begin to take action? We can help clients manage these new risks to family cohesiveness, business ownership, and wealth management by the creation of a Risk Management Policy Statement as Patricia suggests and add value to our relationships beyond the plan design.

Kim Hamilton

Join us at the InKnowVision Institute

Filed under: Advanced Estate Planning, asset protection | Tagged: , , , , , | Leave a Comment »

Difficult Conversations

Posted on June 19, 2012 by thecomplexestate

It is difficult for clients to talk to their children about the family’s wealth.  However changes in generational behavior and each generation’s own needs are bringing that conversation to the table as the new US Trust 2012 survey reveals. 

We have all heard stories about having to take a parent out of their homes kicking and screaming in order better manage their health and safety. Then there are stories about disinherited children, picking so-called favorites and leaving more money to charity than to family members.  The tides are shifting to more purposeful planning and the economic climate has a lot to do with it.

So much has impacted one’s net worth today. Just read the newspapers and you’ll see that people have lost over 40% of their net worth. The younger generation is not holding back in seeking advice on how to best plan for their future. They have a feeling that they will be left bearing the brunt of ill prepared parents and needy children.

Alternatively, boomers are not creating comprehensive plans. While they describe themselves as very private people, they believe that their wills are adequate for their planning needs. Has any one informed them that a will is a public document?

Advisors need to think about how they are communicating with their clients and prospects. There’s a lot more on the minds of the high net worth these days. Getting them to share some of what is keeping them up at night can open the door to endless possibilities.

We agree with a lot of the survey’s findings and would like to hear what you are experiencing when working with a high net worth client.

Kim Hamilton

InKnowVision, LLC

Filed under: advanced tax planning, High Net Worth | Tagged: , , , , , | Leave a Comment »

The Family Bank

Posted on May 14, 2012 by thecomplexestate

I recently spent some time talking with my colleague Joe Cohen, of HoyleCohen about the lack of basic financial literacy amongst teenagers, college students and beneficiaries under the ages of 30.  We concluded that this is an issue on the minds of many of our high net worth clients especially when it comes to advanced estate planning.  How could they “give away” their assets today hoping that they would see the fruits of their gifting paying off tomorrow?

Joe uses a technique with his grandchildren around philanthropic giving. Around certain life events and holidays he provides a gift to a donor advised fund and has the grandchildren put it to work. Some struggle and others know exactly what they want to do. It is all in a life’s lesson.

This conversation brought me back to the “Family Bank”, a topic that Jay Hughes wrote about in his book Family Wealth, Keeping it in the Family and the great work that the Heritage Institute is doing with advisors and families in this area.

Our children lack the financial literacy to apply for a home loan, auto loan, credit card, or business loan.  Most schools do not teach these basic financial elements.  Jay Hughes writes,  “It is the creation of the family bank that fosters such and education.”

He goes on to say, “Family banks are useful for providing

  • Financial education
  • Sense of community
  • Character building
  • Financial mistake – making in a safe environment

all while increasing the family’s financial, intellectual and human balance sheets through cumulative successes of the individual borrower.”

The Heritage Institute uses a process to encourage the “testing and monitoring” of financial literacy for the next generation of beneficiaries before they are given any gifts or loans. Our colleague, Johnne Syverson of Syverson Strege & Company, uses this process along with the InKnowVision Process in his high net worth client engagements and has had tremendous success engaging the family and helping them to make wise choices in planning decisions.

Thankfully, Jay Hughes provides us with some guidance for setting up a family bank and the Heritage process is excellent in helping to implement it.

  • The Family Bank should not be a formal institution as in the corporate sense. Its activities should remain private and create a system of governance so that it meets the unique circumstances of the family that creates it.
  • Rules for meetings. It must have officers, directors and if need be advisory boards. Procedures for processing loans.
  • Create a Mission Statement explaining its philosophy and reason for being.
  • Trusts are potential lenders and borrowers. Trustees should understand and agree to participate in the family bank.
  • Concurrence of all family members with the terms of the mission statement.
  • All family members who participate are given copies of all loan applications including the intellectual capital portions and omitting the personal data.

The next time you sit down with your high net worth client and suggest that they take advantage of advanced estate planning or the current tax law before it’s to late, think about the value of a family bank.  Your leadership could help to strengthen a family’s balance sheet and values and provide badly needed financial education for its participants and benefactors all by encouraging the use of a family bank and a little bit of philanthropy.

 

 

 

 

 

 

 

Kim Hamilton

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Art Triggers an Advanced Estate Planning Issue

Posted on May 8, 2012 by thecomplexestate

A composite of studies of trust and estate attorneys, trust officers, and financial planners revealed that:

  • Fewer than 10% of plans for their clients addressed art, antiques, and collectibles
  • Fewer than 10% used art assets in intergenerational planning
  • Fewer than 15% used art assets in philanthropic planning
  • Fewer than 5% realize that the true cost of selling a million dollar painting at auction is approximately 35%
  • Fewer than 1% used the services of an art succession planning specialist

So what’s the problem?  The problem is that collectors and their families can lose, at minimum, as much as 75% in the value of the collection if upon death items are sold through traditional means.

And the collections of which we write are not all Rembrandts, Monets, and Picassos.  The collection could consist of antique firearms, Western American art, African ritual masks, textiles, folk art, stamps and coins, classic cars or just about anything else!

In 2009 art was estimated to be a $40 Billion industry1..  There are approximately 17,500 museums, 25,000 galleries, 25,000 historical societies, and 50,000 art shows in the United States alone.  Business Week reported that approximately 1/3 of families with a net worth in excess of $10 million are art collectors.  And those personal collections, valued at $4 – $6 Trillion nationally, will be transferred to others over the next two generations.  Recent trends show the dramatic increase to much higher possibilities.3 Those numbers are stunning, but what’s even more surprising is that the great majority of these collectors haven’t given a thought to that succession process.

If you are not planning for your client’s most prized possessions or favorite hobbies, their beneficiaries may be the ones screaming all the way to the IRS.

Enjoy our white paper.

Kim Hamilton

 

What Every Serious Collector Needs To Know (White Paper)

Filed under: Advanced Estate Planning | Tagged: , , , , , , | Leave a Comment »

High Net Worth Are Not Getting Attention

Posted on April 30, 2012 by thecomplexestate

In a poll conducted during a recent InKnowVision webinar, 13% of advisors stated that they only market for high net worth clients approximately 2 hours per week. In addition, fewer stated that they spend a minimum of 2 hours per week. The other 80% surveyed suggested that the do not market for high net worth clients at all.

These stats should not come as a surprise.  Many advisors have not prepared a plan to reach this underserved market and as a result are missing enormous opportunity.  It appears that this audience of advisors is marketing as if it was 2002 not 2012.

Just look around the country, the estate tax is becoming the “state” of estate tax.  High Net Worth individuals and families have taken a cautious approach and are sitting on large sums of cash as Cambridge Associates multi year study suggests.  Then there is the fear of the end of the “low tax decade” as we know it. Still many of the high net worth have no advanced estate or tax planning in place.

What does this mean for advisors? There is much work to do in this area.  Advanced planning requires applied knowledge, a team approach and a marketing edge.  There are plenty of high net worth individuals and families that need advanced estate and tax planning help.  Are you up for the challenge?

Kim Hamilton

Filed under: Advanced Estate Planning, High Net Worth, high net worth tax planning | Tagged: , , , , , , | Leave a Comment »

The “Art” of Planning

Posted on March 5, 2012 by thecomplexestate

More often than not, advanced estate planning for the ultra high net worth contains assets such as fine art and fine collections such as automobiles, wine, and guns for example. Each has its own unique circumstances and emotions tied to them.

Artist Jason Brammer

Recently, one of our business owner clients disclosed a fabulous $40M collection, of which $20M was crated in the basement of their home. They were already making annual gifts to a major museum. However, at this time, they were in need of creating liquidity to meet their business transition needs and maintain their lifestyle as they prepared to leave their family owned business.

As it turned out, we were able to create a plan that provided for increased cash flow, a reduction in taxes and a peace of mind using the $20M worth of art stored in their basement. Had we not taken our client up on the offer to come to their home there was a good chance we could have missed this opportunity, as the advisory team did not have these assets listed on any of the balance sheets.

When planning for art the advanced estate planning team should include an expert art advisor and an advisory team with extensive experience in estate and tax planning for these unique assets.

Be sure to make a visit to your clients’ homes. A planning opportunity may be hanging on a wall or hiding in the basement.

Kim Hamilton

Filed under: Advanced Estate Planning, charitable planning, Estate Planning for Art, gifting, High Net Worth, Legacy Planning, philanthropy | Tagged: , , , , , , , , | Leave a Comment »

Why Cash Flow Matters

Posted on February 15, 2012 by thecomplexestate

After completing over 900 integrated plans ($10- $100M in net worth) during the past nine years, we can confirm that cash flow and meeting lifestyle needs matter.

There is a gaping hole in integrated planning that exists between the financial and legal world.  You can’t have one without the other.  Clients fear that you will disrupt their cash flow, impede their lifestyle and make them give up control and that’s just the beginning.  These are by far the most common reasons clients do not embrace integrated planning.  If I was approached by an advisor whether it be an attorney, financial advisor or CPA, trying to sell me a strategy or plan and charging a large fee without understanding my lifestyle and cash flow needs first, I would run the other way.  Wouldn’t you?

Advanced estate planning or business transition planning, for example, can’t be done in a vacuum.  Over the years we have seen many plans put in place only to see them fall apart because clients didn’t really know what they had and how it affected their cash flow. Finding out the client’s goal and objectives is the first step. Securing their cash flow and lifestyle needs should be second.

Once you’ve come to terms with knowing their cash flow and having them confirm it with you and the rest of the advising team, then you can move into the planning options that will achieve the greatest results.

Take a lesson from us.  Cash is king. That is why we start at the top of the wheel, where the cash is.

Kim Hamilton

Filed under: Advanced Estate Planning, advanced tax planning, Business Succession Planning, Business Transition Planning, Estate Planinng, High Net Worth, high net worth tax planning, Uncategorized | Tagged: , , , , , | Leave a Comment »

A Matter of Life or Death

Posted on November 9, 2011 by thecomplexestate

It is indeed a ‘perfect storm’ for estate planning and no matter where you turn this is all you read about. Your high-net worth clients are reading about it too. However this does not mean that they will act on this opportunity.

During our recent InKnowVision technical webinar we addressed the uses of GRATs (Grantor Retained Annuity Trusts) in the advanced estate planning process. The use of GRATs are commonly used. Unless tested against or integrated with other advanced estate planning options, a high net worth client and their advising team may never really know the true benefit of this advanced estate planning strategy for the larger estate. In return, this could prove more costly and less effective than the desired result.

Advanced estate planning or high net worth tax planning as some call it, requires the security and peace of mind that comes with protecting cash flow or enhancing it . This can be the deciding factor whether or not a client can or will move forward.

As one commenter put it, “Fabulous idea! Where am I supposed to borrow the money to carry out your recommendations?

By starting with a comprehensive cash flow and balance sheet analysis you can be assured that not only will you find the money to carry out the recommendations, the high net worth client and their advising team will be well equipped to make wise choices in the planning process that can produce the desired results.

Revisiting where you start the advanced planning process can be a matter of life or death…. tax that is.

Filed under: Advanced Estate Planning, advanced tax planning, Business Succession Planning, Business Transition Planning, charitable planning, Estate Planinng, GRAT, High Net Worth, high net worth tax planning, Legacy Planning, philanthropy | Tagged: , , , , , , , , , | Leave a Comment »

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