Michigan Estate Planning Blog

Family Wealth And Financial Entropy

Family wealth created through a family business can be a wonderful blessing for a family. The trick is keeping it through the generations. Far too few families make proper plans to keep the family business going between generations. That is where the real work needs to be done. Only the big family names (think “Rockefeller”) lead us to believe that family wealth is perpetual. In reality, family wealth left unchecked has a tendency to follow the laws of entropy as it devolves into chaos and greater and greater breakdown or division. This phenomenon, along with some constructive advice, is featured in a two-part Forbes article titled “How The Wealthiest Families Make And Lose Their Money.” The article offers a solid point about the power of solidarity. The family that sticks together stays together, and so it is with the family business and the family wealth. As a whole, the family assets get a single voice, a larger capacity, and even attracts the attention of professional management. Absent that solidarity, the basic estate laws can effectively and efficiently work to pull apart the assets, the business, and potentially the family’s financial health. As you read the original article, think about your own family assets. How do you want to pass along your family wealth, whether you have a little or a lot?

Reference: Forbes (February 5, 2014) “How The Wealthiest Families Make And Lose Their Money”

For more information, see www.jerryreiflawyer.com

The Valuation of Art … Or the Art of Valuation? Saginaw, Michigan

Giving things rather than dollars can be tricky, especially come tax time. Consequently, you really need a qualified appraisal on board to make it all work. When it comes to art valuations, however, you should know that the IRS certainly will not take your word for it, or even the word of a decent appraiser, until they get their own expert opinion from their own experts: the Art Advisory Panel. A fair question to ask, then, is how fair is the Art Advisory Panel? The question of the Panel and fairness was addressed in a recent Forbes article titled “Is Art Advisory Panel Giving Taxpayers A Fair Shake?” Here’s how the competing interests play out. First, if you are a taxpayer giving art to a loved one or bequeathing it as a part of your estate, then you likely want a lower valuation. Why? Because you want a lower tax bill. On the other hand, if you are selling that very same piece of art, then you will want to command the absolute top dollar. Likewise, a body in charge of taxation is pretty much always going to be interested in a high valuation because it triggers a higher tax bill. So, statistically, how much of taxpayer appraisals does the government Panel accept? Would you believe only 51%? In addition, the Panel “adjusts” the other 49%, and of that adjusted percentage generates a net 47% increase on items in estate and gift appraisals. Of whom are you more cynical, the IRS or the taxpayer? The takeaway is that any gift of art is something to be fully considered with your valuation ducks in a row. Remember: there’s nothing an expert likes better than disagreeing with another expert - and the IRS keeps them on staff.

Reference: Forbes (February 6, 2013) “Is Art Advisory Panel Giving Taxpayers A Fair Shake?”

For more information, see www.jerryreiflawyer.com

 

The New Wealthy Show Their Tax Savvy

In case you missed it, there is something of a renewed technology boom underway. While the stars (read: Mark Zuckerberg, et al) of this boom seem to be ever younger, they are demonstrating some old-soul savvy when it comes to planning and structuring their current tax minimization and wealth transfer maximization. In a sense, planning for and about wealth is always also planning about the future; that’s an important point even for those who already are “wealthy.” To glean some lessons from the rising technology stars, tap into a recent list of steps you can take, featured in a Forbes article aptly titled You Don't Have To Be A Billionaire To Plan Like One. I recommend clicking over to the original article, but the main takeaway is that classical “personal finance” is working hand in hand with classical “estate planning” in so many of these steps and “tricks.

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Reference: Forbes (April 3, 2011) “You Don't Have To Be A Billionaire To Plan Like One”

Study Shows Inherited Wealth Is Squandered

A new and unfortunate statistic confirms what we all intuitively suspected. According to research out of The Williams Group, 70% of all wealth transfers fail. As reported by Forbes here, the failure is not that the money doesn’t get passed down; it is that the family inheritance quickly dissolves in a flash of poor planning, bickering, and waste. How can that be? The research found that the successful 30% had all actively engaged in transition planning, in addition to simple inheritance planning. In a very real sense, all proper estate planning is about both planning for the inheritance and planning for the inheritors. After all, the inheritors are why you want to pass on your assets in the first place. Naturally, then, transition planning is all about bringing the inheritors into the fold and allowing them to learn how to run it. If you have a family business, then this is of the utmost importance. Why? Because for it to remain a “family business” the family has to know about the business, how to run it, and how to think about it. To be successful, hands-on training is required. But then again, aside from a family business asset, there is still a great deal of work to be done to help inheritors properly understand wealth and investments. Likewise, hands-on training in the family wealth, perhaps beginning in philanthropy, can make all the difference. In the end, to overcome the odds against the successful transfer of your family wealth, work together to form a plan, to understand it, and to put it into action.

Reference: Forbes (December 9, 2011) “Wealth Transfers: How To Reverse the 70% Failure Rate”