Importance of legacy planning

‘He who fails to plan, is planning to fail’ – Churchill

When I started writing this post a while back, I was initially focused on the importance of legacy planning for ensuring the safe transition of one’s assets. It started to dawn on me, however, that my focus was all wrong.

I was referring initially to the safe keeping of one’s assets. This, however, misses the point. When one steps back to ponder the bigger picture, we won’t be there to care, so why worry about it?

So in thinking about legacy planning, and how to justify it, one must ask what will happen if one does NOT make a plan.

The reality is that money can be both a blessing and a curse.

Leave too much of it in the wrong hands and it will breed apathy, a sense of entitlement, a lack of contentedness and general unhappiness. All of which can create even greater issues, such as alcohol and drug abuse.

You may have worked your entire life and have potentially built a nice nest egg, or preserved and grown an asset from a prior generation, but there is no guarantee that future generations will do the same. Indeed, it’s well known that, unless there is proper legacy planning, the wealth will have been squandered by the third generation.

Legacy planning is more than simply protecting the asset.

It’s about structuring the asset and the process of transition, so that it adds value to future generations, potentially into perpetuity. The key term here is ‘adds value’. That it is to the benefit of future beneficiaries. Ideally also making them better human beings that are in turn able to share such benefits with others that are less financially resourced.

So what does a good legacy plan look like?

Well, before we go there, ask yourself the question ‘What would happen if I was hit by the proverbial bus today?’

• Is there a basic will in place to ensure that those close to you are taken care of?
• Will the beneficiaries have sufficient liquidity while the will goes through probate?
• Will they feel fairly treated and will the family be kept intact?
• Are the assets all clearly noted in the will or does your partner/lawyer know of them all?
• Will the transfer be tax effective?

And for larger estates:

• Is the asset (which could be a company) protected, or is there the potential that the asset be eventually broken up and squandered by future generations?
• Are the beneficiaries sufficiently educated and experienced to be able to manage the running of the asset.
• Will the beneficiaries utilize the asset for the good of themselves and others, or will it have destructive influences?

For larger estates, a trust is usually the best structure to use. They are not, however, recognized by all jurisdictions. The trust would ideally have a holding company below it, which would be staffed by seasoned and trusted advisors, that can in turn manage the corporate entities below that.

How you structure all of this is the detail one needs to go through with a trust company, to come up with the best solution.

One multi-billion family trust I know of, is structured to protect a large retail chain. Family members related to the founders can potentially work for the business, but it’s all done on strict commercial terms. None of them take equity out of the business, avoiding dilution of control.

Family members benefit from the fact that they are pretty much guaranteed a job interview at the company and can rise to senior management, if they have the ability. They also have an incredible community to be part of, and I would therefore imagine a sense of attachment to each other and the business overall.

What’s interesting for me is how well balanced and driven the family members are. The young adults I encountered from this family were all driven, polished, well-grounded young individuals. They were even applying for scholarships to university, rather than expecting their father, or the trust, to pay.

There was, as far as I could tell, zero sense of entitlement. If anything, I got the real sense of gratitude for what they had. While likely due largely to good parenting, this is also a reflection of excellent legacy planning.

It’s important that suitable professionals are brought in early in the process of planning. This relates not only to the structuring of the trust, but also its management.

Importantly, the trustees should not be related to a bank. Who would be there to ensure fees are kept as low as possible and the assets well managed? While the trust may be independent, using one that is related to a bank could create a conflict of interest. I would also advocate caution on some of the ‘universal life’ products that are pushed by many institutions. The ones I have looked appear costly and can restrict the client’s liquidity. I do know they generate substantial fees for the provider, so reader beware.

I advocate using professionals that have YOUR interests, and those of your beneficiary’s, at heart.

There are many professional trust companies and related professionals one can talk to. I would advocate spending the time and putting the effort in to ascertain the best way to plan one’s own legacy to ensure the best outcome.

We at MarcWhittaker have assisted a number of clients in this area and have a strong network of professionals in the field. If we can help don’t hesitate to reach out for an initial discussion.