Multigenerational Management Across Business and Personal Finances
Jack’s complex business, coupled with Jack and Dianne’s family structure, required coordination across all specialties. And that’s where Napier Financial comes in to save the day!
The Background
While surrounded by many financial professionals for decades, Jack and Dianne felt that something was missing. Read More…
Jack is a second-generation business owner, age 70. Jack was married once before and has two children from that previous marriage and two more with Dianne. He and his ex-spouse have a decent relationship, but all financial ties have been severed. Jack’s business has boomed over the past decade, with 7 locations plus ownership of the real estate for all locations. Jack has been surrounded by a good law and CPA firm for his entire professional life and has many sophisticated trusts and entity structures in place for a myriad of reasons such as asset protection, estate planning and business succession. Jack would sell the business but would like to give his two children working in the business a chance to succeed him. Jack also wanted to equalize their combined estate so that all 4 children would receive substantially equal shares of their wealth.
Dianne is age 62 and retired after a 35-year career as a teacher. She is the proud mother of two and very supportive of her entrepreneurial spouse and all it takes to run the business entities. Dianne could have worked longer, as she loved her time in the classroom. However, a diagnosis of Multiple Sclerosis caused her to realize that her freedom may become limited in short order and began to focus her time on the things she loved most; her grandchildren, reading, golf and the Garden Club.
The family tree is complex. Two grown children from a previous marriage, each with two children. Two children from their current marriage, with one gadult child having two children and the other unmarried with a same sex partner and no children. There are six grandchildren in total.
One of Jack’s sons from his prior marriage has a significant position in the company and Jack and Dianne’s daughter also having a significant role in the business. The other two children are not involved in the business. The company also has a non-family member President who had no ownership interest at the time of our engagement commencement.
While Jack loves his company, the people that work for it and the role he plays, he also realized that nothing lasts forever, and he wanted to spend more time with Dianne and the grandchildren while she is healthy enough to enjoy the activities they love.
The Process
It all started with finding out how Jack and Dianne wanted to spend their 168 hours per week. From there, we got a clear view of their vision for a happy life and what was most important to them. Read More…
It all started with finding out how Jack and Dianne wanted to spend their 168 hours per week. From there, we got a clear view of their vision for a happy life and what was most important to them. The answer: family, more time with family and making sure that death taxes and sloppy planning don’t ruin what could be an enduring intergenerational wealth plan.
We then dove into a detailed review of all their legal agreements, corporate documents, tax returns and financial assets.
For brevity purposes, below is a summary of some of the tactics that we designed and implemented to meet the family’s objectives:
Obtaining a third party to evaluate the business interests and real estate.
Immediate usage of the federal death tax exclusion by making current gifts of valuable illiquid assets (primarily the real estate leased to the business) removing $30+ million from their taxable estate. We were able to take advantage of the discounting techniques allowed by tax courts for minority discounts and lack of control to leverage these gifts.
Revise the estate plan to equalize their estate amongst the four children.
Freeze the value of the business interests for tax purposes by entering into an installment sale of 75% of the business to his two children and his non-family President leaving Jack with 25% and a salary as Chairman of the Board.
Making sure that annual gifts are made to their children and grandchildren to further reduce any future death taxes.
Funding 529 Accounts for all 6 grandchildren.
Providing pro-active income tax planning for the business, its former owner, and the current owners.
Creating a cash flow stream that will pay for their desired lifestyle forever with little to no risk.
Evaluate life insurance strategies proffered by his agent to further reduce the potential death tax burden. Jack and Dianne elected to pass on the insurance plan and continue to maximize their gifts to family and charities.
Design a corporate infrastructure with job descriptions, shareholder and succession agreements for the owner/operators, and a bonus plan for the 3 new owners of the business.
Implement a plan for Jack and Dianne to re-structure their balance sheet from 90% business interests to 15% business interests over a 7-year period.
Diversify their net worth from 90% business to a more diversified net worth with new asset classes acquired.
While all the financial professionals that they worked with through the years were fully competent, Jack and Dianne just didn’t realize the impact of the disjointed management. Each professional was careful to remain focused on their respective specialty, so no one was really viewing the whole picture. Now that they have a “head coach” overseeing the strategy of all business and personal financial deals and decisions, tax planning can be much more proactive and effective.
This page presents hypothetical scenarios intended for illustrative purposes only. These scenarios illustrate Napier Financial’s process and methodology, but all individuals mentioned are fictional and do not represent an actual client or an actual client’s experience. An individual’s experience may vary based on his or her circumstances. The information contained herein should not be construed as personal investment advice, legal advice, or tax advice, and the reader is urged to discuss their individual situation in a one-on-one setting with a qualified professional.
