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Is your Continuity Planning “PAL” in Danger?

This past week on Tuesday, at Noon Eastern time, as I quite often do, I participated in the weekly teleconference of the Purposeful Planning Institute. https://purposefulplanninginstitute.com

I’ve been a member of PPI since 2014 and will be attending their annual Rendez-Vous in July in Denver for the fourth straight time. If I could only attend one event each year, this would easily be the one. http://purposefulplanninginstitute.com/rendezvous2017/

 

Planning Fatigue

This week’s call was about “planning fatigue” and dealt with ideas professional advisors could use to overcome situations in which client families don’t move forward on transition plans as expected, hoped, and required.

Because the entire process is long and complex, clients sometimes lose sight of why they are doing all this work and things can begin to slide, and sometimes never get completed as intended. This can be a huge issue, and PPI is the only organization I know of that actually talks openly about this kind of stuff.

Every Tuesday PPI holds a teleconference, with a host and an invited guest expert. This week’s featured Timothy J. Belber, PPI’s Dean of Fusion, with guest Kristin Keffeler. They’ve collaborated on client family files in the past, which was evident, as they gave plenty of real life examples of situations they faced together.

These PPI weekly calls are all recorded and archived, so even when members can’t make it live, we can always listen to the recording later.

 

Three Major Classes of Danger

While discussing the problems of not completing a family’s planning work, Belber mentioned the three major classes of dangers that exist when things are not carried out to the end.

“Hmmm”, my ears perked up, “I wonder what these three classes are!”

These three main danger areas, can actually serve as the three major headings that we should be thinking about at every step along the way: People, Assets, and Legacy.

 

Checklist?

I wrote them down, and immediately wondered if everything could all really be boiled down to those 3 simple elements. The fact that I am writing a blog about it should give you my answer.

In fact, as someone who thinks in lists of 3, I will now incorporate these into an easy-to-recall checklist, but not necessarily just while thinking of “dangers” per se, but as important elements to always keep in mind.

I expect them to become a good PAL of mine and I don’t like it when any PAL of mine is in danger.

 

People

This one should be front and center, but often isn’t. When we are working with a family to make decisions on “what to do” in an estate plan, tax plan, business plan, or more generally “continuity plan”, I always think about how every decision will affect the people.

(See: https://stevelegler.com/2015/04/12/successful-planning-who-should-be-involved)

Many professionals in this space are specialists in protecting the assets, and they do a great job, but sometimes the people are given secondary consideration (if any).

It should go without saying that when those people for whom we are making the plan are adults, it is wise to seek their input at some point. This is heresy to some, I know, but it is 2017, not 1977.

 

Assets

This element usually doesn’t get forgotten, mostly because it is the domain of so many professionals in the family’s sphere.

I won’t give this one too much space, save to remind you of one of my favourite expressions on this point.

“We spend too much time and effort preparing the assets for the heirs, and not nearly enough on preparing the heirs for the assets.

 

Legacy

This one is a bit trickier because it’s less tangible, but Belber also mentioned his way of thinking about this too, and I want to share it here as well.

He noted that your legacy is what others think, feel, and say about you.

If we try to tie a Legacy to People and Assets, exactly HOW you leave those Assets to those People should be pretty important, shouldn’t it?

If you worry too much about either the Assets or the People, at the expense of the other, your Legacy will surely suffer.

 

Conclusion

Maybe it should be People + Assets = Legacy?

Either way, I have a new PAL. He can be yours too.

 

  

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We Treat Them All Equally – (That’s Good, Right?)

We Treat Them All Equally – (That’s Good, Right?)

Someone recently asked where I stand on whether or not parents should treat all their children equally. I definitely have some strong feelings on the subject, but before answering, I decided to check my 200-plus blogs to see what I had already written on the subject.

I was surprised and disappointed to note that I haven’t really treated this subject adequately in this space, so I decided to change that here and now.

 

For Simplicity’s Sake

Now I am NOT “anti-equality” by any means, and for simple and straightforward situations, it’s clearly the way to go.

However, most families I deal with are neither simple, nor straightforward, and on top of that the sheer size of their assets makes everything more complex.

While simplicity is good, when it’s possible, in complex situations, oversimplifying can cause unintended consequences. I daresay that many parents who blindly insist on equal treatment are just being lazy.

 

Ownership and Management

A major complicating factor that often arises in such families is the distinction between ownership of assets and their management. This is especially true where there is an operating business that constitutes the bulk of the family’s wealth.

The simplest illustration is a family with three children, only one of them working in the business, but ownership given to the three equally. The one managing the business will be in a difficult position, unless they have very understanding siblings (and in-laws!).

Running a business can be challenging enough without having to answer to co-owners whose knowledge about it, attachment to it, and efforts towards it do not match that of the person tasked with managing it.

 

Equitable Division

Rather than simply cutting the pie into equal pieces, I encourage families to shoot for an equitable solution. Synonyms for equitable include “fair”, “even-handed” and “egalitarian”.

You see, sometimes “equal” is not fair, when you look past the simplistic solution of just making everyone identical equal partners.

Parents who leave operating businesses to their children too often do not stop to think about the fact that they are forcing their kids to become business partners, and anyone who has ever had a business partner knows that a good partnership agreement is an absolute necessity. And even then…

Unfortunately, the idea that “Well, as partners, they will be forced to get along!” will backfire much more often than it will succeed, and is NOT a recommended strategy, ever. And it does still happen, unfortunately.

 

Transparency Versus Secrecy

Assuming you actually get the fact that a simple, equal division can often be sub-optimal, then what should you look to do instead?

The possibilities are as limitless as your imagination. But better still, how about including the stakeholders in a discussion and also benefitting from all their imaginations?

In fact, if all the siblings who’ll end up owning the assets together after their parents are gone are involved, and they knowingly agree to an equal split, after considering and discussing alternative scenarios, then equal actually is good.

If everything is decided in an open, fair, well-thought-out manner, with each person comfortable that they understand exactly what they are getting themselves into, then who can argue with that?

 

Worthwhile Discussions

Are these discussions quick and easy to have? Usually, NO.

Are they important and worthwhile to have? An unqualified YES.

Simplicity is good, but not if it is just the result of laziness and a lack of courage to have the discussions that are required.

Adult conversations between family members from different generations can be difficult, especially when so much is at stake. But what’s the alternative?

 

Keep Your Fingers Crossed

Many families have ended up deciding to ignore this type of advice, simply divided everything up equally, and let the chips fall where they may. “Well, that’ll be their problem, they’ll figure it out” is an interesting attitude.

If you really believe that they’ll “figure it out”, then you’re also probably the type who could have the necessary conversations, and you should.

If you say that, and are secretly keeping your fingers crossed that it’ll all work out, then you’re actually likely fooling yourself.

Good luck with that. Don’t say I didn’t warn you.

 

P.S.: What About Salaries?

If you’re paying all your kids the same salary, for vastly different job responsibilities, that’s a great place to start fixing things.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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Liquidity Events in a FamBiz: Pros and Cons (Part 2)

Part 2 of 2 – The Cons

 

Last week we looked at some of the positive aspects of a Family Business liquidity event, so now it’s time to look at the other side. Longtime readers may recall a 2014 blog, Solid Wealth Vs. Liquid Wealth, covering some of this territory.

Today we’ll look at career questions, owners who suddenly “expect” to get “their share”, the leaky bucket syndrome, and family alignment.

 

Career Questions

When a family owns a business, many family members often have jobs and careers that depend on the company. A liquidity event will usually affect that in a big way, and typicallly NOT positively.

Even in cases where only a small number of people depend on the business for their livelihood, those people will usually be intensely affected by the change. Yes, a few people will likely still be needed to manage the liquid assets and other company and family affairs, but their roles will change, and not just a little.

Then there is the question of skill match. You have people you want to give a job to, and you have stuff that needs to get done. Yes, THAT skill match. How will that look after a liquidity event? Does your VP of HR child have what it takes to manage your investments?

 

Can’t I Just Take “Mine”?

Last week I ended the blog with a laugh, directed at those who “own” a piece of a family company who would like to have the ability to liquidate their ownership.

This week, I will turn and laugh instead at the person who controls the liquid assets and wish them good luck in satisfying a contigent of co-owners, trying to keep them happy.

If you own 10% of DEFG Corp., that’s all well and good, but try spending it.

But what happens when DEFG is sold for $XX,000,000? It’s suddenly tempting to try to get your hands on the $X.X Million that is “yours”.

Note that I used quotation marks because it may not be as much “yours” as you hoped or thought. (See Putting the OWN in Ownership)

 

What Happened to It All?

The answer to the question about “taking mine” is almost always “NO”. And that’s followed by an explanation about why the family is planning on keeping all of the wealth together, and will manage it for the long-term benefit of the family, including current and future generations.

The fear that these families have, and it is a REAL fear, is illustrated in the image that I chose to accompany this post. Most people won’t come out and say this, so I will.

If you simply take the liquid wealth and divide it up among the family owners, many of them will simply urinate it away. Okay, so I used a different word, but I am sure you get it.

That fear is very often justified. Is there a component of control and “I know better what’s good for you than you do”? Yes, and as long as the one contolling it can pull that off, they will be alright with it. The wealth creator can usually do it, but for their kids, it’s not as easy or obvious.

 

Family Alignment

“It’s hard to keep a family united around a pile of money”

I wish I could remember where I first heard that spoken, because it has stuck with me. It was surely said by someone who was preaching the benefits of family philanthropy, because getting family members excited about working together for some common good is one of the chief benefits of the establishment of more and more family foundations.

The subject of Family Alignment is worthy of much more treatment than I can give it here, and for those interested, you’re in luck. Please check out my Quick Start Guide on the subject. Family Alignment: What it is, Why you need it, How to build it

 

Liquidity DO’s and DON’Ts

My preferred style is NOT to tell people what to think, but to make sure they don’t miss out on things that they should think about.

Whether or not to pursue selling a business, or entertain an offer for one, is very personal and depends on a whole variety of circumstances, and timing is often a huge variable.

Thinking through “what comes next” for you and your family should be done before you sign the official paperwork, not after.

 

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Liquidity Events in a FamBiz: Pros and Cons

Part 1 of 2 – The Pros

 

The expression “liquidity event” is not necessarily well understood among the general population. Let’s take a look at it from the Family Business point of view.

Essentially, a liquidity event takes place when the owners of a business, in this case a family, sell a substantial portion of their business (either shares OR assets) to an outside party, for cash or another form of asset that can more readily be turned into cash quickly.

Read more

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