“In a survey of 403 ultra-wealthy family enterprises, about three out of five participants are interested in creating a family dynasty,” says Cliff Oberlin, chairman and CEO of Oberlin Wealth Partners and co-author of Family Fortunes: How Family Enterprises Thrive Across Generations, “By a family dynasty we mean a cohesive economic entity where the perpetuation of family wealth, values, and objectives lasts for five or more generations. To be clear, it’s not only the wealth of the family that has to be maintained or grown over the generations but the values of the family must be maintained.”
Because of these shared moral standards and objectives, there is a solid ongoing commitment to the ultra-wealthy family. “For a family dynasty to exist, each generation must transfer the family wealth in one form or another to subsequent generations as well as their core belief systems. Very often having a well-formulated succession plan is therefore essential to achieve both the aims,” says Vince Annable, CEO, and Founder of VFO Advisory Group and author of The Household Endowment Model: Wealth Planning for Affluent Families.
These kinds of succession plans have two interrelated components. One component involves transferring the family wealth across the generations with tax mitigation a major objective. The other component centers on preparing inheritors to take control of the family wealth. Embedded in “taking control” is passing down the core values of the previous generation.
Transferring Wealth
As families grow the value of the assets they control has to also increase to maintain buying power. This is a greater issue as the number of family members multiplies and there are more branches in the family tree.
For ultra-wealthy families wanting to establish family dynasties, it is commonly necessary to mitigate or eliminate all inheritance taxes. “To get optimal results for families, we’re finding it necessary to creatively use these strategies and structures to where we’re often engaged in developing truly customized solutions. This is becoming increasingly necessary, both to attend to the unique needs of each client’s circumstances and to address the ever-changing tax and legal landscape they are confronted with,” says Jeb Burton, the Managing Principal of The Burton Law Firm.
At the same time, the family monies usually need to grow. As Anthony Glomski, Principal and Founder of AG Asset Advisory Family Office and author of Liquidity and You: A Personal Guide for Tech and Business Entrepreneurs Approaching an Exit explains, “In working with wealthy families thinking about generations into the future, steps have to be taken to make certain there are the appropriate—as they define appropriate—financial resources available to their great-great-grandchildren. Unless the family is astoundingly wealthy, a well-crafted investment approach is usually required. In conjunction with this investment approach, we find that addressing the tax implications is essential. One of the more common ways to make the investments deliver more is by eliminating taxes.”
One approach to creating dynastic investment wealth is to use private placement life insurance (PPLI). “PPLI coupled with state-of-the-art wealth planning, for some wealthy families, can create considerably greater wealth for family over generations than when they started down this road,” explains Frank Seneco, President of the advanced life insurance planning boutique, Seneco Global Advisors. “There are several versions of PPLI and it’s critical to match up the version with the long-term goals of the family. Very often being able to transfer the PPLI policy between generations results in continuous tax-deferred growth while the ability to take monies from the policy remains.”
Transferring Values
While going and moving the family’s wealth down the generations is critical, so is making sure that the core values of the family are also transferred to great-grandchildren and great-great-grandchildren. “When we work with ultra-wealthy families that are looking at future generations, we are not only addressing the wealth transfer side but we’re also helping them deal with transferring values,” says Homer Smith, Executive Director of the Integrated Family Office Practice and Founder of Konvergent Wealth Partners. “As part of our virtual family office, we’re able to bring in and oversee experts that can deal with matters of family governance as well as helping educate heirs on numerous topics from philanthropic giving to smartly working with advisors.”
There are multiple tools available to wealthy families to substantially increase the probability that core values will indeed be part of future generations. “Family foundations prove to be very effective in helping successful families not only wisely give to charities, but also bring families together to clarify and commit to their goals and focus their efforts and resources on what matters to them,” says Hannah Shaw Grove, Chief Marketing Officer at Foundation Source and co-author of The Family Office: Advising the Financial Elite. “In this way, philanthropy serves several purposes and helps ensure future generations will continue to work together to effect change in the ways that are most important to them.”
Three Criteria Of Advisors Effectively Helping Ultra-Wealthy Families Establish Family Dynasties
Advisors wanting to help the ultra-wealthy establish family dynasties need to meet three criteria. One criterion is that they must be technical experts. The advisors must know the big picture such as all the ways to help the ultra-wealthy family transfer their wealth tax-efficiently and transfer core family values. Moreover, the advisor must be exceedingly proficient when it comes to his or her specialization.
A second criterion is the need to be part of a cohesive team. Since no one advisor is capable of being technically expert in all the different services required, he or she must be part of a cohesive team of leading professionals whose expertise can be accessed when appropriate.
The advisor and the members of his or her cohesive team must not only technically adept but—just as importantly—they must be finely attuned to the psychology of the family. This is the third criterion. “Aside from knowing what to do such as what trusts to use and being able to implement well, to be instrumental in helping establish a family dynasty, advisors need to have a deep understanding of the hopes and dreams as well as the concerns and trepidations of key family members,” says PJ DiNuzzo, Founder and President of DiNuzzio Middle-Market Family Office and author of The DiNuzzo Middle-Market Family Office”™ Breakthrough: Creating Strategic Tax, Risk Cash-Flow and Lifestyle Options for Successful Privately-Held Business and Affluent Families. “Only then can advisors craft a multi-generational strategy that has a very good chance of producing a family dynasty.”
Russ Alan Prince is the executive director of Private Wealth magazine and one of the leading authorities in the private wealth industry. He consults with family offices, the wealthy, fast-tracking entrepreneurs, and select professionals. Connect with him on LinkedIn.com.
