The ultra-wealthy are defined as families with a net worth of US $30 million or more. A large percentage of them are thinking about ensuring the hundred-year family. This means they are structuring their wealth so that their grandchildren have a financially secure life.
Usually, families with a greater net worth are thinking dynastically. The reason for this is pretty simple…it is an option. It is their choice. “In working with very wealthy families, the topic of expanding their fortunes to benefit their great-great-grandchildren regularly comes up,” says Cliff Oberlin, chairman and CEO of Oberlin Wealth Partners and co-author of Family Fortunes: How Family Enterprises Thrive Across Generations, “A significant part of these conversations is how to ensure there will be enough monies for the later generations. Inflation, possibly erratic markets, and certainly a growing extended family can eat up a fortune. What’s therefore happening is that these wealthy families are looking for ways to make sure the buying power the family has today is maintained.”
There are two complementary ways to financially build a family dynasty. They are investment performance and tax mitigation. According to Peter Sasaki, managing member and Family Office expert at Odeon Capital Advisors and co-author of Maximizing Your Single-Family Office: Leveraging the Power of Outsourcing and Stress Testing, and co-author of Maximizing Your Single-Family Office: Leveraging the Power of Outsourcing and Stress Testing, “With all our investment clients, we customize their portfolios to meet their unique needs. This is certainly the case when we structure investment portfolios for families intent on building dynastic wealth. These families have a longer time horizon which enables us to provide them with investment possibilities that are generally not commonly available.”
Very often there is a strong need to mitigate taxes presently and across the generations. For many of the extremely wealthy, transfer taxes can be a major stumbling block to maintaining a family dynasty. According to Frank D. Paolini, partner of the Neal, Gerber & Eisenberg, LLP law firm and member of the firm’s Private Wealth Services Group, “All wealthy families are interested in legally paying fewer taxes. When it comes to the very wealthy who are interested in family dynasties, my job is to use all the tools available and use them creatively to insulate the family fortune from tax authorities. The good news is that for these families there are many ways we can address their tax concerns.”
The integration of investing and tax mitigation can play a major role in helping build the finances of a family dynasty. “We use a number of strategies and financial products that combine sophisticated investment management with leading-edge tax strategies,” says Oberlin, “Private placement life insurance is sometimes appropriate and the way we use the product is part of a well-developed multi-generational financial plan. We see this as very important because we’re not pitching private placement life insurance as it’s really a tool that periodically has a role in sophisticated tax planning.”
This trend among the ultra-wealthy taking steps to establish family dynasties is likely to accelerate. “More than ever, we’re seeing a growing number of ultra-wealthy families are thinking further down their generational line,” says Vince Annable, CEO and founder of VFO Advisory Group and co-author of Your High-Performing Virtual Family Office: Maximizing Your Financial and Personal Lives, author of The Household Endowment Model: Wealth Planning for Affluent Families, “It’s leading to many ultra-wealthy families looking for professionals who can help them structure their finances so that future generations benefit from their efforts. Unfortunately, we’re seeing many ultra-wealthy families getting into trouble because of the advice they were given.”
As with most any trend in the private wealth industry, once the trend is recognized a lot of less than capable professionals jump on the bandwagon. For ultra-wealthy families aiming to create a family dynasty, the most important decision is selecting professionals to help them.
According to Justin Breen, the driving force behind the exclusive BrEpic Network and co-author of Superior Results: Maximizing the Value of Your High-Performing Family Office Just Like the Super-Rich, “By being involved and assertive, family members can much better ensure they are working with consult professionals who have the expertise and integrity to deliver bespoke solutions that can benefit their great-great-grandchildren.”
Russ Alan Prince is the executive director of Private Wealth magazine and chief content officer for High-Net-Worth Genius. He consults with family offices, the wealthy, fast-tracking entrepreneurs, and select professionals.
