Entrusted: Building A Legacy That Lasts explains why the model for estate planning today (dump, divide, defer, and dissipate) is fundamentally flawed, especially for higher net worth individuals and families, and how it can be fixed. (Location 43)
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that it’s really just a tool that can be used for good or bad. (Location 747)
When you don’t face potential consequences, it’s extremely difficult to succeed at something. (Location 781)
It’s critical that children be allowed to select their own paths to success. Entrusted families set their children free to decide which path they’re going to take in order to accomplish their goals and they help them along the way. (Location 797)
To do otherwise is to attempt to exercise control and engineer an outcome rather than let the children choose where they individually find satisfaction. (Location 809)
Before you can identify how to maximize the benefit of inherited wealth, you first must ensure that you’re able to meet your three primary financial responsibilities, which should be addressed in the following order of priority, or hierarchy: (Location 896)
In other words, it should be the same in your life as it is if you were to die. (Location 901)
successive generations, when given sufficient opportunity and means, can and will achieve on their own. (Location 993)
but to also appreciate the effort it must have taken to create such a roaring fire. (Location 995)
That said, flint might also include nontraditional education such as work experience, internships, athletics, artistic development, and even travel. (Location 1000)
Perhaps they’re geared more toward experiential learning, volunteer service, an apprenticeship, or to the military. (Location 1010)
Even something as valuable as education can be degraded and even wasted. (Location 1016)
Kindling is a small starter, a little bit of savings that can be leveraged into something else, something greater. Kindling is never intended to do anything other than to precede something greater. It’s a jumping-off point. (Location 1024)
which the father could have afforded to do, he got a professional valuation and sold the business to his son at fair market value on an installment basis over time. (Location 1040)
Many second- and third-generation businesses fail not simply because those generations are ill-equipped, but because they’re uninspired. (Location 1053)
How many of us have bought something only because it was on sale and then have never worn or used the item? (Location 1055)
Very often in family-owned businesses, one or more children will show a greater interest in taking over the business than other children, who may be more artistically inclined. (Location 1061)
Many of our clients, for example, establish a family-investment limited liability company (a family LLC). (Location 1070)
The parent can, as necessary, loan additional funds at low or no interest so the family LLC has sufficient funds and resources. The parent and child then (Location 1072)
An Entrusted Planning approach instead focuses on passing flint and kindling, accomplishing several important things at the same time. First, Entrusted Planning is a mineshaft approach. (Location 1086)
Matching donations: Several families we work with have also established a charitable donation-matching program, in which the parents will match charitable contributions by their children up to a certain amount. (Location 1282)
Just as water, wind, and gravity work to erode natural monuments, three forces work to erode financial wealth over multiple generations: 1. The division of assets among the generations 2. Transfer taxes and capital gains taxes 3. Business risks and third-party attacks Studies have shown that as a (Location 1370)
Historically, wealth was maintained and concentrated for the collective benefit of the family as a whole typically, in the western world, in the form of land and titles. (Location 1378)
Instead of owning a part of the family farm or business, now the next generation could simply sell illiquid assets (if any) and divide the liquid and marketable assets among the next generation. (Location 1380)
The most effective asset protection simply involves a variety of planning techniques designed to place certain assets outside of the reach of potential future, unknown creditors. (Location 1423)
Property and Casualty Insurance is always the first and most important asset protection tool, but some situations aren’t covered by insurance or the situation involves risk beyond the coverage limits of the particular policy. (Location 1426)
Domestic asset protection trusts (DAPTs) are trusts established in certain jurisdictions to provide unique benefits not previously found in trusts established in the United States. (Location 1456)
The transition from monarchical rule by a king or queen to self-government “of the people, by the people, and for the people”2 was certainly not an easy one. (Location 1559)
They also realized that whatever they established had to be flexible and amendable over time. None (Location 1562)
Specifically, if a family wants to implement the disciplines outlined in this book for multiple generations, they must develop, cultivate, and perpetuate an organized family structure that captures, manages, and stewards both the family’s human capital and financial resources. (Location 1569)
Any plan that involves more than merely dividing up assets and distributing them outright requires a system and process for effective governance. (Location 1578)
Dynamic governance is characterized by energy and effective action. It is a force that motivates, affects development, and creates stability. (Location 1584)
Family governance should look the same. Too often, the passing of the baton of financial control occurs at the attorney’s office after the death of parents—much too late for proper mentoring or guidance. (Location 1593)
Up to this point, we’ve talked about capturing the family’s human capital, preparing descendants by providing flint (education and experience) and kindling (resources and opportunities), fostering and encouraging generosity, and preserving and protecting financial resources. Once you’ve addressed those issues, the last and potentially most important question becomes how to effectively manage and operate this new family enterprise now and into the future. (Location 1600)
In the prior chapter, we outlined the three-legged stool of a trust. Trustees manage the asset and make distributions from the trust to beneficiaries pursuant to the terms of the trust determined by the settlors. One of the key elements of a trust is that it can be the owner of the assets, so even as control changes over time, the ownership can stay the same. Trusts have been around for more than 800 years and have been used by countless families to hold and manage assets for beneficiaries. (Location 1608)
A trust protector is a person, group of people, or entity granted certain specific but limited rights to allow for greater accountability and flexibility. (Location 1619)
Decanting is the term generally used to describe the distribution of trust property from one trust to another trust pursuant to the trustee’s discretionary authority to make distributions to, or for the benefit of, one or more beneficiaries. (Location 1627)
Directed trusts are trusts in which some or all of the duties or responsibilities of a trustee are directed by one or more individuals or groups. (Location 1638)
Directed trusts allow the settlors to continue to participate in some duties and responsibilities (like investment and management decisions) while removing them from the ability to make distribution or other decisions that might otherwise eliminate some or all of the asset protection and tax benefits typically associated with a trust. (Location 1640)
Four general options of the who exist: family counsels, family trustees and professional trustees working together, corporate trustees, and hybrids. These structures can operate either within a traditional structure (that is, where a board of trustees is appointed to oversee all of the trust operations) or in a directed trust structure (that is, where the role of trustee is divided into different components). (Location 1664)
If there are three children, for example, the three children would serve together and upon the death or resignation of a child, his or her descendants would collectively vote to select a replacement so that there are always three trustees managing the assets for multiple generations pursuant to the terms of the trust. (Location 1669)
To counteract some of the issues of children serving alone, a board of trustees similar to a board of directors in a corporation could be structured to consist equally of both family trustees and professional trustees working together. (Location 1679)
As a practical matter, the children would have to reach a consensus and convince at least one of the professionals of the prudence of the proposed action. It would also work in the reverse. Namely, if the professionals agree, they would still need to convince at least one of the children to vote with them. (Location 1686)
offers several unique advantages over the direct appointment of family members as trustees. First, PTCs offer limited liability for trustees because the PTC acts as the trustee and officers and directors of PTCs are subject to lower fiduciary duty standards than trustees of trusts and are more easily indemnified for their actions. (Location 1708)
Second, the business models of PTCs are more flexible than irrevocable instruments like trusts and can more easily adapt to changes. (Location 1712)
This allows for more coordinated management of a family’s holdings, especially on a multigenerational basis. PTCs can hold and manage the assets of multiple trusts (or sub trusts) and reduce costs or fees by collectively reaching higher breakpoints. A PTC can also be organized with a perpetual existence and can remain as trustee for the lifetime of the trust(s). (Location 1717)
Whether as part of a PTC or as a separate entity, many high-net-worth families elect to establish a family office to act as the operational nerve center of the family. Family (Location 1727)
In addition, governance should result in collaboration and not coercion. As mentioned at the beginning of the chapter, one of the hallmarks of the Declaration of Independence is that individuals should have the inherent right to pursue their own version of happiness. (Location 1780)
it’s critical that you not seek to use financial resources to force descendants to engage with the family or its businesses. Allow family members to participate and be involved on such terms and conditions as they wish. (Location 1783)
One of the nastiest estate fights we’ve been involved in was a direct result of irrational emotions among family members taking priority over the health of the family. (Location 1789)