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AMBRECHT & BRITTAIN, LLPRedefining the Estate Planning ProcessBy John W. Ambrecht |
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This paper discusses a more sophisticated, "holistic" approach to estate planning and shows how this approach can substantially increase the likelihood that a family farm, ranch and/or business can successfully pass to succeeding generations. Redefining the estate planning process is a very important step in the successful multi-generation succession of our local farms and ranches. I believe that the concept of estate planning for the family ranch, farm and/or business in and of itself is too narrowly defined. Estate planning as generally used by the legal and financial planners generally means purely taking the steps necessary to organize the family assets so that death taxes are minimized and/or maximum capital appreciation is achieved. Unfortunately, this narrowly construed definition may be one of the main reasons statistics show that only 34% of family businesses are successful in transferring business assets from the first to the second generation and only 14% are successful from the second to the third generation. Surveys show that death taxes play only a small part as one of the reasons for these rather startling statistics. What are the other reasons? There are many reasons, other than death taxes, why the typical estate planning approach leads to the dismal rate of successful multi-generation succession. Simply stated, the failure of the senior generation and/or his or her advisors to appreciate the other rather complex reasons for successful succession is no doubt a major cause of the multi-generation succession failure rates. For example, the failure to teach succeeding generations how to communicate in a business setting often leads to the break down of the simple business debate (which is an important way to make considered business decisions). This break down turns into personal hurts which lead to further break down in communications ultimately preventing the family from working together to build a constructive plan that will save estate taxes and avoid lengthy family litigation. In my practice, I have frequently run into this particular problem. How does one approach estate planning properly and avoid the family communication break down? By defining the family's estate planning as a process rather then a singular event. How does one help define this process with the family (particularly if communication or cut-offs already exist in a family)? Generally and depending on the complexity of the situation, one may utilize a person skilled in family systems, in asset protection concepts and who is also knowledgeable in the more sophisticated side of estate planning to help solve their multi-generation succession family problems. Also, if the family's communication problems are rather serious, a team approach to an effective family estate planning process may be needed with professionals who possess greater depth in these particular areas. The key – the earlier the senior generation and/or other family members realize that there are accessible and workable solutions to complex family estate planning problems, the easier it is to help the family resolve these problems and have a successful multi-generation succession plan in place. Another aspect of the comprehensive holistic approach to estate planning is showing these families how they can protect their assets from future potential liabilities or creditors. As our society progresses, the chances that a family member will be sued is increasing at an alarming rate. To help protect the family and their [inherited] assets, the first step is to communicate this information to these families by informing them that multi-generational succession solutions are accessible and available, if taken advantage of in time. For example, various trusts can be established to pass assets to the next generation which will help protect those assets from creditors of the trust beneficiaries yet give the beneficiaries management and control over the trust assets. (These types of trusts can also be designed to help minimize the chances for conflict within the family ranch, farm and/or business.) Another solution to potential creditor risks that has proven to be very helpful to owners of assets where previous generations have not had the foresight to utilize the above defined types of trusts and where insurance may not be adequate, is the use of offshore trusts in jurisdictions that have laws that are designed to actually protects assets of the Settlors/beneficiaries. For example, the Cook Islands have laws that are specifically designed for U.S. citizens to specifically help protect the U.S. person's assets. In my experience, the concerns voiced by U.S. persons about the safety of their assets in an offshore jurisdictions have been easily answered, all to the satisfaction of even the most skeptical rancher, farmer and/or business person especially after them seeing how this sophisticated holistic estate planning approach is designed and implemented. © 2001 John W. Ambrecht. All rights reserved.
The contents of this publication are for information purposes only and are not meant nor should be construed to be legal advice. Note, also, the date of the document. Laws are constantly changing, and are subject to differing interpretations. We, therefore, urge you to do additional research or to contact your own legal or tax counsel before acting on the information contained herein. |