Ray Essex, president of Executone of Columbus Inc., was ready to set about the task of personal estate planning.
Once he sat down with Ralph Antolino Jr., president of Antolino & Associates, a financial services firm, he realized the issue was more complicated.
The business he leads, a distributor for Executone health care and telecommunication systems, was founded 37 years ago by his parents, Charles and Helen Essex. They are chairman of the board and corporate secretary, respectively, and majority owners. The younger Essex and his sister, Susan, operate the business and are minority owners.
As Ray Essex reviewed his balance sheet, it became more and more apparent that a substantial portion of his future assets were tied to the business and his parents ownership.
What would happen if his parents passed away? Hed be faced with estate taxes and possibly liquidity problems.
If the asset is the business, how do you suddenly pry estate taxes out of it without putting yourself in a jam? Essex was asking. He realized the tax liability could be crippling for him, his sister and the business.
He brought his parents into the planning process, and Antolino showed them how to rearrange their finances so the elder Essexes could not only ensure stability for themselves, their children and their business, but give back to the community as well.
Antolino explains that many business owners make an assumption that the government, through estate taxes, will take more than half of their wealth after they pass on.
Thats the default option, he says. Most people dont realize they actually have a choice. They can give that money to a specific cause.
The laws, Antolino says, have not been communicated to business owners in a way that allows them to understand their options.
When they fill out their estate tax form 760, theres no box to check that says, Instead of this money going to the government, send it to my church. The bottom line is the result is practically that simple, Antolino says.
He calls his services family wealth counseling, and he co-authored Getting to the Heart of the Matter, a recently published book on the process.
His first step is to work with business owners like the Essexes to make sure they understand that theyve got options they might not have explored. Then he works with them on a family mission statement, or a plan of their goals in life, both business and personal.
As the company grew larger and more viable, we searched for a way to pass the company on with minimal inheritance tax, Charles Essex explains.
They not only wanted to make sure the $3.5 million company and its 34 employees would continue to be successful, they wanted to take care of their children, as well. He and his wife also planned to leave money to charity.
Devising a plan
Antolino then works with clients to determine whether his firm can help them reach their goals. He calls this the feasibility stage.
What were trying to do is take people from financial success to personal significance, he says. We want to help successful business owners see how their wealth fits into their life.
Here, he says, is where charitable giving enters the picture.
When you look beyond yourself and help other people solve their problems, thats when most of us are happiest, Antolino says. If were just looking at our feet and worrying about ourselves, most of us are miserable.
Beyond that point, he works with the business owners existing advisers to use a team approach on how to reach their goals and implement a plan.
For the Essex family, Antolino suggested a charitable remainder trust to be funded by shares of stock in which the parents had invested and gained considerable appreciation in value. When the second of the Essex parents dies, the money in the trust will go to the Columbus Foundation.
The trust annually pays the Essexes a percentage of its value.
Part of that income we are using to pay the premium on a second-to-die life insurance on our lives, with the children the beneficiary. This will help them pay their inheritance tax, Charles Essex explains.
This helps in that they have already donated a substantial part of other assets of their estate and this will help shelter the remaining part of the estate, falling inside the exemption amounts this way, Ray Essex says. Its just one less worry.
The insurance policy, Antolino notes, is tax free.
Antolino explains that every familys situation is different. The charitable giving option works nicely with people who have highly appreciated assets and a wealth of more than $2 to $3 million.
Planning early provides the benefit of time, allowing the investments to increase.
The heirs get more than under the old strategy, he says, comparing the option to simply paying the estate taxes. The charity gets more than the IRS would have, and if its done right, the donors will have more money to enjoy over their lifetime.
Making the commitment
Charles Essex says the concept was not foreign to him.
We work very closely with our attorneys and our CPA, so it wasnt any real news to us, except we never had this put this way to us, he says.
Going through the family wealth counseling process, he says, simply gave the family more information.
The more information youve got, he says, the better decision you can make.
Antolino says he wont work with a family unless he reaches the feasibility stage and determines they will be able to get a return on their investment in working with him.
If we cant increase after-tax income more than any fee we charge, we stop, he says, noting that the typical investment is between $5,000 and $10,000.
Business owners, however, also must commit time to the process.
Typically, people who really buy into this tend to be people who are successful enough to have a little extra time. Theyre not so focused on building the business; they also want to see beyond that, he says.
The entire planning process could take three to six months, and then theres time needed to implement the plan in ways such as making financial investments, changing investments or altering legal entities. A business owner can expect to commit a weeks time over the course of a year to the process.
Antolino says the reason the process works is that it focuses not only on the financial aspect of wealth but on the emotional and social aspects.
It doesnt get people fired up when you just look at the numbers, he says.
He, in fact, invested in a counseling education to add to his law and financial background.
I realized wealthy people have problems just like people who dont have wealth. A lot of them are emotional issues. We found at the end of the day, this is probably the most important piece, Antolino says. If people dont feel good about something, if it doesnt sit well in their stomach, it doesnt matter how well the math adds up theyre not going to do it.
Antolino sees an even bigger picture in giving executives the option of supporting philanthropy rather than paying straight taxes.
I think its a good time to revitalize our country, he says, referring to famed Ohio State University football coach Woody Hayes theory of giving back to the community.
A lot of people with $10 million never thought about giving $1 million away, Antolino says. But Ted Turner didnt give a $1 billion gift without this type of thinking. How to reach: Antolino & Associates, www.antolino.com, 442-3355
Joan Slattery Wall (firstname.lastname@example.org) is associate editor of SBN Columbus.