When it comes to estate planning, high-net-worth individuals naturally think about their assets — physical capital such as real estate, financial wealth, etc. But there are other assets to consider as well.
“There are questions, when it comes to transferring wealth, that are tough to answer,” says Jim Altman, Middle Market Pennsylvania Regional Executive at Huntington Bank. “They are questions focused on helping families get to the core issues surrounding their personal values and the legacy they wish to leave.”
Financial legacy is just one part of the equation. There are different capital structures families should consider, such as social, human and intellectual capital.
“The right wealth management team will ask questions designed to get high-net-worth individuals thinking about the role and purpose of wealth in their family and how it can be used to help them flourish.”
Smart Business spoke with Altman about legacy planning and what families should consider well ahead of a wealth transfer.
When should the conversation about legacy planning begin, and who should it include?
It’s really never too early to start the conversation around legacy planning. It’s a conversation between spouses and typically includes adult children. Those conversations are facilitated by a team of advisers — a wealth adviser, estate planning attorney, accountant — and a designated professional to quarterback the team to ensure whatever is decided gets accomplished.
The process tends to begin by talking about the financial plan, which should lead to an understanding and documentation of the family’s financial and nonfinancial goals — the latter being what the family hopes it can accomplish in later generations. That, then, leads to a discussion about transferring assets. This could include the charitable giving strategy, which requires the creation of a plan to fulfill those charitable goals.
Whatever is decided ultimately needs to be written out in a plan so that it can legally affect the family’s estate plan.
What do families tend to overlook when considering their legacy plan?
Families sometimes created a plan when their net worth was much lower than it is currently. Their situation has completely changed, but yet their plan has not. Typically that’s because the person has pushed off making changes because they’re busy and estate planning seems like a problem to deal with in the future. Working with a team can help address this because then someone can follow up — usually annually — to ensure the plan is still up to date.
It’s also important to ensure all the professional advisers on the team are on the same page. If they’re not collaborating, important aspects of the plan can be missed — tax savings, investment opportunities, transfer strategies that enable a family to avoid paying wealth transfer taxes.
Further, not coordinating the business succession plan with the estate plan can lead to significant problems down the road. It’s not enough to tell people involved with the business who will succeed the current ownership when the time comes. It has to be documented — who should take over, how the asset passes to family (if at all) — for it to be legally binding.
What should someone look for in a legacy planning team?
A good place to start when putting together the legacy planning team are trusted family members and friends, especially those who are similarly situated — a personal or professional referral is important.
All the members of the team should be technically competent and each should have the right credentials. For example, the wealth adviser should have a CFP designation, meaning the person is obligated to be objective and put the interests of the client ahead of his or her own.
It’s also important to relate to the people on the team. A warm rapport is significant because legacy planning happens over a long period of time. And over that time, private and personal discussions will be had on sensitive topics, so the interpersonal dynamics of the group are significant.
Legacy planning involves thinking beyond financial capital. It means considering the legacy the family wants to leave and all they want to be remembered for. That’s why starting early, and with the right team, is critically important to the plan’s success.
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