By Douglas K. Freeman, J.D., LL.M — Executive Vice President, Director of Consulting
Lee Hausner, Ph.D — Senior Vice President, Family Enterprise
The vision of a successful life for most of us is to enjoy financial security and personal well-being. Financial security results from the economic freedom gained through the accumulation and preservation of wealth. Personal well-being reflects the quality of life for oneself as well as one’s family. A “life well lived” is the feeling one derives from the achievement of both of these aspirations.
To attain wealth and well-being requires the recognition and fulfillment of four personal responsibilities. Each responsibility requires focus, discipline, and commitment. Success will often depend on the insight, expertise, and counsel of friends, family and a talented team of advisors, mentors, and colleagues.
The four personal responsibilities are:
- Building financial independence through the accumulation, management, and preservation of wealth.
- Ensuring a healthy, caring, and competent family
- Implementing a thoughtful, effective and efficient transfer of wealth, and
- Sharing time, treasure and talent with others
Financial Independence Through the Accumulation, Management, and Preservation of Wealth
Financial independence is achieved through the careful and methodical accumulation, management, and preservation of wealth. The common thread of each of these themes is financial competency. You are responsible for:
Building wealth: Building wealth refers to increasing the income and financial assets of the wealth owner, whether that is to assure the long-term security of the individual, or to maximize the wealth that might ultimately pass to future generations or to contribute to philanthropy.
Managing wealth: Managing wealth focuses on the cash management aspect of wealth. It means that the wealth owner sets financial and lifestyle goals, which are consistent with and appropriate to the individual’s resources for both the short and long-term.
Protecting wealth: Protecting wealth focuses on avoiding, minimizing, or managing the various types of risk to that wealth, including the obvious ones – calamities (such as fire, accident, and health), personal and business creditors, and disgruntled or former spouses -- and the less obvious ones, such as income and estate taxes.
You can’t and won’t do this alone. The members of the brain trust with whom you surround yourself are vital partners in the process.
Healthy, Caring, and Competent Family
If you are a parent or a spouse, you quickly learn that you are only as happy as your least happy family member. The financial, physical and emotional health of your spouse, children, and grandchildren are essential to your personal well-being.
This means that you are responsible for:
- Effective parenting and grand-parenting;
- Empowering your spouse and children to fulfill their own dreams, passions, and talents;
- Ensuring that each family member is prepared for the responsibilities of earning, accumulating, managing, preserving and inheriting wealth;
- Creating the environment in which family members can communicate freely, without intimidation, and with mutual respect;
- Resolving intra-family conflict in a timely and effective manner; and
- Clarifying and reinforcing the core family values that will bind your descendants together through the generations.
The legacy you leave will depend, in large part, on how well you implement this responsibility.
A Thoughtful, Effective and Efficient Transfer of Wealth
Wealth can be transferred voluntarily, as in a gift or bequest, and involuntarily, through taxes, divorce, and litigation. Wealth creators often focus on avoiding the involuntary transfer, but ignore the consequence of ill-conceived voluntary transfers. For example, a plan that avoids the estate tax but loses the child to over-indulgence, financial dependency, and substance abuse is a failure and a tragedy. This means that you are responsible for:
- Determining how much wealth will help your children and grandchildren to become educated, competent, productive, and self-sufficient and at what point either the inherited wealth or the income from such wealth will undermine these objectives;
- Structuring your plan to provide the resources needed by your family to be positively productive but not the opportunity to do nothing.
- Managing the expectations of your children and future descendants, so that they will recognize and accept that their wealth and well-being depends in large part upon their personal efforts and achievements; and
- Selecting and preparing your advisors, trustees, and family members for their shared responsibilities in achieving your goals at a minimum of cost and tax.
The success of your estate plan will not be measured by the size of your balance sheet, but by the degree to which your family members, through the generations, remain connected, caring, and competent.
Sharing of Time, Treasure, and Talent with Others
Each of us, regardless of our personal level of success, is indebted to others for their generous gift of their time and wisdom, talent and financial resources. This may include our family -- parents and grandparents, spouse and siblings – as well as our friends, teachers, mentors, employees and colleagues. Perfect strangers helped to fund the educational institutions, hospitals and research facilities, and cultural organizations upon which we relied as we grew older. You live in your community because it offers your family a safe and inviting home, enriches you culturally, and provides you business and financial opportunities. This means that you are responsible for:
- Leaving the world a better place for your children and descendants;
- Protecting the most vulnerable amongst us and giving others a chance to achieve their dreams;
- Using your resources in the most effective way possible; and
Teaching these values to your children and future generations.
Remember, how you leave your wealth tells as much or more about you and your values as how you earned it.
At First Foundation, we are concerned not just with the tax and economic consequences of wealth planning, but with the impact of that planning on the lives of those for whom the wealth was intended to benefit.
First Foundation, a comprehensive wealth management firm, provides investment management, wealth planning, consulting, trust and banking services.