Maintaining Family Wealth After Death

FAMAfter you’re gone, how much of your business’ wealth will be left for your children? More important, will they be able to maintain and grow that wealth over time??

These are important questions for family businesses, and entrepreneurs who have family–or who plan on having family–to ask. If your pockets are deep, it’s natural to spread the wealth with your children. To do so effectively, it’s essential to communicate specific goals to your beneficiaries and create a plan for the future.?

Consider an entrepreneur with plenty of money and assets: Let’s say, relatively speaking, his or her minimum accounts are on the order of $5 million (or $1 million if pre-liquidity, in other words, before converting assets into cash with the sale of the company, for example). Certainly, when it comes to matters such as the person’s will, trust, and health care directive, family members are quick to become emotional.

As an entrepreneur, you’re probably used to taking risks. But where your long-term finances are concerned, it’s actually critical that you err on the safe side. Even something as simple as sharing your values and history can have a significant impact on your finances–as well as on your personal relationships.

There are various strategies one can use to maintain a wealth legacy. I spoke to Stephanie Zaffos, managing director of trust and estates at Convergent Wealth, to learn more. Founded in 1994, the company now counts $6.4 billion in assets under management.

1. Establish a tax-efficient plan.

Write up an estate plan in which you decide how your property will be distributed after death.

“If you don’t have a trust and will, you let the local state government’s probate code decide what’s going to happen to your assets,” says Zaffos. This includes paying potentially hefty taxes.

Draft up your estate plan sooner rather than later. Under certain circumstances, it may take more than two years to become probated (or formally approved), according to the State Bar of Wisconsin.

The plan also needs to be detailed. Include buckets set up to collect the different categories of assets in the right numbers.

For instance, every U.S. citizen has an exemption from the estate tax ($5.43 million currently, and the amount tends to increase by $100,000 per year). Set that money aside in a lifetime trust that won’t distribute all at once. This will be helpful in preserving wealth for your spouse or children.

2. Write a letter of wishes.

Death is far from a cheery subject. It won’t be easy, but to prepare your family for that inevitable day, write up a letter of wishes.

Generally, these letters aren’t meant to be legally binding. Think of it as an opportunity to bequeath items of more sentimental value (as opposed to explicitly monetary). In the letter, you can also communicate your hopes for the future.

Entrepreneurs may want to use the letter to describe how their businesses came to fruition, and to encourage or dissuade your children from following in your footsteps.

Zaffos notes that her entrepreneur clients tend to nurture the same risk-taking spirit in their family members, whereas families that come from old money tend to tend to be more conservative.?

Read more at?INC.