By: Steven Abernathy
High net worth individuals and families know legal asset protection is keenly important. Dynastic families who hold onto their wealth, generation to generation, often turn to family offices to provide counsel because they trust Family Offices to ensure their assets are legally protected first and foremost.
While growth and investment strategy are certainly a priority, families that legally protect their assets are planting the seeds for consistent multi-generational wealth building. This is usually done with little fanfare—as many such families purposefully fly under the radar. These three areas are vital when considering your family’s asset protection plan designed to preserve the family fortune:
Tax Planning
It’s often a mistake to think that tax planning merely happens around April 15th. Successful families and ultra-high net worth individuals are considering tax implications year-round and in real time. The tax code and regulatory requirements may change more often than once per year. And, there are many considerations beyond filing business and personal income tax returns which are best considered, well in advance when stress free decisions and planning can be embraced. When are there considerations? Anytime changes occur to assets, there could be tax implications. These changes are likely to affect not only a family’s financial goals, but, potentially could deliver a tax-impact on assets including: real estate holdings and receipt of income, business valuation, investment holding periods, and the valuation of the estate.
According to Scott Mitchell, a Trust and Estates Attorney specializing in legal asset protection, at Pennsylvania law firm Saxton and Stump LLC, “Many clients create an estate plan, and then assume it never needs to be looked at again – as though it’s good forever. Successful families are thinking about tax planning and their estate plan all the time. It is strongly advisable for these families to always be mindful of the provisions of their estate plan, and just as they meet with a doctor or dentist for a check-up each year, they should be meeting with their estate planning attorney and tax professional every year to have a “check-up” on their existing estate plan”.
Legacy Planning
As wealth changes hands from one generation to another (or more likely, one spouse to another), the legal transfer of wealth may present challenges to both families and individuals—particularly if there are complex structures. These may be a blessing and a curse if one is attempting to “manage the family’s assets from the grave.” Counseling families on philanthropic strategies, estate planning, and the proper establishment of purposeful trusts are a few of the services our clients use to formulate a clear game plan and more importantly to ensure the family’s assets are used for purposes, which the family embraces. According to Scott Mitchell “the decision becomes whether to use a domestic or non-domestic asset protection trust… with further consideration around which state offers the best asset protection for their trust.”
Business Management
It is never an easy decision to sell a business—particularly one that has been in the family for generations. Whether you are selling—or buying—a business, succession planning, optimizing value, tax planning, and intelligent transaction structuring all need to be considered and optimized based on the family’s long-term goals. When the appropriate legal asset protection structures are in place early on, as a business grows and expands, moving forward is easier. Planning and executing the family’s business strategy both long and short term is imperative—as is knowing how changes to the plan will affect the future. However, all of the diligence put into planning, and the hard work of executing the strategy in place to generate more after tax income is mute if the family’s business is not legally protected from everyone outside of the family.
Of course, not every family requires hands-on oversight of a business’ assets or structure from objective outside counsel. At times, families will need what might seem like simple tasks handled—such as the paying or reviewing of bills with discretion and competence.
When plans for your taxes, family legacy, and businesses are regularly reviewed and audited, it is possible to avoid challenges (and unexpected high bills and fees!) in the future. In addition, your family’s goals and objectives can stay the course no matter what changes present themselves in the tax and legal codes. If you are curious about risks and issues that you or your business may be facing, find a Family Office and review the potential impact purposefully protecting your assets legally can have. It is well worth your time and it could save you a significant amount of money in the long run.
Steven Abernathy counsels affluent families on multi-generational wealth management strategies and corporate retirement plans. He contributes articles and commentary to a variety of publications. For questions, or more information, contact him at SAbernathy@AbbyGroup.com or 212-293-3469.
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