Table of Contents
MULTI GENERATION WEALTH AND FAMILY MANAGEMENT
2
SERVICE CONTEXT
SERVICE SCOPE
ASSET OWNERSHIP & CONTROL
LIFE RISK MANAGEMENT
TAXATION PLANNING
RETIREMENT PLANNING
CARE PLANNING
CONSTRAINT ON ENGAGEMENT
2
3
3
3
3
3
3
4
INVESTIGATE AND REPORT PHASE
4
COLLECTING QUANTITATIVE AND QUALITATIVE DATA ABOUT THE CLIENT’S AFFAIRS
ANALYSIS
SYNTHESIS – SETTING OUT THE MULTI-GENERATION STRATEGY
ORGANIZING YOUR INPUTS TO THE SYNTHESIS PHASE
REPORT
4
5
8
9
12
IMPLEMENT AND SUPPORT PHASE
12
EVALUATE, CLIENT DECISION, IMPLEMENTATION AND PERIODIC REVIEW
12
SOME ISSUES IN IMPLEMENTING THE PLAN
12
LEAD ESTATE ADVISER
LAWYER
FINANCIAL ADVISER
ACCOUNTANT AND TAX ADVISER
12
12
13
13
ADVISER SKILL CHECK FOR THIS SERVICE
14
WHAT COMPETENCIES DO PLANNERS NEED TO PERFORM THIS WORK?
COLLECTION
ANALYSIS
SYNTHESIS
WHAT PROCESS IS TO BE FOLLOWED IN THE OPERATION OF THIS ENGAGEMENT?
WHAT PRACTICES ARE TO BE FOLLOWED IN THE INITIAL INVESTIGATION OF THE CLIENT’S
REQUIREMENTS?
FOUNDATION KNOWLEDGE
WHAT IS YOUR ESTATE?
WHAT IS A LEGAL ISSUE?
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REFERENCES AND FURTHER READING
16
FAMILY FIRM INSTITUTE
STEP
FAMILY OFFICE CONGRESS 2008 BLOG (FOC 2008)
FAMILY OFFICE EXCHANGE (FOX)
CARNEGIE MANAGEMENT
FAMILY BUSINESS AUSTRALIA
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Multi Generation Wealth and Family Management
A strategy for clients focussed on wealth retention to facilitate transfer of some
or all that wealth to subsequent generations.
At the start, the adviser must agree with their client what is to be dominant
theme in their strategy review:
1.
2.
3.
4.
Family fist
Business first
Wealth / Money/ Finances first
Social and Community contribution first
The agreement about the dominant theme or themes of the initial estate strategy
review will inevitably colour the approach of the adviser to the engagement and
the skills that are needed for its completion.
Advisers need to be careful when establishing their initial Scope of engagement,
all necessary service scope exclusions are documented.
Whilst some clients are only focussed on the administration of their affairs
during their lives, increasingly, clients are seeking to preserve accumulated
capital for the benefit of multiple generations.
This is not about “ruling from the grave” but rather, groups of people (families)
deciding that it is in their interests to manage a pool of capital as a “collective
wallet” and facilitate the preservation and benefit of all people in the beneficiary
group.
A result of this is that beneficiary expectations are shifted from receiving capital
amounts or discrete items of property to receiving income streams, management
rights and a seat at a governance table of some description.
This paper sets out the information, competencies, practices and activities that
need to be brought to a multi-generation estate planning engagement.
Service Context
You have been engaged by your client to advise them about their estate
management and succession.
You have explained to your client that you need to collect both data and
information about them and their affairs.
Your clients have as part of your initial discussions made observations such as
these:
•
“I want my money to last to my grandchildren”
•
“I am a business owner and am concerned in this downturn about being
sued; how can I protect my capital and provide security for my family?”
•
“I am spending my money on my wife and myself, the kids can simply
have whatever is left over when we are gone; just break up what’s left evenly
between the kids as simply as possible.”
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•
“I have spent all my life building up the family business. Times have been
good to us. My children are running the business but my wife and I still own all
the shares. How do we balance the interest of our children and ourselves? How
do we manage our estate for ourselves and our bloodline?”
You advise them that in order to achieve these objectives, they need to manage
the ownership and control of their property in a way that will prevent immediate
breakup and distribution of their property after they die.
Service Scope
You identify to the client that you are being asked to assist the client to change
the management of their affairs so that they can meet their identified objectives.
In being their advisers you are also an agent of change in the client’s life. If the
client does not accept these as part of your role then moving from the advisory to
implementation phases of the engagement may not occur.
You have discussed with the client, as appropriate, that whilst preserving their
estate for the benefit of their successors is a fine objective, they also have to plan
for the risks and needs for their own lives. This provides a natural tension
between the current generation having sufficient resources to maintain their
lifestyle with minimal risk to the depletion of their assets.
You decide with the client which of the following service elements are relevant to
the management of their affairs:
Asset Ownership & Control
Determines impact and limitations on form of asset ownership on estate
planning objectives
Determines impact of client family and beneficiary maintenance obligations on
estate planning objectives
Determine impact of estate claimant rights on asset ownership and control.
Life Risk Management
Determines impact of the client’s life risk management objectives on their estate
planning
Taxation Planning
Determines the impact and limitation of the client’s attitude towards taxation on
their estate planning objectives
Retirement Planning
Determines the impact of the client’s retirement objectives on their estate
planning objectives
Care Planning
Determines the impact of declining health and capacity of the client and their
dependents on the cost of their care and maintenance during their lives.
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Constraint on engagement
You identify any constraints upon the client’s estate planning objectives and this
engagement. Normally these will relate to:
1.
Personal and Family Representation and Succession
2.
Family Continuity, Governance and Legacy
3.
Wealth Preservation, Enhancement and Transfer
4.
Business Ownership and Control
5.
Financial Security and Compliance
You identify o the client these factors may influence the extent to which their
main objectives can be achieved.
Investigate and Report Phase
Collecting quantitative and qualitative data about the client’s affairs
See EP Fact finder sample as guide for kind of investigation needed.
Identify client’s response and priority around these estate management risk areas
1.
Personal and Family Representation and Succession
2.
Family Continuity, Governance and Legacy
3.
Wealth Preservation, Enhancement and Transfer
4.
Business Ownership and Control
5.
Financial Security and Compliance
Drilling down on the client’s concerns
1.
Concerns about wealth preservation often lead to discussions about
family continuity, governance and financial security.
2.
Concerns about wealth enhancement, business ownership and personal
succession often lead to discussions about business succession and whether a
business should be retained within a family or a particular generation within a
family.
3.
Concerns about wealth preservation and personal succession often lead
to a discussion about inheritance protection and isolating financial assets and
resources from relationship and creditor risk.
These are only a sample of the client objectives and concerns that are motivating
clients to ask more from their estate advisors.
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Identify the systems that operate in the affairs of the client and the relationships
between these systems.
1.
Family
2.
Business
3.
Property
4.
Social and Community.
Identify the professional advisers already engaged to the client and their role in the
management of the client’s affairs.
These advisers may include:
1.
2.
3.
4.
5.
6.
7.
Accountants
Financial Planners
Trustee companies
Family Business Advisors
Business and Personal coaches and mentors
Tax advisors
Corporate and business advisors
Analysis
The planner identifies and considers issues, performs financial analysis as
appropriate and assesses the resulting information to be able to develop estate
planning strategies for a client. These activities include the following
Considers potential opportunities and constraints to develop strategies
Client and Beneficiary Identity and Advisor role and function
Determine whether the client and ancilliary parties to the engagement are
sufficiently identified.
Resolve any conflict of interest between multiple family elements involved in the
planning engagement.
Include adviser limits to engagement and representation of client in engagement
letter to client
Acknowledge role, function and responsibility of other concurrently engaged
advisers with whom planner will be working in the current engagement.
Client territorial connections
Determine the impact of the client’s territorial connections on their estate
planning objectives.
Family structure and members
Determine the impact of estate claimant, relationship property and beneficiary
vulnerability on the estate planning objectives of the client.
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Financial Management
Determine client limitations on which they will appoint as their representatives
and the expected role of representatives in the client’s financial management
function.
Asset Ownership & Control
Determines impact and limitations on form of asset ownership on estate
planning objectives
Determines impact of client family and beneficiary maintenance obligations on
estate planning objectives
Determine impact of estate claimant rights on asset ownership and control.
Risk Management
Determines impact of the client’s risk management objectives on their estate
planning
Taxation Planning
Determines the impact and limitation of the client’s attitude towards taxation on
their estate planning objectives
Retirement Planning
Determines the impact of the client’s retirement objectives on their estate
planning objectives
Care Planning
Determines the impact of declining health and capacity of the client and their
dependents on the cost of their care and maintenance during their lives.
Estate Planning
Identifies any constraints upon the client’s estate planning objectives. Normally
these will relate to:
1.
Personal and Family Representation and Succession
2.
Family Continuity, Governance and Legacy
3.
Wealth Preservation, Enhancement and Transfer
4.
Business Ownership and Control
5.
Financial Security and Compliance
Assesses information to develop strategies
Client engagement scope and limitations on report
Assess appropriate limits on adviser function, responsibility and role in the
engagement as appropriate to the agreed terms of engagement.
Assess appropriate scoping of role, communication process and reporting
accountability with the client and other concurrently engaged advisers in the
engagement.
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Client Identity
Assess whether the client and all other parties are adequately identified
Assess whether the client and all other parties have the capacity to carry out
their role in the estate plan.
Client territorial connections
Assess the impact of the nature and extent of client connections with states,
territories and countries.
Family structure and members
Assess the client’s exposure to estate claimant and other 3rd party claimant risks
Assess the requirement of family members for special treatment (e.g. due to
beneficiary health or vulnerability)
Financial Management
Assess whether there is adequate representation of the client in the estate’s
financial and personal management
Assess whether there are adequate controls in place to align the ownership and
operation of non-testamentary estate structures with the estate planning,
administration and succession objectives of the client.
Asset Ownership & Control
Assess the estate planning consequences of actual state of asset ownership and
control within estate.
Assess whether client family and beneficiary maintenance obligations are met
through the client’s estate planning objectives.
Assess the impact of estate claimant rights on the estate’s asset ownership and
control.
Estate structuring choices broadly fall into the following areas:
1.
Transfer property to structures such as companies or trusts in order to
take assets outside the personal asset pool that would otherwise be governed by
a person’s will, or
2.
Do nothing during your life, keep all assets in personal ownership during
life and distribute the assets on your death to your beneficiaries, or
3.
Establish a form of collective property ownership under your will that
preserves on death the property you own for the benefit of the beneficiaries you
nominate on the terms you establish for the trust.
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It is the role of the estate advisor to assist their clients to navigate these choices.
Care must always be taken to ensure that a client is fully informed about the
consequences of their decision making and that they are considering the big
picture. Focussing on one narrow point, such as tax, can lead to disastrous
consequences.
Risk Management
Assess the impact of the client’s risk management objectives on their estate
planning objectives.
Taxation Planning
Assess the impact of client’s attitude towards taxation and their current
unrealised taxation costs on the client’s estate planning objectives.
Retirement Planning
Assess the impact of the client’s retirement objectives on their estate planning
objectives.
Assess the impact of the client’s longevity on their retirement planning
objectives.
Estate Planning
Assess the impact of the information analysed on candidate estate planning
strategies.
Assess the impact of family dynamics and business relationships and personal
relationships on the client’s estate planning objectives.
Project net worth at retirement and death
Project net liabilities and net estate wealth at death
Assess the needs of beneficiaries and estate claimants.
Assess the liquidity and solvency of the estate at death
Consider impact of taxation and territorial connections on the client’s wealth at
death and tax rollovers available
Synthesis – Setting out the multi-generation strategy
In moving from analysis of data and information to the synthesis of a solution
that meet the client’s objectives, the planner is concerned with:
Prioritising recommendations from the estate planning components to optimize
the client’s situation and meet their estate planning objectives
Consolidating the recommendations and action steps into an estate plan
Determining recommendations for an appropriate cycle of review for the estate
plan and its implementation.
The planner as a result synthesizes information and develops and evaluates
strategies that are combined to create an estate plan that includes:
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1.
appropriate asset owning structures or arrangements that keep the assets
in consistent ownership and management for the expected life of the wealth
recovery strategy,
2.
continuation of competent management of the structures or
arrangements that can be reasonably expected to endure for the life of the
strategy,
3.
continuation of appropriate common interest between the beneficial
interests of those who are to profit from the operation of this wealth
management enterprise. Multi-generation wealth management strategies will
only endure where the collective wealth management enterprise delivers greater
value to the collective beneficial interests than could be achieved by the
individuals alone.
It is in achieving objectives 2 & 3 that clients can be faced with substantial
challenges. Whilst clients may wish that their successors manage the family
wealth management enterprise themselves, this may not be practical.
Faced with these issues, discussion of objective 2 may also lead to a discussion
about family offices and the use of commercial trustee companies. Discussion of
objective 3 most often results in a discussion about management succession
control on companies and trusts and the use of shareholders agreements, family
constitutions and family councils to establish appropriate governance around
the collective and common interests of a client and their successors.
Organizing your inputs to the synthesis phase
Achieving this professional function requires that the planner take into account,
as relevant to the engagement, the following matters:
Client, beneficiary and other party Identity
Determine the role function and responsibility of each person in an estate plan.
Client territorial connections
Determine the territorial scope and function of an estate plan
Family structure and members
Determine estate planning priorities between the client and their successors and
estate claimants.
Determine the nature and extent of financial and social accountability between
the client, family members and other estate claimants and beneficiaries
Determine the practical extent of multi-generation accountability in the estate
plan and incorporate strategies in the estate plan to support the operation of the
estate plan across generations in a family.
Determine relevant beneficiary and estate claimant needs and implement
strategies to respond to those needs in the estate plan.
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Financial & Estate Management
Determine client appointments for financial management and personal
representation by attorneys, guardians, trustees and general agents &
representatives.
Determine the role functions and accountability of the clients’ estate and
financial managers to the client’s family and estate beneficiaries.
Determine and recommend funding sources for estate strategies.
Asset Ownership & Control
Determines estate administration strategies within the estate plan that respond
to the actual state of asset ownership and established constraints on that
ownership (e.g. assets owned by a trustee but held in part or whole for the
client’s benefit).
Risk Management
Develop risk management strategies that respond to the identified risks and risk
tolerances of the client.
Determines client willingness to manage identified risks. That include
Business Ownership and Control
Equity Issues
Family Control
Family Dynamics in Business
Family Business Leadership
Business Governance
Management Issues
Alignment of interests
Business Strategy
Operations Issues
Business operations effectiveness and efficiency
Wealth Preservation and Enhancement
Investment goals and objectives
Asset diversification
Manager selection
Investment performance
Ownership exposure for private equity
Private equity distressed situations
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Family Continuity and Governance
Family Legacy
Family Governance and decision making
Family Relationships
Family Reputation and Public Image
Philanthropic Legacy
Personal security and privacy
Personal health and wellness including care planning for clients, dependants and
their vulnerable beneficiaries.
Personal Ownership responsibilities
Collective ownership responsibilities
Financial Security and Compliance
Legal Exposure
Fiduciary Exposure
Wealth Transfer protection
Physical asset protection
Financial Leverage
Financial Oversight
Financial reporting and Compliance
Family Group Oversight and accountability
Taxation Planning
Includes appropriate strategies in the estate plan to respond to the taxation
liabilities and responsibilities of the client
Develops appropriate tax planning strategies.
Retirement Planning
Determines appropriate retirement strategies that integrate with the client’s
estate planning objectives
Develops appropriate retirement planning strategies.
Care Planning
Determines appropriate care planning strategies that integrate with the client’s
estate planning objectives and respond to the declining health or capacity of
clients and their dependants or otherwise vulnerable beneficiaries.
Develops appropriate care planning strategies.
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Report
This is the activity of delivering the planners’ recommendations to the client for
their consideration and comment.
Implement and Support Phase
Evaluate, Client Decision, Implementation and Periodic review
This is the activity that delivers the change to the client’s circumstances that they
are seeking from this engagement
The detail of this will vary from engagement to engagement
Some issues in implementing the plan
Lead Estate Adviser
This is the professional who has the role of forming the high level estate
administration strategy with the client.
The objective of estate planning is to produce a method of administration of a
client’s affairs that meet their goals. This inevitably means the planner becoming
an agent for change in the life of their client.
The success of achieving a multi-generation wealth management strategy will in
large measure depend on the success with which the client’s successors embrace
and support the value of the “shared wallet” to their lives and objectives.
Establishing a plan for the development of a family culture that supports the
operation of the strategy and the social and relational memory that is required to
achieve this result is a key matters to assuring the ongoing success of the
strategy.
Where multiple advisers are engaged to the assist the client in the management
of their affairs, the lead adviser may also have the role to manage the overall
synthesis of adviser recommendations and their presentation to the client. This
role may also be retained by the client. It is vital that the precise scope of
function of the lead adviser be agreed with the client at commencement of the
engagement.
Lawyer
Legal issues may be found in all dimensions of the client’s affairs.
The professional practice of law is a reserved area of professional practice for
licenced legal practitioners. Other professionals must not engage in legal practice
without holding a current practicing certificate,
Lawyers will normally be most concerned about:
1. Establishing the extent of real and personal property in a person’s estate.
2. Establishing the extent of legal rights 3rd parties may have to claim a
portion of a client’s estate
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3. Establishing the formal legal accountability a client may have to 2nd and
3rd parties.
4. Establishing what extent of property lies outside the jurisdiction of a
person’s will
5. Documenting appointments of legal personal representation and estate
structure management to meet the intentions and needs of the client.
6. Establishing appropriate legal certainty in the documentation and
implementation of the clients’ estate management and succession
strategies.
Financial Adviser
Care must be taken that only appropriately licensed financial advisers deal with
the provision of financial products and services.
Compliance with the Corporations Act 2001 and its regulation of financial
advisers is a key compliance burden on financial planners.
For professional advisers who do not hold appropriate financial services licences
or representation authorities, it is in their interest to identify the appropriately
licenced professional who has responsibility for these functions and who bears
the professional responsibility for dealing with these matters with a client.
Issues that will form part of the primary responsibility of financial planners will
include:
1.
2.
3.
4.
5.
6.
7.
Investment goals and objectives
Asset diversification
Manager selection
Investment performance
Financial Product Leverage
Financial Product and Service Oversight
Financial Product and Service Reporting and Compliance
Accountant and Tax adviser
One or more advisers may perform these roles.
The lawyers’ conclusions about what is in the estate for management and the
accountant’s view about how this is reflecting in the accounting, financial and tax
affairs of the client may not correlate.
Any lack of correlation between the accounting, legal, tax and financial
dimensions of the client’s affairs need to be identified and discussed with the
client in the course of a comprehensive estate review.
Consideration needs to be given to whether these areas of function should
normally be excluded from an advisors engagement unless specifically included
by the client.
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Adviser Skill check for this service
Estate Planning is a specialist professional occupation. To perform this service
at such a level means advisers need not only experience but also foundation
knowledge, competencies, practices and skills.
Advisers developing multi-generation wealth management strategies need to
have formal education in at least the following matters.
What Competencies do planners need to perform this work?
Collection
The planner:
1.
Collects the quantitative information required to develop an estate plan
2.
Collects the qualitative information required to develop an estate plan
Analysis
The planner:
1.
Considers potential opportunities and constraints to develop estate
planning strategies
2.
Assesses information to develop strategies
Synthesis
The planner develops and evaluates strategies to create an estate plan by:
Prioritising recommendations from the estate planning components to
optimize the client’s situation and meet their estate planning objectives
Consolidating the recommendations and action steps into an estate plan
Determining recommendations for an appropriate cycle of review for the estate
plan and its implementation.
What process is to be followed in the operation of this engagement?
1.
Client and advisor identify the issues.
2.
Gather information about assets and liabilities.
3.
Client shares interests and goals.
4.
Client and advisor develop property ownership, sharing and succession
principles.
5.
Advisor generates creative options.
6.
Advisor assists client to evaluate options that are consistent with the
principles of the client and estate stakeholders and satisfies appropriately their
common and individual interests.
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7.
Client and advisor consider the alternatives and advisor assists the client
to resolve any conflicting interests and objectives identified in the planning
process.
8.
Advisor documents any agreement between the parties and the final
strategy selected by the client.
9.
Advisor supports the client to implement estate representation and
management consistent with the estate plan.
10.
Advisor and client periodically review the performance of the agreement
or as otherwise required by law, adjust the performance of the agreement as
necessary.
What practices are to be followed in the initial investigation of the client’s
requirements?
Identify the client’s objectives, needs and values that have estate planning
implications
Identify the information required for the estate plan
Identify the client’s legal issues that affect the estate plan and refer those issues
for legal practitioner assistance.
Determine the client’s attitudes and level of financial, social and business
sophistication
Identify material changes in the client’s personal and financial situation that :
1. Are either having occurred and requiring response, or
2. Desired and therefore a plan to achieve the desired change is needed.
Prepare information to enable analysis
Foundation Knowledge
What is your Estate?
The word “estate” is loaded with meanings. For the purpose of this discussion,
we are using the word estate in the sense of “all of a person's property,
entitlements and obligations”. The concepts of a person’s will, succession and
probate are a far cry from the core concept of a person’s estate.
Put simply, your estate is what you have. Family Law divides a person’s estate
into financial assets and financial resources. This is a useful distinction when
considering the administration of a person’s whole estate. The focus of this
paper is not limited to the administration of a person's estate when they die but
how they set up the administration during their life, administer it while they are
still alive and hand on that administration to the next generations.
What is a legal Issue?
It is the knowledge of an application of the law that is fundamental to the role of
a lawyer. The Law Society of New South Wales recognises the following elements
of legal practice:
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•
assistance with analysis and interpretation of legal and factual issues;
•
assistance with the enforcement of legal rights and obligations;
•
assistance with the authentication and assurance of title to property of
any type; and
•
assistance with the planning and management of a client's legal affairs.
These elements of legal practice are in turn applied to support the delivery of the
following areas legal service:
•
Giving Advice - the function of being an authoritative source of legal
knowledge; providing interpretation and application of laws and legal principles.
•
Transactions - the function of authentication and assurance of title to
property of any type.
•
Representation - the function of representing the rights and interests of
clients, particularly in situations of conflict.
•
Design - the function of planning and designing structures, strategies and
arrangements which regulate legal rights between parties.
References and further reading
Family Firm Institute
– see http://www.ffi.org/
STEP
– see http://www.step.org/
Family Office Congress 2008 blog (FOC 2008)
– see http://www.dealersgroup.com.au/p3_Events.html?&event=1&page=4
Family Office Exchange (FOX)
– see http://www.foxexchange.com/public/fox/welcome/index.asp
Carnegie Management
– see
http://www.carnegiemg.com.au/index.html
http://www.executivementor.info/index.html
Family Business Australia
http://www.fambiz.org.au/
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