Legacy planning done correctly
Legacy planning is about passing on what you know. When people plan a legacy, the most important thing they want to bequeath is values and life lessons, not personal assets.
A rich opportunity, therefore, awaits advisors who revisit vision and values in the family, thereby re-establishing and developing trust on an inter-generational basis, said Enzo Calamo, CEO, Lugen Family Office Inc ., speaking in the Distinguished Advisor Conference 2010 in Orlando, Florida.
Calamo shared key principles advisors could use in helping families build a dynasty. “We have to rethink what we’re doing with regards to legacy planning and helping families actually build their family dynasty,” he said. “Only 10% of the items advisors do - including estate planning, family planning, tax planning, investment planning - includes a direct impact on legacy planning,” he explained.
Calamo’s insights underline the need for exploring an additional way to engage clients while embarking upon legacy planning. A household business is a complex model and therefore family dynasty planning has a lot of moving parts. An advisor’s role, he said, is critical in those parts.
Among the issues Calamo drew focus on is the client`s sense of propriety which makes it hard for the business proprietor to let go. The possible lack of confidence in the ability from the next generation to operate the business successfully presents another hurdle.
Very often these affairs get further complicated because of sibling rivalry. “We face a lot of sibling conflicts; there’re also siblings who just don’t desire to be involved in the business,” he explained.
Longevity doesn’t make it any easier, especially when there are more than three generations to work with. Calamo said increasing life expectancy is revolutionizing legacy planning for the first time. “We have four, five, and six generations living at the same time,” he said. “In fact, researchers say that the person who’s going to live 150 years has already been born today.”
Calamo stressed the requirement for going beyond conventional planning tools. “As advisors we may look at it from an estate planning, business succession planning, insurance, investment; but there’s a lot of other tools when it comes to legacy planning.” A lot of those tools employ human psychology and knowledge of family dynamics.
Emotion comprises a big part of legacy planning. A financial advisor’s job is to be appreciative of that and keep things inside the realm of reason.
“When you’re dealing as an advisor with these clients, you’re the voice of reason,” said Calamo. “Their brain will always focus on their desires and what’s vital that you them, but you’re those who have to also let them know there are still financial and business principles which have to be followed. “
Another emotional aspect that compromises financial and business principles may be the mistaken belief that business should be handed down to the next generation. “A business should always be for sale,” asserts Calamo reminding that longevity isn’t the reason behind setting up a business.
“As far when i remember the core of the business is to make a profit; to achieve success, to grow.” Longevity is but a side event,” he said. “Business should always be for sale and business owners should always remember that “succession planning means without you”. Many people who run a successful business view it as important to be involved all the way and tend to be controlling. The reality is, you’re dead, or you’re retired, it can’t be based on you.”
Philanthropy, he said, was another essential, but underutilized, competent of legacy planning. “The reason why a lot of wealthy people do philanthropy happens because it’s a great way to get the family to start working together and sharing ideas.” It forces members of the family to start working together.
Legacy planning - Calamo drove the point home rather philosophically. “Remember, financial success and a strong business cannot make a strong family, but a strong family can build a sustainable business that can bring financial success.”
