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FUTURE PLANNING


Executing a smooth family transition


Experts say planning the key TOM COLLIMORE


Many of the greatest literary figures, from Shakespeare to Shelley, have written of the tragic outcomes that can result from poor succession planning. CFA Institute hopes that such ill fortune will not befall its clients, and requested the advice of three experts on family wealth transitions – Chancellor Grover Brown, formerly of the Delaware Chancery Court; John DeMoss, CFA, president of DeMoss Capital; and Mike Slud, CFA, family investment officer at Genspring Family Offices.


W


hen asked about the most common mistakes investors tend to make, each of the three put failing to plan at the top of the list. “One of the matters I adjudicated


involved a non-profit Delaware corporation controlled solely by Howard Hughes,” says Brown. “He formed the corporation to hold his stock in Hughes Aircraft, but he never spelled out what he wanted done with it after he died. If someone could have produced an authentic will or something speaking to a succession plan, the process would have been much simpler. As a result, we had to proceed with a complicated and expensive process that could have been avoided entirely.”


“Once you do have a plan in place, it’s important to


keep it up to date,” advises DeMoss. “Things change. You should review your plan regularly and make sure it reflects your current situation. I had a client come to me with a plan he had not reviewed in almost 10 years. During that time, his situation and the tax laws had changed. As a result, he wasn’t going to be able to take advantage of estate tax exemptions with a structure that was put in place a decade before.” “It’s also important to stick to your plan,” adds


Slud. “A lot of families still have too much of a short- term perspective, and sometimes monthly returns can dissuade them from keeping their plans in place. I also see too much focus on relative performance, which is interesting but not really relevant to whether a family is on track to achieve its goals. It can also discourage a client from keeping an appropriate asset allocation. A goals-based planning model is a better approach.”


Execution Another important element in executing a smooth wealth transition is ensuring that the individuals who will be receiving the wealth are prepared to steward it appropriately. “The most popular way to do that is to pass wealth on in the form of a trust, where someone regulates how the income is distributed,” says Brown. “I’ve seen cases where the trustor has written into the document that he wants the beneficiaries to have something but he doesn’t want them to lose the benefit of learning how to make a living.” “My firm’s approach is education,” explains Slud. “It’s important to share and communicate, not keep


78 FAMILY OFFICE: ASIA TOMORROW


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