Treat your personal wealth like a business owner
As a business owner or manager, you wouldn’t operate without a clear vision and strategic plan. You wouldn’t embark on a new initiative without first reviewing your cash flow and income statement to know how realistic your plans are.
Looking at family wealth through a similar lens can be instructive. Treating your wealth as a business, with the same cadence, infrastructure, and strategic approach, can help you achieve your wealth goals and objectives.
Family wealth may not be about the next big product launch; rather, your concerns probably center around preserving and growing your wealth. Try applying the same mindset to your wealth as you do your business.
You need to decide what matters most to you and your family. What are your family’s goals and objectives? What do success, happiness, and legacy mean to your family? Your values should be the guiding principle behind many decisions, whether they’re investing, philanthropy, or wealth transfer.
It’s hard to move forward without a concrete and measurable mission and vision. Only by being able to articulate what you hope to achieve and the core premise behind those goals and objectives can you demonstrate what makes you and your family unique. Everything else flows from this foundation.
A good place to start is to establish a family blueprint describing your goals and objectives, values, vision, and mission. Include your family tree, family entities, as well as family members’ roles and responsibilities.
Then spell out an inventory of family assets and their corresponding owners. Your blueprint presents the family balance sheet by outlining assets includible and non-includible in the estate, cash flow and tax projections, and a plan for estate disposition. The blueprint can be an evolving vehicle to measure strategic success. Businesses are only as good as the talent they attract and retain. Manage your family wealth using the same strategies. As the head of the family, you might cast yourself in the role of president and chief executive officer because you are the person who takes a big-picture view of your family’s overall wealth. Next, seek out a chief investment officer to oversee the investments and conduct the due diligence and research on them. A chief financial officer and chief operations officer are crucial.
You might need to add additional roles depending on your family’s needs, such as a family communication officer or a chief learning officer for coordinating meetings, leadership, and financial training. Not every family has all the skill sets among its members to manage their wealth most effectively. Do what any savvy business owner would do in that situation: hire nonfamily members or outsource to obtain the best team.
Just like in business, you can hope for the best, but planning for the worst is common sense. That’s why businesses use commercial insurance, life insurance, and hedging instruments to mitigate the risks they face.
For your personal wealth, rather than insuring equipment and inventory, you need to think about insuring assets that are more personal in nature such as homes, cars, and boats.
Taxes can be one of the biggest risks to asset preservation for future generations. Make sure to have sufficient life insurance so your heirs have the necessary liquidity they’ll need to pay estate taxes. This will help them avoid having to sell illiquid assets — possibly at a discount — to cover taxes.
In addition, think about succession risk. Just as a business needs to plan for the continuity of its leadership and operation in the event of the retirement, illness, or death of its owner, a family must make a roadmap for how its wealth will be managed after the passing of the senior generation.
More businesses today are tying their philanthropic and impact investment activities to their corporate mission. You might feel similarly about your personal charity. To do that, you need to develop a strategic plan about your charity and impact investment intent so that your wishes are carried out.
Philanthropy can help your family answer the question, “What do we want our wealth to do?” For many families, philanthropy and impact investment becomes such a big part of their mission that it takes on a life of its own, with families then forming a charitable entity to meet these objectives. A charitable entity can have business-like qualities itself and be a powerful way for a family to share their values with the next generation.
Which charitable vehicle is best for you involves an evaluation of your mission, goals, and values — in addition to your other financial, tax, and estate planning needs. Input from your advisory team can help make sure your charitable endeavors align with all these considerations.
By couching your wealth in business terms, you can see the many similarities and how to approach your wealth in a similar way. Connect with a team that has experience in working with wealth owners, so you can put all the pieces in place.
Ryan Erickson is a senior portfolio manager for BMO Wealth Management in Madison.
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