Planning Advice For Financially Successful Entrepreneurs

To become financially successful, an entrepreneur must be bold and foresightful, cautious yet decisive. However, having made their fortune, they quickly discover how difficult it is to hold on to it. Even in death there is no respite. New challenges arise when they attempt to transfer that fortune to future generations within their family. Here is some planning advice for financially successful entrepreneurs.

Having Made it, Do You Have the Skill to Keep It ?

It requires a great deal of boldness and a great deal of caution to make a great fortune, and when you have it, it requires ten times as much skill to keep it. (Ralph Waldo Emerson)

An advisor to wealthy families, I have seen first-hand the truth of Ralph Waldo Emerson’s observation. In our society today, there are many very real threats to a person’s wealth. To name but a few, such threats include:

the costs of a nursing home and long-term care if one becomes physically or cognitively impaired.

a predatory (and often corrupt) financial services industry.

Intra-family conflict during an inter-generational wealth transition can cause not only the loss of family wealth. It can also damage relationships and destroy a family.

Affluenza infected heirs who inherit, mismanage and squander the family fortune.

Income taxes and estate & gift taxes on transfers of family wealth.

Andrew Carnegie once described the life cycle of family wealth as “Shirt sleeves to shirt sleeves in three generations.” In other words, the first generation makes the family wealth. The second generation dissipates the wealth, and the third generation must try to make it again. This phenomenon exists not only in the United States, but around the world as well. Behaviorists are just now starting to understand why this happens and offer suggestions how to prevent it.

Intra-family conflict that occurs during the inter-generational wealth transition can cause the loss of family wealth. It can also damage relationships and destroy a family.

Many affluent families fail to appreciate or anticipate these threats or avoid them. In the words of another famous sage:

Failing to plan is planning to fail. (Benjamin Franklin)

To be effective, planning for the protection and multi-generational preservation of family wealth cannot start soon enough. The current tax legislation proposed in Congress is but another example of the ever-present threats to family wealth. Given the political gridlock in Congress, many people will take a “wait and see” approach to their tax planning. Taking a “wait and see” attitude now, however, may well result in a “wait and pay” experience later. Foresightful families will take steps to mitigate the adverse impact of new tax laws before they become effective.

I learned early on, while working for the IRS, how there are two systems of taxation in the U.S.. One system exists for the informed and one for the uninformed. It should come as no surprise that the uninformed always pay more.

Tax-efficient prior planning can protect, preserve, and facilitate the inter-generational transition of family wealth. It can also assure one will leave a meaningful legacy, and most importantly, preserve the integrity of one’s family.