Tag

family

Who Do You Trust?

By | 2019, Money Moxie, Newsletter | No Comments

We like to think of our families, particularly our children, as centered individuals who understand the value of maintaining important family relationships. If you don’t think your family fits into this blissful picture, don’t take it to heart. Family dynamics can be challenging, and relationships can be fragile. This is especially true when there are difficult circumstances.

It’s not uncommon to have family members struggling with drug dependency, divorce, mental health, poor spending habits, or lack of financial independence. The list is inexhaustible. Sometimes there are family members who cannot get along. However, rather than sidestepping these sensitive issues, they should be addressed.

These emotionally consuming issues can become roadblocks when it comes to designing your estate plan. So much so that many take the position, “I’m not going to worry about it. I’ll let my kids handle it when I’m gone.” Unfortunately, rather than bringing families together during times of crisis, this approach can have the opposite effect. It can pit one family member against another.

It is common for families to name one or two of their children to act as trustee or co-trustees and personal representatives. This works well in families where children get along, there are no special circumstances, and your estate is straightforward. In these situations, you may feel confident your children can handle your estate the way you intend.

In our visits with clients, we often hear that they don’t want to burden their children. However, making them trustees when there are difficult circumstances may do just that–create a burden. Luckily, the situation can be remedied by using an independent trustee when designing your family trust. Upon your death, as trustee, they handle all distributions from the trust and assist in the sale of assets when needed. Their responsibility is to handle your estate the way you want. They deal with your family in a kind and understanding way, but they are also diplomatic. They can make hard decisions, something that may be hard for a family member who wants to take care of others or could be easily manipulated.

Avoiding conflicts of interest is critical when it comes to finding an outside trustee. You want things handled your way, not the bank or brokerage firm’s way. When researching an outside trustee, we recommend finding one that is independent. This means he or she is not affiliated with a large company.

Let us help you maintain healthy family relationships. If you think you may need the service of an independent trustee, give us a call. We can share our research and advise you on a trustee that may work well with your family.

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Your Values Matter

By | 2019, Money Matters | No Comments

When it comes to money, your values matter, why? If what you value most and your goals are not in alignment, you will experience a state of financial and emotional conflict. Your ideals and your actions will not match up, making it difficult to reach your goals.

Here’s an example of a value and a goal that would be in alignment. If family is important to you, then you value time spent together and want to take care of them. Your goal would be to protect your family financially if something should happen to you. Your actions might be to provide money to cover debts, pay for children’s college, replace your income, and provide end of life care. You would make saving for emergencies and retirement a priority, so you are prepared to live a dignified retirement, you would have legal documents and beneficiary designation in good order to protect your loved ones.

There is no right or wrong answer when it comes to personal values. They can be anything from Family, to Independence, to Education. There is no prerequisite to what you value; it is the culmination of your life experiences, education, and beliefs. The trick is which values are most important.

What are your top 5 values? You may be able to name two or three right off. Then you may go into a stupor, wondering “What else do I value”? Sometimes it is not easy to identify our top 5; it takes time and thought. If you find yourself stumped let me know; I can help.

Your decisions and actions have the most significant impact when it comes to reaching your goals. They have more to do with your financial success than the market or the investments you choose.

That’s why your values matter!

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Alternative Gifts for Family

By | 2018, Money Moxie | No Comments

The holidays are just around the corner, and many people are making shopping plans. Let’s face it; shopping can be stressful. Things get expensive and expectations are high during “The Most Wonderful Time of the Year.” Here are some ideas to give the not-so-traditional friend or family member during the holidays. They allow both to focus on experiences rather than exchanging material goods.

1. Donate to a charity in the name of a loved one
2. Start a college or UGMA account for children or grandchildren.
3. Create a special memory – go to a play, ball game, museum, zoo, or plan a trip for later on down the road
4. Monthly membership to a club or gym
5. The gift of thought – redeemable coupons for service for your family or loved ones – babysitting, cleaning, homemade dinners, back massages, washing dishes
6. Use the money to travel to see the person for whom you would have bought a gift
7. Participate in Secret Santa like programs
8. Go cultural – pick a country and celebrate how they would from food to traditions
9. Go on vacation during the holiday season
10. Give the gift of time
11. Volunteer together – local shelters, hospitals, etc.
12. Give someone Christmas who can’t afford it – give a meal and or a gift for each of their family members
13. Date nights with your spouse

Hopefully, this gives you some ideas to help create new fulfilling memories instead of filling up the home with more things.

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Shirtsleeves to Shirtsleeves In 3 Generations

By | 2018, Money Moxie, Newsletter | No Comments

There are many ways to improve a person’s wealth without spending money and there are many ways to destroy someone’s wealth by giving them money. In families, there is a pattern where the first generation builds wealth, the second generation maintains it, and the third generation squanders it. This cycle of wealth creation and destruction in the U.S. is called “shirtsleeves to shirtsleeves in three generations.” It applies to families that have $10,000 to $100,000,000.

This phenomenon is so universal that it happens throughout the entire world. In Ireland, it is called “clogs to clogs in three generations.” China’s version is “rice paddy to rice paddy in three generations.” Ninety percent of families that gain wealth succumb to this parable. So, what do the ten percent of families do right to preserve their wealth?

(1) Families change how they define wealth. Wealth is much more than money. It is human, intellectual, AND financial capital. Human capital is physical, emotional, and social well being. Intellectual capital is knowledge and experience. Financial capital is money and assets.

The goal is to improve the human, intellectual, and financial capital for each generation. Financial capital is only one mechanism to help improve the human and intellectual capital of each of the family members.

(2) Families think of their family as a business. The purpose of the business is a long-term succession plan that tutors each member and prepares them to lead the family in the future. With that comes an understanding that each generation needs to work to build wealth like the
first generation.

(3) Families implement a 7th generation mentality. Inheritors typically have a “rush” of adrenaline and are prone to make poor choices, like buying a new car. On average a new car is purchased within 72 HOURS of receiving an inheritance. Instead, family members must be stewards of assets–not just inheritors. As stewards, the financial capital is intended to improve their lives AND the lives of each successive generation, to the 7th generation.

(4) Families define their values and use stories to pass them to the next generation. Without a helm, a ship will sail off course. If families aren’t governed by values, they will also veer off course. The most effective way to pass on values is through stories. These stories should be documented and shared at gatherings or in a newsletter.

(5) Families understand and manage the risks that are being taken with their financial capital. The third generation tends to either be too aggressive or too lax with the financial capital. Each successive generation should be tutored in investing so they can have a better understanding of potential risks and rewards.

(6) Families teach their posterity how to give. A person’s perception of wealth is changed when they see others who have difficult life circumstances. Families can create purpose, unity, and a changed perception of money by working together to come up with donations for a charity and then going together to do service for that charity.

(7) Families understand that most issues with wealth preservation are qualitative and not quantitative. Like reviewing a family’s financial balance sheet to determine growth from one year to the next, families need to hold an annual council to review the progress of each family member.

Some questions to determine this are: Is each member thriving? Is their human, intellectual, and financial capital improving/deteriorating? Is there any assistance that the family can provide without controlling or enabling?

No family is perfect and all families will have issues due to death, divorce, substance abuse, mental illness, etc. However, these issues can be overcome if the family members find common values and strive to show mutual respect, love, forgiveness, and compassion.

Families that have worked hard to build wealth, be it tangible or intangible, don’t want to see that wealth squandered. A family can pass on wealth if family members work together to improve their human, intellectual, and financial capital. This requires planning and work. However, the rewards of seeing a family’s wealth grow are immeasurable.

Source: James E. Hughes, Jr. (2004) Family Wealth: Keeping It in the Family

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The Family Bank

By | 2016, Money Moxie, Newsletter | No Comments

Many clients have wondered how to give money to adult children without creating dependence. Financial dependence can be an “addiction that is as serious as dependence on alcohol or drugs.”

This becomes even more problematic when you start looking to give assets to grandchildren and successive generations. One simple yet sophisticated tool to create a financial pool that can be self-perpetuating is a family bank.

The main purpose of the family bank is to use assets to improve the human and intellectual capital of each successive generation.

Rather than just gifting assets away, you create a “bank” where the children or grandchildren can apply for a loan through a formal process. There is a board of trustees, formed of family members, that reviews the application and approves or denies the loan. The loan is then repaid over time at an interest rate that is slightly lower than the prevailing interest rates. The repayment of the loan replenishes the family bank for future family members to use.

The benefit of using a family bank is that it promotes a sense of accountability as the recipient has to first prove the merits of their request and second return the capital based on the returns they receive from their endeavors.

Frequently, family banks are used to help pay for college, provide mortgages, or provide seed capital for a start-up business.
Again, the goal should be to improve the human and intellectual capital of each family member. It should be more than just a son asking his mom for $20. It should not be a gift that has no purpose and no expectation of repayment.

To set up a family bank you can use a legal document like a trust or a Limited Liability Company (LLC) to dictate how the family bank is operated.

As you work with an attorney to create these documents, be sure to include a mission statement. The purpose of the mission statement is to explain your intent and goals to help guide future generations in the administration of the family bank.

Once the governing documents are created, you can open an investment account that is titled in the name of the trust, LLC, or family limited partnership. It can be invested according to the restrictions in the documents.

If it is planned and implemented correctly, a family bank “can be a powerful mechanism to put wealth to good use for the benefit and development of the family.” If you have questions about how to set up a family bank, please contact one of our private wealth managers.

*Smedley Financial and its employees do not provide tax advice; therefore it is important to coordinate with your tax advisor regarding your specific situation.

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