Cornerstone Concept: Produce a Handwritten Individual Legacy Statement

Preamble: Continuing in the best financial shape is the holy grail for family business. Everyone knows that. But many postpone doing anything about it…until it is too late. Much of continuity hinges on this plan, arguably the most important of the four plans here.

This plan aims to reduce potential for tension between the owners and the broader family. Of the four plans, this is the most sensitive and the most technical. It is also the one most likely to be shrouded in secrecy. Conspiracy theories abound. Moreover, it is also the one most commonly avoided. Yet the image of the crusty old patriarch dying at his desk and ruling from the grave is not consistent with continuity modeling. The Continuity Generation has a more pragmatic perspective. They recognize that strong financial health and familial harmony significantly enhance chances for continuity. So, rather than avoid asset, wealth, and estate (AWE) planning, they tackle this head-on. In general, the Continuity Generation believes that dealing with difficult, sensitive conversations openly addresses much of the inevitable tension in family business. “There is another way” is the Continuity Model Generation mantra.

Asset, Wealth and Estate Planning for Continuity I: Collecting and Collating Basic Information

What will likely become obvious in these pages is that building your Continuity Canvas takes some patience and a degree of detective work. It may also require difficult conversations previously considered off-limits. Two hints here: (i) tread lightly, and (ii) be prepared to back off and move on from this plan to one of the others if you find that some simply aren't ready for it. But focusing elsewhere does not mean you have given up at the first sign of resistance. It simply suggests that the aim is to build momentum around continuity (and its close relation, legacy, which is a much easier pill to swallow than “succession,” for even the staunchest naysayer).

Proceed by looking at the ownership system. It is often surprising, to even the most seasoned experts, how few owners in multi-generational, business-owning families have intimate knowledge about what they actually own. This is not such a big deal with earlier-stage entities, of course. But the situation changes as businesses and families grow, particularly when there is a liquidity event or a generational change in ownership. Here it is important not to fall into the trap of personality and/or family faction judgment. Remember, the aim is continuity. Sometimes it is best to avoid the trap by staying focused on “technical” issues, and to examine ownership structures and entities, rather than individuals as owners. Avoid potential minefields. The more complex the business activities and the older the family (in generational terms), the more difficult and challenging this undertaking. But that is not an excuse, when the aim is to understand to continue by continuing to understand. So, acknowledge the complexity but aim to keep it as simple as possible. Recall the analogy of ensuring a ten-year-old can follow the gist. Perhaps create an evidence chart, as if you were a detective solving a case. That way there will be a trail.

Start with the understanding that each entity is 100%-owned by someone and work out who owns what portions of that 100%. Do not focus on what that holding is worth. That really does not matter to this conversation. Moreover, be warned that complex trust structures will send you down rabbit holes. Avoid them where possible. In some cases, such trusts may be a delaying tactic by someone not drinking the continuity Kool-Aid™ or inherited and in place for taxation minimization (not avoidance). Regardless, now is not the time to be unraveling these. Instead, flag the need for a future, healthy discussion about whether these structures are contributing or limiting continuity chances. It could be that the trusts must be dissolved and reformulated, in the name of continuity modeling.

The second activity required to build a Continuity Canvas in the AWE planning process, just as was advised in the Strategic Plan, is to honestly evaluate each owner's preparedness to transition their estate, wealth, and assets (Illustration 28). This scrutiny is difficult but necessary. It really is the “day after you bury or burn me” test, morbid as that may be. It involves owners holding a mirror up to themselves and asking how healthy their assets, wealth, and estate are in terms of contributing to or harming the chances of continuity. A generation ago, this was unthinkable. But the Continuity Generation expects, even demands, to know what cards they are going to end up holding. The incumbent generation should know the cards. After all, they are holding them. To not engage is unfair…for all stakeholders. Always has been, always will be.

Message to incumbents: set the next generation(s) up for success; don't make it more difficult than it already is. Okay, I'll step off my soapbox now.

There is no one way to go about this step of AWE planning. It is vital that you (i) uncover the evidence in percentage ownership terms rather than dollar figures, and (ii) honestly evaluate how well the wealth, assets, and estate are placed to be efficiently transferred in the future. Consider drafting a table on a whiteboard, and figure it out for yourselves. Likely, you'll eventually require involvement of trusted advisors, lawyers and accountants. But do not outsource the problem to them. It is not their problem. They love problems; indeed, that's their business model.

Tread lightly but do tread into the territories this planning requires.

Asset, Wealth, and Estate Planning for Continuity II: Cornerstone Concept Equals Produce a Handwritten Individual Legacy Statement

As for the previous plans discussed, with some basic descriptive information in hand, the platform is set for the second stage, or the application of selected frameworks to understand more fully what is required to develop an AWE planning process for continuity. The cornerstone objective here is to produce a handwritten individual legacy statement. There are three aspects of this: (i) handwritten, (ii) individual, and (iii) legacy. To clarify, this is not intended to be a legally binding document. It is the opposite. The statement may influence a legal document eventually, but in no way is it intended to replace a will, a trust deed, a whatever. It is the antecedent to many of these documents. It is what it is…a hand-written individual legacy statement. More specifically, it articulates one's very personal intentions to be remembered and how any assets, wealth, or estate items can best be deployed or redeployed to raise chances for the business and the family to continue as major contributors to commerce and society. This idea must be stressed and restressed. The ultimate handwritten document, further, contains sentiments typical of a eulogy. Indeed, if it feels more comfortable and helps keep the legal team at bay, call the statement the opening paragraph to your eulogy!

Keeping true to our central model, the overarching objective is to develop an asset, wealth, and estate planning process for continuity that is driven by the 21 frameworks. For this plan, we are concerned with how the frameworks apply to four groups: (i) family–nuclear, (ii) family–extended, (iii) other–individuals, and (iv) other–groups (Illustrated Table 3). Given the personal nature of this activity, it is easier to group the groups and consider more broadly the application of the frameworks. But the intent is to motivate broader and deeper thought processes. It is inevitable that everyone must do this eventually. Doing it as part of the Continuity Model Generation process is far preferred to being dragged into a lawyer's office and asked questions for which you are likely not prepared.

Stay in the helicopter. The view (and viewpoint) is better. Avoid getting distracted. Look more through the windshield than at the rear-view mirror. Keep reminding yourself that what you produce is not legally binding; that will come later. It is a commitment to the understanding that having a plan will significantly reduce tension and the potential for conflict between owner-stewards and the increasingly diverse family of families. If it feels uncomfortable, that is normal and not a bad thing. In fact, embrace the process as being as, or more, important than anything you have done in your career and family life. Keep asking yourself if you are asking the right questions. It doesn't matter what others think if you start to say this aloud. “Am I asking the right questions” is a useful safe harbor to retreat to when you are overwhelmed, no matter the context. You will never get perfect information but knowing that is part of the process of developing a tolerance of ambiguity, which is a prerequisite for continuity thinking. To think and act broadly and deeply about this topic, and plan, really is, as someone once put it, the final test of greatness.