CERTIFIED FINANCIAL PLANNER™
Copyright © 2016 by Mitchell E. Kauffman, MBA
CERTIFIED FINANCIAL PLANNER™
All rights reserved. No portion of this book may be used or reproduced in any manner whatsoever without written permission from the author. The information in this publication does not constitute a recommendation for the purchase or sale of any securities. Readers are advised to consult their financial advisor, tax advisor and/or estate planning attorney for assistance.
The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of Mitchell Kauffman and not necessarily those of Wells Fargo Advisors Financial Network.
Any information herein is not a complete summary or statement of all available data necessary for making an investment, tax or legal decision and does not constitute a recommendation. While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors of Wells Fargo Advisors Financial Network, we are not qualified to render advice on tax or legal matters. You should discuss tax or legal matters with the appropriate professional.
Dedicated to my loving wife Joanne, without whose support this would not have been possible, and to the clients over these many years who have been helped to gain financial confidence.
At Kauffman Wealth Management we are dedicated to helping our clients enjoy the highest quality of life. We accomplish this by providing valuable “Life Enhancer” resources to help optimize five key areas
FINANCIAL: While it has been said that money isn’t everything, Thoreau’s famous quote “… wealth is the ability to fully experience life” speaks to how resources can certainly enable us. At KWM our top priority is to help clients achieve financial confidence so they can focus on the things in life that they enjoy. Our booklet “Are You On Track: Your A-Z Financial Freedom Resource” articulates our playbook for helping clients define, achieve and preserve their financial goals.
HEALTH: “… Health is the real wealth and not pieces of gold and silver,” as Gandhi so aptly put it. Both from a physical as well as emotional perspective, enjoying good health is critical to achieving happiness.
Knowing this, at KWM we offer numerous resources including articles and seminars by noted physicians and psychologists that help clients enhance life quality.
SAFEGUARDS: Accumulating what you have is half the job; keeping it is the other half and requires vigilance. We partner in that effort by helping clients safeguard their wellbeing with initiatives ranging from tools to help manage risk, to updates with the latest on avoiding identity theft and protecting against internet incursions. Our goal is to help clients be in the world with less worry and concern.
LEGACY-PHILANTHROPY: “The goal isn’t to live forever; rather it’s to create something that will.” Knowing that nearly 70 percent of family wealth transference and business succession plans fail, and that the vast majority of failures were attributable to poor family trust, communication and heir preparation, we know the difference good heir preparation can make. Our booklet “Are Your Heirs Prepared: Your A-Z Moneywise Family Resource” offers a step-by-step process for helping clients articulate their values, identify how much they can afford to gift without adversely impacting their own lifestyle, and how they can help their heirs prepare to be effective stewards of their estate. The priority is to facilitate family cohesion and to help clients explore what place (if any) philanthropy may play in their plans.
SOCIAL: Feeling connected not only helps us live happier lives; studies show that positive social relationships can actually increase average life span by 7.5 years! Knowing this, at KWM we sponsor a variety of financial and non-financial events that help our clients build relationships within their families as well as among each other. Our priority is to help clients enjoy life to its fullest.
Family bliss becomes even more important as people age and appreciate their own mortality. Yet the topic of money, if not handled properly, has the potential to insert a painful wedge into even the best of relationships. Money changes people, plain and simple. Where loved ones are not given an opportunity to understand how money decisions are made and why, particularly when it comes to inheritances and bequests, anger and resentment among them can result. Being a trusted Wealth Manager-Advisor to many families over the past 30+ years has afforded me a unique perspective to witness firsthand what can be done right and what could be done better. This book strives to capture those valuable lessons and offer them so others can benefit (See Introduction: Can You Create Your Effective Family Financial Plan? for an overview perspective).
Helping elders feel confident of their own financial security is an important starting point and key prerequisite to their making effective family gifting and philanthropic decisions. Even the best giving plans can be derailed when an elder becomes anxious over whether his or her own lifestyle could be threatened. Having a methodical process to establish how much is needed to support that lifestyle is top priority. Only by having that insight can we then make truly informed decisions about how much to give away to family members and charities and enjoy those decisions without second thoughts and/or regrets (See Chapter 1: Are Your Financial Goals Achievable? The Importance of Having “Your Number”).
Whatever your family structure, embracing a process where clear, open communication can be enjoyed by all, is a key ingredient. We as family elders (parents and grandparents) are the ones most influential in setting that stage. Before we can do so, it is top priority that spouses or partners are clear between themselves on their own values, priorities and vision. So agreeing on that common ground before including other family members is critical (See Chapter 2: Can Articulating Your Values Enhance Family Cohesion?).
Once you as elders have clarity as to your own vision and financial needs, preparing your heirs to be good stewards consistent with your values, is the next priority. Obviously people have different comfort and skill levels when it comes to money.
Those more fluent may need less guidance, while others will need more. Certainly a minimum competency level is important. Understanding what skills comprise that minimum level and helping loved ones understand where they may benefit from guidance so to gain confidence in their functionally, is essential. (See Chapter 3: How Prepared Are Your Heirs?).
Many people by default will leave their assets as bequests and inheritances after they pass. While this approach may seem the simplest and perhaps the easiest path of least resistance, much could be missed. By contrast, developing a purposeful plan of lifetime gifting can allow donors to share in the happiness those bequests bring to the recipients, be they family members and/or charitable organizations. In addition, a prudent lifetime gifting program can provide significant tax benefits plus potentially generate tax advantaged income to support the donor’s lifestyle. Assets can be prioritized as to those most beneficial to the donor, so to reap the optimum benefits while potentially enhancing the remaining portfolio’s future investment results. (See Chapter 4: Are You Enjoying the Joys of Gifting?).
Similarly, clients often wonder when and how to begin teaching their children (and grandchildren) about money. While opinions may differ, studies show that much can be done as early as Kindergarten by starting with engaging games and allowance arrangements. These early seeds can be combined with a lifelong learning program to help assure your young ones will have the key financial skills needed to help them grow into highly functioning, self-sufficient, responsible adults capable of being the good stewards that you wish they become. (See Chapter 5: If You Don’t’ Teach Your Children to be Money Smart, Who Will?).
Combining these related items collaboratively into a Family Mission Statement can provide a tremendously gratifying structure for engaging your loved ones. Our step by step process offers an effective way to assure important and perhaps uncomfortable conversations can occur in a supportive, constructive setting. The end result can provide a means by which your heirs will feel included, have clarity of your values, priorities and vision for the family future. (See Family Mission Statement: How Can You Constructively Engage Your Family in Financial Discussions?).
Philanthropy can provide one of the most effective means to model your values and priorities, as well as to teach sound financial skills. Becoming “Strategic Donors” provides an opportunity for families to clarify what charitable causes that they feel are important, to consider what combination of treasure, time and talent they wish to donate, and to identify specific that can most effectively benefit from that support. (See How Can Your Charitable Efforts Have the Most Impact?”).
All said, this booklet offers a tremendous tool capable of helping elders feel more gratified rather than conflicted over their legacy decisions, support heirs in becoming responsible financial stewards, and bring families closer in the spirit of making collaborative decisions that can enrich their lives as well as positively impact their communities. That’s what we call a “win-win!”
• Do We Have Enough for Ourselves? Clients may question whether they can meet their own needs before figuring out how much to give to heirs and charities.
• Avoiding Mortality Discussions: It is human nature to not want to think about our own mortality, which can serve as a basis for avoiding related discussions.
• How Can We Be ‘Fair and Equal’: Some may dread a discussion between, say, competitive children about who gets how much and when. All too often, “fair” can translate into “equal” in good parenting parlance which may or may not best serve the family’s needs, especially when children may have unequal financial circumstances.
• Painful Reminders: Traditional bread winners may already be struggling with middle age, coming to terms with their life’s meaning and regrets about what may have been sacrificed as a spouse, parent and/or loved one to achieve financial success. So there may be hesitation that bringing up family finances could also spark painful emotions that clients see as best left undisturbed.
• Don’t Rock the Boat: Parents may hesitate to initiate conversations that may spark controversy within the family and opt instead to avoid discussing delicate issues that could cause upset. This is especially true given the money pressures the younger generations may feel from our challenging economy.
• It’s Not Our Business/We Don’t Want to Appear Greedy: By the same token, adult children may hesitate to ask about family finances so as to not appear overly anxious, perhaps falsely assuming parents will take the initiative and/or that these matters are none of their business despite their inherent stake. The end result is that important conversations may never take place.
As we consider the best ways to resolve these concerns, it can be helpful to better understand those issues that most worry parents concerning the effect of their wealth on their children.
According to a U.S. Trust survey of Affluent Americans
In short, increasing the success of wealth transference strategies requires much more than simply employing better taxation, preservation and governance of that wealth. Since many concerns are grounded in the parent’s direct experience and the resulting perceptions, their resolution not only rests in better preparing heirs, but may require a “revision or updating” in those perceptions as well. “The parental concerns address behaviors, knowledge, application of that knowledge, and what is often referred to as not-yet-acquired ‘common sense’ and ‘good judgement’”.
To be truly effective, that effort is best combined with an objective assessment of family skills that is more grounded in the here-and-now than being burdened by history. That John could not handle money as a teenager, or Sally spent every penny as soon as she got it, could leave a lasting impression that is best re-evaluated in the present.
Challenging though these worries may seem, our clients have found that by having a framework, many worries can be successfully resolved. The result can be a sense of confidence that the savings they have worked their lifetimes to accumulate will be handled as they wish—with a much lower chance of heirs being left hurt and disappointed.
How We Do It
“Your Number” Lifestyle Adequacy: Before figuring out how much to give to others, clients find it invaluable to first understand how much they will need to support their own lifestyle. Following the thought process of Lee Eisenberg in his bestseller, The Number: A Completely Different Way According to a U.S. Trust survey of Affluent Americans: to View the Rest of Your Life, we are able to calculate the required lump sum after allowing for Social Security, pension benefits, employment earnings, rental income and a multitude of other potential income sources (see our white paper: “Are Your Financial Goals Achievable? The Importance of Having ‘Your Number’” for more details).
Understanding Your Own Values and Priorities: Airlines recommend in case of emergency to have your own oxygen mask on before helping your companion. Similarly, it is important that family elders are clear and in agreement on their values and priorities before initiating those discussions with their families. Our clients have found it helpful to utilize the Values Based Financial Planning process advocated by Bill Bachrach in his book by the same name. Using that process, we are able to facilitate a deep, meaningful exploration of what is important to each client and why, which in turn provides a basis for dialogue and finding common ground. A discussion of philanthropic passions can provide a helpful means of conveying values to your heirs (see our white paper: “Can Articulating Your Values Enhance Family Cohesion?” for more detail).
Gaining an Objective Perspective on Heirs: Especially for Generation X’ers and Y’ers, many may have graduated with onerous education loans and credit card debt while at the same time may be challenged to find career jobs. Effectively managing their money, plus an eventual inheritance, will require familiarity, if not core competency, in these key areas: A first step may be to encourage heirs to objectively assess where they may need extra support using the enclosed questionnaire, “Are You Prepared to Succeed Financially?” By so doing they may increase their self-awareness and at the same time will help you gain a more current, perhaps objective picture of their financial prowess (see “How Prepared Are Your Heirs?” .
Getting Your Heirs the Support They Need: Our A-Z Financial Resource contains valuable, easy-to-understand articles on these core skills that can provide a solid base for awareness and learning.
Identify Your Interest Areas: Making philanthropic decisions together can provide a good basis for inviting important financial discussions and, as a result, can enhance trust and openness among your family members.
As a starting point, you may want to consider organizations that have positively affected you and others with whom you feel close. These are often causes that “speak” to you and resonate at an emotional level.
Prioritize Opportune Gifting Assets: Potential tax treatments can be a key. Top gifting options may include assets with significant unrealized gains, those that may not generate adequate cash flow, and troublesome assets like some rental properties (see our white paper: “Are You Enjoying the Joys of Gifting?” .
Compose Your Family Mission Statement: When created openly and with consensus, this sharing process can greatly facilitate family communication and serve to build trust among its members. There are typically three key parts that can be built by completing these sentences:
• Values that influence my giving are
• I would like to (goal of your time, treasures and talents) help (further what purpose, interest or social issue) ….
• Organizations (specify organizations or types of organizations) with which you would like to engage. Identify organizations offering best fit for your goals.
Identify Organizations Offering Best Fit for Your Goals: Before selecting an organization, it is important to understand how supporting it can help you achieve your mission and charitable objectives. Numerous services are available that gauge a non-profit’s effectiveness and results.
You may want to tour their facilities, perhaps as a family group, and speak with staff and even perhaps the clientele it supports.
Implement and Monitor Your Plan: Philanthropy is an evolving process, not a single event. Family “traditionalists” may have very different views than Millennials. You may want to uphold your ancestor’s philanthropic legacy while remaining open to the ideas and experiences of new generations. It is important to revisit the statement annually.
In summary, we all want our remaining time and money to be spent with as much clarity as possible. It is difficult to address issues of money with our loved ones; it is human nature to want everything to just go on as it is and trust the future will somehow take care of itself. But by carefully and mindfully speaking to your family members about your wishes and theirs, an ease of living is created because the hard stuff is “on the table.” Everyone then can continue living their lives without secrets, doubts, and possible questions. This comfort and ease can permeate the family system, allowing for time together to be as rich as possible. Several appendices worksheets are included at the end with recommendations that our clients have found invaluable in helping them facilitate a productive, inclusive Family Planning process.
Are Your Financial Goals Achievable? The Importance of Having “Your Number”
Regardless of your level of affluence, studies show that you need to know what you want out of life before you can achieve it. So states the wisdom of Lee Eisenberg in his bestseller The Number: A Completely Different Way to View the Rest of Your Life.
Eisenberg’s number refers to that amount of savings a person or couple must accumulate to enjoy a “secure” post-career lifestyle. His “completely different view” is based on the premise that the clearer your goals, the more likely they can be achieved. Establishing a precise goal, analogous to business planning, can be the best assurance of its attainment.
In practice, “Your Number” is typically not a single number but rather a series of numbers. Knowing the important role this kind of objective clarity can provide to our clients, we have spent considerable effort to develop this capability. Our version is a process capable of helping clients objectively understand their trade-off’s so they can make more informed decisions.
For those still saving, as well as for those near or in retirement, clients often grapple with covering their own financial needs versus how much for their heirs and/or charity. Many have found that by having “Your Number”, they are better able to address these issues once they know the estimated cost of supporting their lifestyle. With what remains, they can more confidently decide how much can go to philanthropy and heirs, and whether that happens during their lifetime or after they pass.
Lifestyle Goals Feasibility: Determining the feasibility of your lifestyle goals is an important starting point. Certainly if overly ambitious, the low probability of attaining those goals may render other goals inconsequential. Our process involves providing an average, annual after-tax return (ROR) needed for the lifestyle goal’s attainment. That ROR can then be compared to historic returns of different asset classes to determine the associated risk involved.
For example, if to achieve their lifestyle goals the study calculates that a 10 percent average ROR is needed, that figure compared to historical returns, may suggest a more aggressive portfolio heavily weighted in growth stocks. A specific, meaningful discussion can then ensue wherein the clients can consider how comfortable they may be with that level of risk. If not, to bridge the “gap” they can consider options that may include reducing current spending, increasing savings, postponing retirement age, or some combination. Whatever they decide, they are able to feel more in control to do so based on objective feedback that can make these oft times nebulous conversations, much more tangible.
“How am I doing?” is likely the most common question clients have asked over my 30+ years as an independent advisor. The “Your Number” process helps address this question by projecting the value a portfolio needs to attain each year to assure we are on track. For example, a couple may have a $133,000/yr. retirement income goal when the husband reaches his desired retirement in five years’ time. To generate that, they may need nearly $2 million. Their “Your Number” study may suggest they will need $1,827,515 in three years to show they are on track to their retirement income goal. We are able to compare their then prevailing balance to that figure, to readily gauge our progress and, hopefully, ease their concern.
“Am I Running Out of Money?” Concern over spending too much and not having enough later in retirement is another common concern. Again, the “Your Number” process gives us annual benchmarks from which clients can easily determine where they stand and if they may be spending too much, or perhaps not spending all that they could. Similarly, at ten years into retirement, the same client’s plan will show a $1,869,340 balance is needed to help assure they will not run deplete funds prematurely. Comparing that to their then current balance can quickly help them determine where they stand. This capability gives clients a greater sense of confidence and control over their futures.
Benefiting from Greater Clarity as We Age: The clarity provided by this approach may prove consistent with the normal aging process. “As people mature, their cognitive patterns become less abstract and more concrete…” according to psychologist David Wolfe. Research attributes this to a normal shift from left to right brain orientation during the aging process. The result is a sharpened sense of reality, increased capacity for emotion and an enhanced sense of connectedness.
The left hemisphere helps us with rational functions such as logic and organized, quantitative processes. The right hemisphere is the intuitive side that gives us creativity and analogic reasoning. Theory suggests that many of us may be slightly dominant in one side or the other, which may lend insight into how best we learn. “In other words… ” as Daniel Pink notes in his recent book, A Whole New Mind, “… as individuals age they place greater emphasis in their own lives on qualities they might have neglected in the rush to build careers and raise families; purpose, intrinsic satisfaction and meaning.” It makes intuitive sense that as we age and face our own mortality, we would become more sensitized to higher level emotional issues. That there might be a neurological or bio-chemical reason for this seems intriguing. Evidence of this trend may be found in the fact that over 10 million U.S. adults now engage in some form of regular meditation, double the number in 2005. Further, about 15 million people currently practice yoga, twice that in 1999.
While greater specificity is needed around the quest for money, Eisenberg cautions that we need to know ourselves and spend some time determining what makes us happy before we can make informed plans for leaving the world of active income. What do you want your retirement to be? Who do you want to be in retirement? Eisenberg’s research shows that even the affluent tend to procrastinate on addressing these issues.
Thus it would seem that, when tackling the three main questions we each must address—What will my retirement look like? When can my retirement plan happen? How much will it cost?—the traditional financial services approach makes a fundamental error in attempting to address the last question first. Eisenberg muses that we need to know what we need the money for before we can estimate how much. Hence the rise of various types of “life coaches” to help us wrestle with these more elusive issues.
The bottom line of the “Your Number” process is that, regardless of your state in life, better planning can often help both from an aesthetic and practical standpoint. As Eisenberg notes, “An unexamined life may or may not be worth living, but it is certainly more expensive.” Uncertainty over the economy and financial markets has many people concerned about their financial futures. For friends, relatives and colleagues who may find this information helpful, please feel free to share with them. Remember, for those who could benefit we offer a complimentary “Second Opinion” that can offer an objective financial review. Keep us in mind for those who may be seeking a wealth management firm like ours—one that delivers services according to the needs and perspectives of its clients.
Can Articulating Your Values Enhance Family Cohesion?
“What’s important about money to you?” The response to this critical question invites a higher level exploration beyond those tangible possessions which can provide transitory satisfaction. Study after study shows that lasting happiness and fulfillment can more often be attained by understanding our deeper emotions, e.g. our values and priorities. Yet as important as it is, this critical question all too often goes unasked and even less often, gets answered.
What frequently gets lost is the role money plays as a means to an end rather than an end in and of itself. The things we really care about, what gives us a sense of fulfillment, are the real payoffs that money can help us secure. These define our core values, the things that motivate us and give our lives meaning. Articulating values communicate those things important to us that can help us gain more happiness ourselves, bring spouses and families closer, and can serve as important role models for our heirs. It can also lay the groundwork for a family mission statement that can help establish a family’s identity.
If we think of articulating our values as a process, then defining what is a value could serve as a good starting point. Values are the qualities and principals that are most intrinsically dear and desirable to us. As such, they are given particular significance by the specific words we may use to describe them. They are those life intangibles that give us a deeper, more sustainable emotional “high” beyond fleeting pleasures of the moment.
The attainment of our values is what gives our lives true, lasting meaning and contentment as life’s emotional payoff.
When we talk about family values, we refer to “… a traditional set of social standards defined by the family and a history of customs that provide the emotional and physical basis for raising a family. Our social values are often times reinforced by our spiritual or religious beliefs and traditions.” In short, family values consist of those important ideas that are passed down from generation to generation that help us define how we want to live our family lives.
In his book Values-Based Financial Planning: The Art of Creating an Inspiring Financial Strategy, Bill Bachrach suggests a Five Step Process to starting a values conversation between partners:
1. “Your partner asks you a simple question: ‘What’s important about money to you?’
2. Your job is easy; just answer truthfully and as honestly from the heart as you can. Take as muchtime as you need, and give the first answer that comes to mind without overanalyzing.
3. Your partner records your answer toward the bottom of a sheet of paper (or use the worksheetprovided in Bachrach’s book, an example of which appears in Appendix 1) that serves as aValues Hierarchy or “Staircase”.
4. Then your partner builds on your answer by asking another question, substituting your value forthe word money: “What’s important about [your last answer] to you?
5.Again you respond with your first thought, your partner records it, and then he or she asks you thequestion again “What’s important about [the value you just said] to you? And so on up thestaircase.”
Money, like values, has meaning that differs from person to person.
For some it can offer security. For others, freedom and independence, and likely something very different to others. Having the patience to “drill down” with this process can help us access our deepest levels of emotions. Responses such as independence, accomplishment, making a difference, providing for family, inner peace, spiritual attainment, and self-worth can serve as statements of value that provide powerful inspiration. While your core values may be completely different from these, it is important to keep in mind that there are no wrong answers; your answer is always the right one for you.
The benefit this exercise offers is often found in the “drill down” phase. As Abraham Maslow postulated in his “Hierarchy of Needs”, the starting level relates to essential biological and safety needs such as food, water, shelter, protection from danger, disease, and fear. Once those are satisfied, Maslow believed that attention could then focus on higher psychological, social and emotional needs such as love, belonging, esteem from self and others, knowledge, and aesthetics such as beauty. As those are fulfilled, the highest “self-actualization” needs such as realizing one’s potential and enjoying “peak” experiences, become more achievable.
With Maslow’s Hierarchy as context, we often find three similar levels of response to the “What’s important about money” conversation:
Level 1 – Lower Self: Many will start with the more obvious answers about the “lower self” as Bachrach calls it. Responses that include tangible goods are simpler, less threatening and easier to access. They often relate to more immediate, physical benefits and obtaining tangibles.
Level 2 – Thoughtful Self: Pushing a little further may generate more thoughtful responses that pertain more to others than to self, such as making a difference, providing for family, social consciousness, or having a positive impact on community. The tone is less about immediate gratification with tangibles and more about doing for or giving to others.
Level 3 – Higher Self: At this level responses can take on a more expansive tone and focus on areas with greater potential internal/emotional payoffs. These can be aspirations like becoming the best person I can be, inner peace and contentment, spiritual fulfillment, enlightenment, etc. This is considered the level of pure emotion where there is a noticeable lack of tangibles and emphasis on real life purpose.
Keep in mind that most of us do not speak of our values very often. So responses can bounce around from one level to the next as part of this spontaneous process. People can also become anxious or even a little defensive as they drill deeper. This is perfectly natural. Bachrach suggests some important guidelines to help make this values conversation as effective as possible:
1. Choose a Good Partner: Someone who is genuinely interested in your responses and who canhelp support your completing the exercise. Two key guidelines that to consider:
• Stick to the inquiry format of “What’s important about __________ to you?”
• Don’t interject or offer suggestions. Especially for spouses who may be tempted to evencomplete each other’s sentences, this may be particularly challenging but try to refrain.
2. Stay Focused: As we drill down, people may become more anxious and may be tempted to strayby perhaps discussing their responses before the exercise is completed. Focus is tough enough,so for best results try to stay on task.
3. Be Spontaneous: The first response is usually the most genuine and it may take time. Keep inmind that the exercise is not timed and this subject matter is not often top of mind. Patience iskey. In fact, clients have spoken of instances when answers were hard to come by. By moving ata more leisurely pace they felt more satisfied with the experience.
4. Stick to the Format: Best results occur when clients stay dedicated to the format. Strictly stayingwith the questioning format of “What’s important about money to you?, then following up bysubstituting the last value given with “What’s important about _______ to you?” is your bestassurance of gaining a sincere, meaningful result. Try not to vary the words or the order they aresaid.
• Even seemingly minor changes such as “Why is money important?”, “What does moneymean to you?” will likely not get the same meaningful results.
• The farther you delve into this, the more clarity you will get about your financialmotivations. The end result can be a more powerfully inspired experience that can make asignificant difference in your life.
5. Fixing a “Stuck”: Participants may find they encounter a “block” as they move toward deeper Level 3. When this occurs, it may be helpful to picture yourself already in the position of havingachieved that particular value and ask “Once I know that I have _______, what is important abouthaving attained this that is resonating with me?” Some also find it helpful to step back, take abreak, then revisit the exercise again from where you left off.
6. Knowing When You’re Done: It is critical to not try to “leapfrog” ahead or force the highest value,as that could produce less than true results. The process itself, while taking some effort and introspection, contributes much to the crescendo of values at the end in revealing how eachrelates to the final output. Think of this as an unfolding of what matters to you, in a sense a storyof you in the making. As participants near the end, they typically find their values start soundingredundant or repetitive. As that occurs, the interviewer may rephrase the questions to be “Is there anything more important to you than ___________ (being the most recently stated value).”
Values are the less obvious, often intangible reasons that motivate us. They are the emotional payoffs that guide our choices and actions.
Articulating them can not only help us gain a better understanding of ourselves; discussing them can bring partners and families closer as well. They provide a framework around which we can create more meaningful financial goals. Perhaps more importantly, sharing our values can provide effective modeling and meaningful inspiration as they are handed down to our heirs.
Living your values is often even more of a challenge than defining them, as it takes concerted effort, discipline and commitment. Bachrach’s “Value Ladder” (see Appendix 1) offers a convenient format for exploring your values. “The Life Enhancer Worksheet” (see Appendix 2) provides a valuable structure to implement changes to help assure your lifestyle is consistent with what is most important so you can enjoy a “Life Well Lived.”
Sample Values Ladder Template
Sample Life Enhancer Worksheet
How Prepared Are Your Heirs?
Thirty Trillion Dollars! That staggering amount is what studies predict will be transferring from Baby Boomers to their heirs in the coming years. Yet nearly 70 percent of family wealth transference and business succession plans fail, with the vast majority (actually 60 percent) of failures attributable to poor family communication and heir preparation. This begs the question “How can Baby Boomer’s parents better prepare their heirs to be successful stewards of the savings that they have spent their lifetimes accumulating?
Tackling this daunting challenge may best be done by first having an objective appreciation of our heir’s cultural differences, then identifying what skills they need to succeed, followed by an objective diagnosis of where they may fall short. Then we can more effectively provide them guidance and with the resources they may need.
The reality is, Baby Boomers have accumulated a level of assets that is significantly greater than that of their parents, and will likely far exceed what the next generation may be able to accumulate. Boomer’s good fortune stems from an extended period of economic growth and stability occurring during their peak earning years (their aggregate net worth has quadrupled since the last 1980’s). This combined with the considerable appreciation of non-financial assets such as real estate, has provided a near perfect good storm. When contrasted to the challenges many Gen Xers (born 1965-85) and Millennials (1985-2004) have experienced, especially since the Great Recession of 08-09, the resulting asset gap becomes more understandable.
As the graph below shows, the median household net worth for today’s 35 to 44 year olds is approximately $47,000, compared with $102,000 for those of a similar age in 1989 (adjusted for inflation). No small wonder it has been said that this younger generation may be the first in our country’s history to hold a more pessimistic view of their future opportunities compared to their predecessors. Combine that with the entitlement that many exude, it’s not surprising that cultural perspectives may vary.
A young person’s ability to successfully launch themselves in several crucial life areas has traditionally served as a competency gauge, giving the impression of becoming one’s “own person,” grown-up and responsible. Knowing the functional and cultural differences between generations can provide valuable insight:
1. Career Success: Boomers value hard work almost to an extreme. Common with this “live to work” philosophy were 50 to 60 work weeks and a consequence that family and health, at times, ranked a distant second. They found an abundance of opportunity, with consistent reward and advancement for their hard work ethic. This fostered a perception that floundering careers were more by choice and personal inadequacy. Work was seen as an adventure, a place to prove one’s self and worth.
a. By contrast, and particularly in this post-“Great Recession” environment, Gen X and Millennials face fewer opportunities and greater challenges to launch their careers of choice, let alone excel in them. Perhaps more than any other since the Depression, many may be found in lower level “bridge” jobs, if not completely unemployed. Combine this with their cultural bias toward balanced lives, work may be more often seen as a contract and means to an end. As such, it can be demoted to lower priority compared with their personal enjoyment and fulfillment. They may be more readily perceived as “slackers” and feeling entitled to more than may be deserved.
2. Financial Self Sufficiency: Boomers grew up facing clear expectations that they become self-sufficient upon finishing school. Self-sufficiency meant that they could start and support their own separate household with little or no assistance from their parents.
a. Many Gen Xers and Millennials by comparison face considerable financial burden from substantial debts such as school loans. Combining this with fewer career opportunities that an uncertain economy brings, and we see many needing parental support and even living at home much longer. This combined with their cultural bias to do things “their own way,” it is easy to see how Boomers may feel critical and perhaps intolerant of their children’s lack of financial success.
3. Family Success: Although Boomer’s were known to postpone their family launch until later in life, their being able to build a traditional family has been seen as a measure of responsibility and achieving adulthood.
a. Younger generations, by contrast, have more cultural flexibility than ever. While some may choose a traditional family structure, others may consider what best meets their unique needs. Some may be attracted to non-traditional options such as remaining single, co-habitation, etc. Bottom line, an heir’s progress toward their eventual family environment may not be the same gauge of competency that it once was.
4. Life Resiliency: The old adage of “making lemonade out of lemons” has rarely been seen as a more important skill than today with all of its challenges. Boomer optimism and “can do” philosophy despite the hurdles have been legendary traits of this generation. So they may find themselves less sympathetic to discouragement and pessimism that their heirs may express.
a. Gen Xers and Millennials have seen an increase of cynicism, disaffection, and bleakness among their ranks, which is no small wonder considering the challenges we as a society face. The fact is, many of today’s young people see the economy’s anemic recovery as more than just a temporary setback. Rather, the dour environment may very well be costing them the future they once took for granted. The resulting malaise they feel may be met with intolerance by Boomer’s, whose “just hunker down” mentality worked for them so well during their life challenges. In short, assessing our heir’s competency by these traditional measures may not give us a comprehensive gauge of success. A more objective view may be had by focusing instead on our heir’s actual skill level in several key areas. The expectation is not to develop professional level expertise; rather that heirs demonstrate their willingness to assume responsibility to address these for themselves and their family unit.
1. Budgeting: Managing cash flow and living within one’s means
2. Debt Management: Systemic reduction of education loans, credit cards, mortgages, etc.
3. Savings and Investing: Allocating budget surplus toward future goals
4. Adversity Protection: Assuring loved ones will be financially secure if tragedy strikes (life, disability, liability and medical insurance)
5. Managing Employee Benefits: Optimizing employer programs for protection and savings
6. Estate Planning: Assuring that affairs will be properly handled in case of death or disability
7. Income Tax: Proactively managing affairs to help minimize tax liability
Many heirs have found it helpful to first consider an introspective assessment of their current skill level and areas where they may appreciate further assistance. The following Financial Scorecard has proven itself a helpful tool in this regard. Where couples are involved, having each complete their own assessment, then comparing their responses can spark candid conversations that can in turn help address varying perceptions. The result may bring the couple closer and ensure everyone is on the same page.
Certainly every generation experiences their own challenges that seem daunting at the time. The eventual success that Gen Xers and Millennials may eventually enjoy will be a function of the encouragement their Boomer parents can offer by creating a supportive, directive, yet nonblaming environment. They likely will have to do more with less compared to those who preceded them which, while difficult, could very well offer a similar character-building opportunity that WWII gave to our “Greatest Generation.” Since many Gen Xers and Millennials will one day be inheritors of considerable wealth, much can be gained by teaming with their Boomer parents in a constructive manner.
Are You Enjoying the Joys of Gifting?
“The best way to find yourself is to lose yourself in the service of others”- Mahatma Gandhi
While many wait until they pass to gift assets, it has been said that sharing the joy of generosity can bring the greatest pleasures that life can offer. Simply helping others in need, whether family or charities, can bring donors an unmatched sense of altruism.
A frequent hesitation toward lifetime gifting is concern over how doing so might compromise one’s own financial wellbeing. That is why we focus early in our relationship on helping clients establish how much they need to support their own future lifestyle. Our “Your Number” retirement cash flow process defines that figure, which in turn helps clients understand how much they can give to others, if anything, without jeopardizing their own futures. The resulting confidence often removes significant gifting inhibition and enhances the joys that giving can bring.
Being strategic with your gifting can optimize its impact, plus help maximize personal financial benefits, for a double win. We offer clients a step-by-step structure that can help them create their own effective gifting program.
The first step is to consider to what extent you want your gifts going to individuals such as family members, versus charities, as the benefits to each will vary. Below are the most common benefits of gifting and to which the benefits could apply:
1. Sharing the recipient’s emotional joy: Individuals and charities
2. Potential tax deductions that can help reduce income taxes: Charities only
3. Potential avoidance of capital gains by gifting appreciated assets: Individuals and charities
4. Portfolio “pruning” to help optimize investment performance: Individuals and charities
5. Lower estate tax exposure by helping wealthy clients reduce the size of their taxable estates: Individuals and charities
Secondly, if one goal is to optimize the personal financial benefit from gifting, we often find some assets may be more opportune than others. The following lists several generic categories, along with associated benefits.
Of course, your specific circumstances must be considered:
1. Cash: Gifting cash is certainly the simplest, but may be the least beneficial way to give. From a tax standpoint, an immediate deduction in the current year may be available for up to 50 of your adjusted gross income (AGI when you itemize) with any excess able to carry forward for five additional years. So if income taxes are a major motivator, it may be optimal to gift only up to the 50 limit in any given year in order to enjoy the most tax benefit from dollar expended.
2. Financial Securities: Securities, especially those with imbedded gains, may provide an enhanced tax benefit. On the one hand, you can enjoy an immediate deduction for the full current market value limited up to 30 of your AGI, with excesses carried forward for up to an additional five years. That you can enjoy a full market value deduction, plus avoid taxes on the imbedded gains, adds even greater benefit to this strategy. It is noteworthy that these benefits may be available to marketable securities as well as those of closely held stock and business interests.
3. Real Estate: Property such as vacation homes, income property or land can be costly and time consuming to maintain, especially if they are no longer being enjoyed as frequently and/or not generating sufficient net income as they may have in prior years. Managing property may also be a burdensome, time consuming responsibility that can become more challenging as clients age. So gifting real estate can not only provide an immediate tax deduction, plus avoid imbedded gains, it can also relieve time commitments and reduce expenses. The result is more cash available to help support your lifestyle.
4. Retirement Plan Assets: Making charitable donations from an IRA or other retirement plan has traditionally been less than optimal. That is because donors face a dollar-for-dollar tax liability on the plan distribution. When they subsequently donate the proceeds to a charity, however, the itemized deduction received would end up falling below dollar-for-dollar based on whether deduction limitations and phase-outs apply. The IRA Charitable Rollover option, by contrast, allows donors over 70 ½ to transfer up to $100,000 annually to a qualified charity without having to recognize any taxable income for the amount donated. The end result is a more effective donation strategy that also helps offset the donor’s Required Minimum Distribution (RMD) for the year. It is important to check with your tax professional to confirm whether this valuable tool is available in the current tax year.
5. Life Insurance: Many individuals buy life insurance to help support a surviving spouse, pay off a mortgage or cover a child’s education should an unexpected death occur. When those obligations get covered, the insurance pay has outlived its purpose. Clients in these situations may consider gifting these policies to maximize a charitable gift, reduce estate tax exposure, and avoid further premiums, by transferring policy ownership to a charitable organization. Other strategies may be available as well; it is important to consult with your tax and financial advisor.
Deciding whether you would be well served with a more formal gifting structure, a third gifting option may be considered. Formal gifting programs can, in some cases, provide more customized donor benefits in addition to supporting the charity of your choice. These include:
• Donor-Advised Funds (DAF’s): Offering the ultimate in convenience, DAF’s are pooled accounts that provide the donor an immediate tax deduction plus considerable flexibility in deciding which charities receive how much and when. DAF’s operate as a charitable checking account, with the ease of direct giving that a private foundation offers, without the costs and upkeep of a foundation. Operationally, the donated asset is liquidated immediately with no tax liability to the donor for the gains, and the proceeds are reinvested into a “pooled asset account” that hopefully grows until the donor makes his or her gifts. Second only to cash, this is considered one of the easiest donor tools available.
• Charitable Remainder Trust (CRT): This arrangement allows clients to donate an asset, usually appreciated with otherwise taxable gains, to this irrevocable trust and receive a tax deduction. The trustee will then sell the asset without any taxable gains, reinvest the proceeds into an income producing portfolio, then pay the donor either a percentage or fixed amount of income. When the donor passes, a designated charity or charities receive the remaining corpus.
• Charitable Lead Trust (CLT): Similar to the CRT, the CLT receives a gifted asset which is then sold tax-free to fund an income portfolio. A key difference: the CLT reverses the payout order. In this case the annual income (called lead interest) is paid to the charity for a preset timeframe. Afterwards, the remainder reverts to the donor or other designated beneficiaries. This strategy can be particularly effective when the taxable asset being generated from a “legacy” asset will not be needed for a predictable time period.
• Charitable Gift Annuity: This simple contract between a donor and a qualified charity has the donor contributing cash and/or assets to receive a charitable tax deduction (subject to income limitations) on a portion of the assets. The charity then agrees to pay a specific amount to designated recipients annually for a specified time, with any remainder reverting back to the charity.
For those who have the means, lifetime gifting can be an emotionally, as well as financially enriching experience. Not only can it help the charities that are near and dear to your heart, but it can also provide significant cash flow and tax benefits to the donor. This can help preserve assets and offer sustainable support during retirement. As an added benefit, parents who seek ways to pass their values and priorities onto their heirs often find that establishing a collaborative family gifting program offers a uniquely effective role modeling opportunity.
If You Don’t Teach Your Children to be Money Smart, Who Will?
“Shirtsleeves to sleeveless in three generations,” an old world proverb that famed industrialist Andrew Carnegie allegedly brought to America, speaks to the (all-too-often validated) fear that family wealth may be squandered with nothing left by the time the grandchildren pass. This dire forecast is particularly disturbing to those who have worked hard over their lifetimes in hopes of securing their family’s financial wellbeing for generations to come. Studies show that starting our children (and grandchildren) off with a solid base not just in financial literacy but also with good sense and values, can go a long way to helping avoid this seemingly apocalyptic future.
Studies show that helping kids begin understanding money as early as Kindergarten can offer many benefits. Being introduced this early to money can eventually reduce chances of being exploited by unscrupulous predators. Having financial confidence gives young people a sense of empowerment, self-sufficiency and better enables them to make their own way in the world. As your child’s new found skills develop, parents can have confidence knowing their kids have the resources to address basic financial decisions and are better able to handle money.
The question becomes, what age is appropriate to begin exposing kids to money and how can we best engage them in meaningful, fun learning experiences? “Children as young as three years old can grasp financial concepts like saving and spending,” according to Beth Kobliner, author of the New York Times bestseller “Get a Financial Life”. Further, a University of Cambridge study revealed that kids’ money habits are The question becomes, what age is appropriate to begin exposing kids to money and how can we best engage them in meaningful, fun learning experiences? “Children as young as three years old can grasp financial concepts like saving and spending,” according to Beth Kobliner, author of the New York Times bestseller New York Times bestseller, Get a Financial Life” Further, a University of Cambridge study revealed that kids’ money habits are formed by age 7 and that “… children develop financial and economic understanding when they have personal economic experiences rather than studying learning material such as texts. ”
With this in mind, an important starting point is to first identify the key skills that can be developed young, then consider the setting we create to best help our children flourish. Using a “Three Jar” technique, Ron Lieber in his book The Opposite of Spoiled, urges kids to start receiving an allowance for even nominal chores around the home. Money can be an effective tool for learning e.g. pay kids an allowance with clear expectations of how it is earned and how it will be used. On a weekly payday, parents can encourage that the funds be separated into three categories to model how grown-ups handle money. Physical containers such as jars be used to make the lesson more tangible:
1. Spend: Spending money can be the easiest to learn and may require little teaching. Parents need to help kids understand why some things are worth spending money on, while others may not be, and offer the concept of value and benefit received for funds expended.
2. Save: Learning delayed gratification, i.e. that not all things can be had right when we want them, and how to save to acquire them in the future, can provide a strong base that helps discourage materialism and entitlement.
3. Give: Providing a sense that we are all part of a community that has sensitivity for the less fortunate, helps instill gratitude and appreciation for what the family has.
This process teaches how to prioritize and consider trade-offs as well as helps kids distinguish between wants and needs. These jars can lay the basis for the “mental accounts” that eventually form our values and virtues as adults.
The fact is, “chores” can be a powerful arrangement for instilling responsibility and reinforcing youngsters as a part of the family community where each member helps out with house cleaning, cooking, etc. As such, they should be viewed as obligatory so children do not say they can take this week off because they may not need the money. Allowances are not a reward for helping out, so much as a tool to convey responsibility and an important role within the household.
Lieber incorporates the concept of chores into his warnings of what constitutes a “spoiled child” as those who:
• Have little if anything expected of them; no chores around the house, no sense of being a contributing member in the family or local community;
• Have few rules and no consequences for not adhering to them;
• Are lavished with time and attention so that they build an expectation of consistent praise without merit;
• Given things and experiences without having to say thank you or show gratitude can lead to materialism and entitlement.
Another valuable concept is that of the “fun ratio”. Therein kids are encouraged to track how many hours it took to buy a toy or entertaining experience compared to how many hours they spent actually enjoying it. This helps convey value and focus toward those items offering optimum utility for their cost.
The importance role modeling plays is perhaps the most impactful of all. Kids are sponges that are eager to absorb from their parents, which gives adults a unique opportunity to demonstrate positive financial skills and attitudes. Some key points include:
1. Shopping Trips: Take youngsters shopping to grocery or other stores, not as passive bystanders but as increasingly active participants where parents discuss comparative shopping, how to distinguish between essentials and discretionary items, how to contrast products and determine value, etc.
2. Influence of Parental Backgrounds: Studies show that parents raised with comfort tend to scale back on their spending so to give their children a more modest upbringing. Parents with first generation wealth that they earned themselves, may be more excited to give their kids all that they may have been denied as children. Being aware of how our own upbringings may influence our behavior is important to finding a happy medium.
3. Transparency: It can be challenging for parents to decide how much of their own financial information they should share. Many youngsters are more aware of money issues than parents may realize, as Lieber points out. They can pick up on money’s symbolic value along with the emotions it can stir and the associations it carries; this can encourage associations to pile up and lead kids to act selfishly in the short term and leave them with illusions about the power of money in the longer term. Hiding financial information may tell kids you don’t trust them and could impede your relationship. It is far better to openly discuss family earnings and net worth so children can understand the costs of their current lifestyle. The concern that kids may be de-motivated knowing they will have an abundant inheritance, can be addressed when parents emphasize children’s responsibilities within the household, like working over summer to help with school expenses.
4. Gender Bias: Studies show parents more often speak with boys about money than they do girls. This builds expectation that girls will earn less and perhaps will be worth less in the workplace. So it is critical that parents be aware and strive to consciously balance their conversations.
Standards in financial literacy are being developed and refined across the world. In fact, the Jump Start Coalition for Personal Financial Literacy has set forth a comprehensive Kindergarten-High School curriculum to help kids gain a balanced perspective on the role money plays in their lives. Examples of concrete, age-appropriate steps parents can take include:
1. Toddlers- Use toy money and cash registers to engage in simulated transactions. Make-believe services such as dressing a doll or washing a bike in exchange for money can be fun and educational.
2. Younger children- Help them with budgeting as previously discussed, perhaps to help pay for their own clothes, treats or movies.
3. Teenager- Encourage summer and weekend jobs to support their wants and extras. Also suggest kids identify charitable causes that speak to them, research organizations, and make a case to the family for their support.
Our children are astute, curious little beings that are hungry to learn. They begin seeing the importance of money as early as they become aware of their surroundings. Proactively initiating efforts to expose kids in a thoughtful, structured, open and age appropriate manner, can give parents a tremendous opportunity to shape their perceptions and help them grow into responsible, self-sufficient, productive adults. Your financial advisor may be a good training resource to help explain some of the more complicated topics as well as provide a resource should something sudden occur. The bottom line is to start early, be creative and use your resources to help develop your children into financial wizards.
Family Mission Statement: How Can You Constructively Engage Your Family in Financial Discussions?
Malcom Forbes’ infamous quote “I made my money the old-fashioned way. I was very nice to a wealthy relative right before he died” speaks rather crisply to concerns many elders (parents and grandparents) may have about their heirs’ possible intentions. By contrast, elders engaging their families in meaningful financial discussions can find these often lead to greater collaboration, understanding and harmony. The question becomes, what is the best way to accomplish this seemingly elusive goal?
Encouraging multigenerational financial discussions is one of the most important steps elders can take toward ensuring successful transference of their wealth and continuity of their priorities. In fact, studies show that educating your family about finances is not just about money; it more importantly can focus on sharing your goals and values. Collaboratively developing a Family Mission Statement is a valuable aid especially when heirs can be involved in the actual process.
Family Mission Statements often incorporate philanthropy since giving back offers a powerful opportunity to model wealth not as an identity, but rather as a tool to address societal issues near and dear to your heart. As such, “…a family mission statement is a combined, unified expression from all family members of what your family is about – what it is you really want to do and be – and the principles you choose to govern your family life.”
The inspiration and guidance a mission statement can bring are considerable. Younger generations gain a unique perspective by hearing family values directly from their elders while they are still alive and able to articulate. Youngsters can join in philanthropy-related projects that not only reinforce their participation but also help groom them for responsible roles in the family business or in other wealth management efforts. In short, many find that including even modest philanthropic activities can provide an effective way to engage family members about financial stewardship in the context of being a community participant and giving back.
Our clients find that developing an effective Mission Statement is best done within a structured process. Key steps include:
1. Preparatory activities to set the stage;
2. Elders clarifying and agreeing on their own personal values and beliefs;
3. Identifying your interest areas;
4. Composing your actual Family Mission Statement;
5. Testing your family’s financial process;
6. Hosting an effective family meeting.
Preparatory Activities to create a conducive setting can include:
1. Create a Venue for Sharing Family History: Before meeting as a family, elders may want to write about their ancestry, perhaps describing their parents/grandparents arrival to the United States, how they may have struggled to establish themselves, and what philanthropic causes they supported when they were able. This not only offers a valuable family history, but also invites younger family members to engage in meaningful dialogues across generations and immortalizes important stories behind formation of family beliefs and values.
2. Provide Hands-On Learning Opportunities: Setting aside money over which younger generations have spending authority, can offer valuable training. Whether done formally as a foundation or charitable trust, or informally on a smaller scale with donor-advised funds or simply small amounts in a separate account, these efforts can offer a practicum for teaching the value of money and making prudent financial decisions.
3. Support Family-Initiated Activities: At some point, if not already occurring, younger family members can be encouraged to research and propose their own projects. Especially since people are often the most engaged in activities they conceive themselves, this can be a next step in your family’s philanthropic journey. Young adults may identify formal financial and philanthropic training events, resource materials and want to participate in peer networks-all of which can be meaningful learning opportunities for managing family wealth and furthering the family’s charitable endeavors.
4. Encourage Family Decision Making: As your family’s philanthropic plan evolves, outlining how members will participate and what roles they may play, will be helpful. Those with more formal structures such as charitable foundations and trusts, may want to spell out who will lead, who may succeed, and how decisions will be made (e.g. majority vote, unanimity, etc.) and criteria to participate in those decisions (e.g. age, education, volunteer service, etc.). Certainly significant drivers of this formality are family size, proximity and amount of money being managed. Having these clearly spelled out beforehand will leave less ambiguity and less room for disagreement later.
5. Meet the Advisors: Also key is to promote a comfortable relationship between heirs and your trusted advisors, so they will feel comfortable bringing their questions or asking for support later in their lives. Elders will want to compose a list of their banker, accountant, attorney, financial advisor, insurance agent, etc. with contact information that can be introduced to the family. Taken a step further, scheduling face to face meetings where elders can introduce their advisors to key family members, can help facilitate on-going communication as and when needed.
Finding the “right” words to help Define Your Personal Values and Beliefs can be inspiring. Keep in mind that values are those characteristics we hold in the highest esteem because they reflect our core principles and how we live our lives. To help articulate your values, first place a check mark besides all of the following that resonate with you. Then review again and select the three most important. When including family members, you may encourage them to talk about their personal values as well.
Next, it will be helpful to Identify Your Interest Areas.
Here you will want to consider organizations for which you volunteered and about which you most cared, select from the following list all that resonate with you as a contributor. This will help you recognize what has the greatest meaning among causes you can support. Then review again and select your top three choices.
Finally, you will want to Compose Your Mission Statement. Review your top three values and interests to see what relationship exists between them. For example, those might be community, justice and respect combined with your top three interest areas being elder care, housing and poverty solutions. The relationship could be wishing for everyone to live in a just community and that all seniors need to have sufficient financial support, including adequate housing in order to enjoy a life of respect.
Mission statements are a clear expression of your philanthropic priorities. Thinking about your values and interests, what could influence issues about which you care, what action steps can you take to support improvement and in what time period should your actions occur? The following words can provide helpful guidance.
The process itself can best be described in the flow graph below:
As a sample, a Mission Statement could read: “I want families who have suffered abuse to have the opportunity to live safely and self-sufficiently. I plan to do this by funding additional facilities for abused women and children with my charitable giving and volunteering two hours per week to train women in shelters on the skills to find a job.”
TESTING YOUR FAMILY’S FINANCIAL PROCESS is key to assure its clarity and effectiveness.
Below are key areas to address:
1. Our family has a mission statement that spells out the overall purpose of our wealth.
2. The entire family participates in most important decisions, such as defining a mission for our wealth.
3. All family heirs have the option of participating in the management of the family’s assets.
4. Heirs understand their future roles, have “bought into” those roles and look forward to performing in those roles.
5. Heirs have actually reviewed the family’s estate plans and documents.
6. Our current wills, trusts, and other documents make most asset distributions based on their readiness, not their age.
7. Our family mission includes creating incentives and opportunities for our heirs.
8. Our younger children are encouraged to participate in our family’s philanthropic grant-making decisions.
9. Our family considers family unity to be just as important as family financial strength.
10. We communicate well throughout our family and regularly meet as a family to discuss issues and changes.
HOSTING AN EFFECTIVE FAMILY MEETING is critical. Remember that anxiety will be high for everyone. This may be just a beginning and perhaps first meeting. There may be joking or other ways discomfort may manifest itself. Expect that and try to not let it derail the meeting.
• Create a process for family decision making: Children need to not only hear your vision but also need to see it in action. This may include job descriptions to clearly articulate responsibilities of trustees and/or a succession plan that can specify criteria for family members to be eligible to serve as trustees.
• Timing and venue: Successful family discussions, especially at the onset, most often occur in a relaxed, unhurried setting and at a venue that feels private and inviting.
• Support vs. Criticism: Nothing shuts down a discussion faster than criticism, whether it pertain to past transgressions or attacks on one’s financial competence. It is important to remain attune to the sensitivity you and family members may feel.
• Focus on two key issues: Especially when dealing with multigenerational financial issues, we have had the best results from focusing on just a couple of items at a time rather than trying to take on all the issues.
• Provide an opportunity to share family history: Include stories such as original immigration to the United States. The challenges that ancestors have overcome can model determination and can be inspirational. Your own personal history may illuminate important insights for your heirs.
• Create meaningful hands-on learning: Various structures including donor-advised funds, family foundations and trusts can offer a more structured training ground to help with decision making.
• Plan to manage disagreements; some families require consensus, while others develop a compromise strategy by which “losers” of one decision are ensured a “win” in another decision.
• Framework: Your first major charitable donation: How did your family decide on their philanthropy and volunteerism?
• What was your most charitable investment? When was it made and what made it important?
How did you achieve financial wealth and how has that influenced your giving back to the community?
• Research shows greater impact when parents initiate conversations; they have a greater positive modeling impact then when parents simply let their philanthropic activity speak for itself.
• Philanthropic discussions are equally effective independent of parent’s income or child’s gender, age or race.
• A neutral professional facilitator can sometimes enhance communication and introduce tools capable of helping family members discover their common values and vision.
• Children can become involved as young as five years old and deepen their role regarding administration and investments before they are teenagers.
• Each child can be encouraged to propose and advocate a grant request that may include on-site visits and interviews with a non-profit.
• It may require each member to make a personal investment of either volunteer time and/or money. Younger children can be given a small amount to donate themselves.
• Elders need to not overly control assets, tempting as it may be.
“A mission statement is just what it sounds like – a description of a … family’s raison d’etre – its reason for existing.” As such, it “encapsulates your idea of the good life and lays out your family’s purpose, goals and standards.” Constructing your Mission Statement that embodies family values, then creating recurring activities that incorporates the personalities, skills and life experiences that family members are encouraged to bring to discussions about wealth and values.
Philanthropy, even at modest levels, can help elders model their values and priorities to inspire their heirs. Remember, philanthropic management is best seen as a process rather than an event. Family philanthropic priorities will evolve particularly as world events change and new social needs become apparent. Key to a successful plan is engagement of all family members, from Traditionalists to Millennials. Having a context based on your family’s rich history, encouraging all to remain open to new ideas and experiences especially those that younger generations may bring to the table, all can be keys to success. Ultimately, it often rests on the family elders to set the stage.
How Can Your Charitable Efforts Have the Most Impact?
“Giving money away is easy. Giving it away wisely is hard, although it can be extremely satisfying.” In our busy lives, the path of least resistance is often to simply comply with philanthropic requests when asked. As long as the organization seems familiar and credible, we may donate “on the run” believing that good things will occur with the dollars donated. The result can find us supporting a variety of organizations that may or may not have the effective community impact we wish.
By contrast, “strategic donors” have the clarity of knowing their donations are focused on causes near and dear to their hearts so they can enjoy greater satisfaction, sense of accomplishment, and use these efforts as an opportunity to model their values with family members. Even for those who have created a simple plan, they are supporting organizations that can have measurable impacts on their communities in ways and for causes that resonate with them. By so doing, our clients find their donations have deeper meaning, can better engage their families and teach their young good money skills and values that can help them grow into high functioning, ethical community members. The key to this success is based on a premise that can often get missed: Charitable giving is ultimately about improving the quality of life for both the recipient as well as the donor.
The challenge becomes, how can we best align our charitable efforts with our values, life experiences and interests, to help those efforts be as impactful as possible? This is best accomplished by following a three step process:
1. Clarifying those general “causes” that are most important to you (see Chapter 7 Family Mission Statement: How Can You Constructively Engage Your Family in Financial Discussions?
2. Identifying which specific organizations best meet your interests and goals;
3. Screening those organization to identify which have the most effective impact.
Clarifying important causes, we have found, is best done using a self-exploration to identify yours and your family’s key interest areas. The process we advocate in creating your Family Mission Statement offers a thorough, step by step blueprint for achieving this clarity. In addition, reflecting back on your historical philanthropic efforts can add further insight. To do this, it is helpful to consider:
. To which organizations have you previously donated or volunteered time and talent? What motivated your decisions?
2. Which of these were the most meaningful or rewarding? What made them rewarding for you?
3. Which were the most disappointing? What made them disappointing for you? Reviewing and discussing these will help narrow your focus toward causes and types of organizations with the greatest potential.
Identifying which organizations are most consistent with your goals and interests, given the sheer number out there, may seem a daunting task. Thankfully, tracking and reporting about charities has become an important concern. Many on-line resources are now available to help you find those organizations that most closely meet your functional as well as geographical interests. Several we have found helpful include:
1. C harities Review Council
2. Global Impact Charity Alliance
3. G iven Tree Certified Non-Profits
Screening for organizations that are the most impactful is really where “the rubber hits the road.” Here we are able to refine your list to those charities that are effective and consistent with your interests. Again, there are a number of different resources that monitor and rate non-profits. Several of the top ones include:
1. Charity Navigator
2. Charity Watch
3. Giving What We Can
Moving through this process, keep in mind that three key questions often guide strategic donors:
1. Results: What will my contribution achieve?
2. Changes: What is the likelihood those results will be realized?
3. Use: Is the contribution the best use of my resources?
As you review your contribution, consider that Philanthropic Support can take the form of treasure, time, and/or talent.
• Treasure, which pertains to cash or assets of value, can take the form of cash or assets. There are certainly many strategic aspects to optimizing the financial benefit of your gift, including portfolio rebalancing, income tax benefits, capital gains avoidance, and estate tax considerations for larger estates (see Are You Enjoying the Joys of Gifting?. Appendix A attached also offers a list of useful criteria in selecting organizations.
• Time concerns what volunteer support you and your family are able to donate to the actual delivery of a philanthropy’s services (e.g. prepare or serve food to the homeless, clean up the beach for ecology, etc.). Here, reviewing the charity’s effectiveness can offer good guidance as to how much good your hours can do.
• Talent involves what expertise you might provide to an organization’s governance by serving on their board and/or assisting with capacity building projects. Criteria you will want to consider are listed in Appendix B.
Clients tell us of how their successful philanthropic support can add purpose and meaning to their lives. Experience also shows there are no more effective ways to model your priorities and values to younger members of your family. The messages of gratitude and compassion for the less fortunate can offer tremendous inspiration for generations to come. Engaging your loved ones in this process often provides a wonderful opportunity to bring families closer together.
TREASURE GUIDE: The following offers useful criteria for evaluating whether a nonprofit’s programs are working and, if so, whether the nonprofit has the capacity to fulfill its mission.
TALENT GUIDE: The following criteria provide helpful guidance in screening the governance and oversight of effective organizations.
Investment results are certainly an important key to financial security.
That said, we have found over our 30+ years of providing award-winning service , that when clients know their entire financial house is in good order, they are “freed” to focus on other aspects of their lives that can potentially offer fulfillment.
Our team’s Comprehensive Wealth Management process, as described below, sees investments not in and of themselves, but rather, in the context of tax planning, estate planning and risk-insurance management. This holistic approach gives clients their own personal “Chief Financial Officer” who knows more than just the numbers—someone who is also intimately familiar with their dreams and concerns. This highly personalized service is capable of not only effectively reacting, but also more proactively anticipating client needs— and often resolving questions before they are even asked.
The “Financial Enhancers” discussed herein represent only one aspect of our efforts. Helping clients balance their lives, we also offer resources that consider your:
• Health: Physical impact to give you longevity
• Safeguards: Insurance and estate planning tools
• Legacy-Philanthropy: Family and community impact to give you meaning
• Social: Emotional impact to give you connection
This publication goes well beyond textbook knowledge. It shares many practical insights and tactics that often are only learned from being “in the trenches” and actually sitting with clients as they share their innermost fears and dreams. While every person is unique, we all share many similar concerns and aspirations. My sincere hope is that the materials offered herein can offer a positive impact to your life.
To explore our services further, I invite you to visit our website at and to contact me directly at (866) 467-8981. I look forward to discussing how we can support your efforts to achieve a “Life Well Lived”
Uncertainty over the economy and financial markets has many people concerned about their financial futures. For friends, relatives and colleagues who may find this information helpful, please feel free to share with them. Remember, for those who could benefit we offer a complimentary “Second Opinion” that can offer an objective financial review. Keep us in mind for those who may be seeking a wealth management firm like ours—one that delivers services according to the needs and perspectives of its clients.
Many people find that having a trusted independent advisor can provide financial confidence— by clarifying economic complexity, navigating through turbulent markets, and providing a buffer between them and changing times.
Discover how Kauffman Wealth Managements’ extraordinarily personalized approach to financial planning and management can help you on the road to a “Life Well Lived”.
140 South Lake Avenue, Suite 217, Pasadena 91101: 626.795.6874
550 Periwinkle Lane, Santa Barbara 93108: 805.969.5444
Toll Free: 866.467.898
Email: [email protected]
The information contained in this book does not purport to be a complete description of the securities, markets, or developments referred to in this material and does not consititute a reccomendation. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of Mitchell Kauffman and not necessarily those of Wells Fargo Advisors Financial Network. Expressions of opinion are as of this date and are subject to change without notice. Wells Fargo Advisors Financial Network is not responsible for the consequences of any particular transaction or investment decision based on the content of this book. All financial, retirement and estate planning should be individualized as each person’s situation is unique.
This information is not intended as a solicitation or an offer to buy or sell any security referred to herein. Keep in mind that there is no assurance that our recommendations or strategies will ultimately be successful or profitable nor protect against a loss. There may also be the potential for missed growth opportunities that may occur after the sale of an investment. Recommendations, specific investments or strategies discussed may not be suitable for all investors. Past performance may not be indicative of future results. You should discuss any tax or legal matters with the appropriate professional.
1 Preparing Heirs by Roy Williams and Vic Preisser, Robert D. Reed Publishers 2003, Pg. 36
2 “A Whole New Mind” by Daniel Pink, Penguin Group, 2005.
3 Preparing Heirs… p. 21-22
4 “The Number” by Lee Eisenberg, Free Press 2006.
5 “The Number” by Lee Eisenberg, Free Press 2006.
6 “A Whole New Mind” by Daniel Pink, Penguin Group, 2005, p. 60.
7 “A Whole New Mind” by Daniel Pink, Penguin Group, 2005.
8 Values-Based Financial Planning: The Art of Creating an Inspiring Financial Strategy, by Bill Bachrach, Aim High Publishing 2000, Pg. 4
9 Defining Your Family’s Values by Susie Duffy, M.F.T., Parent IQ http://www.parentiq.com/news/DefiningYourFamilyValues.asp
10 Values-Based Financial Planning: The Art of Creating an Inspiring Financial Strategy, by Bill Bachrach, Aim High Publishing 2000, Pg. 5-6
11 Great Wealth Transfer Will Be $30 Trillion‐Yes, That’s Trillion With A T by Cam Marston, CNBC On‐Line July 22, 2014
12 Preparing Heirs by Roy Williams and Vic Preisser, Robert D. Reed Publishers 2003, Pg. 36
13 The Long and the Short of Baby Boomer Balance Sheets by Benjamin Mandel and Livia Wu, J.P. Morgan Investment Insights Oct. 2015
14 The 5 Most Important Money Lessons To Teach Your Kids, by Laura Shin, Forbes Magazine Oct. 15, 2013 [+ http://www.forbes.com/sites/laurashin/2013/10/15/the-5-most-important-money-lessons-to-teach-your-kids/pri nt/+]
15 Habit Formation and Learning in Young Children, by Dr. David Whitebread and Dr. Sue Bingham, University of Cambridge, The Money Advise Service
16 The Opposite of Spoiled,: Raising Kids Who Are Grounded, Generous, and Smart About Money, by Ron Lieber
17 The Opposite of Spoiled,: Raising Kids Who Are Grounded, Generous, and Smart About Money, by Ron Lieber
18 The Smart Way to Teach Children About Money, by Charlie Wells, Wall Street Journal Feb. 2, 2015
19 Jump Start Coalition for Personal Financial Literacy,
20 The Community website, Stephen R. Covey,
21 How to make Philanthropy a Family Affair, Betsy Brill, Forbes.com 4/19/2011 Pg. 1-3
22 What is Important to You? Giving Guide, Greater Kansas City Community Foundation, Kansas City MO, 2011 Pg. 6
23 Giving Guide: Philanthropy with a Purpose, Community Foundation Greater Des Moines, Finkbine Mansion, Pg. 3
24 What is Important to You? Giving Guide, Greater Kansas City Community Foundation, Kansas City MO. 2011 Pg.4
25 Giving Guide: Philanthropy with a Purpose, Community Foundation Greater Des Moines, Finkbine Mansion, Pg. 4
26 Giving Guide: Philanthropy with a Purpose, Community Foundation Greater Des Moines, Finkbine Mansion, Pg. 7
27 The Community website, Stephen R. Covey, https://www.stephencovey.com/mission-statements.php
28 Strategic Philanthropy Giving Guide, American Century Investments, Pg. 3
29 On Being an Informed Philanthropist, Strategic Philanthropy [+ http://www.stratphilanthropy.com/on-being-an-informed-philanthropist+]
30 Advisor Hall of Fame: Inductees into the Advisor Hall of Fame have passed a rigorous screening, served a minimum of 15 years in the industry, acquired substantial assets under management, demonstrate superior client service, and have earned recognition from their peers and the broader community.
31 Strategic Philanthropy Giving Guide, American Century Investments, Pg. 3
32 What is Important to You? Giving Guide, Greater Kansas City Community Foundation 2011, Pg. 3
As managing director and owner of Kauffman Wealth Management, Mitchell Kauffman has been providing wealth management and financial advisory services to his clients for over 30 years. Kauffman is a CERTIFIED FINANCIAL PLANNER™ practitioner and holds an M.B.A. from the Claremont Graduate University, where he served as a graduate fellow under the late Dr. Peter F. Drucker. He also earned a Certification in Financial Planning and a Master’s of Science from the College for Financial Planning in Denver, Colorado, as well as a Bachelor of Arts in Business Economics and Political Science from the University of California at Santa Barbara.
He is also an accomplished writer and speaker, whose contributions to his profession have been published in the Wall Street Journal, Los Angeles Times, Chicago Tribune, and Kiplinger, as well as several publications in Southern California.
Kauffman was one of only five financial advisors in the U.S. named to the Advisor Hall of Fame for 2010 by Research magazine. This honor had been bestowed on only 100 advisors during its prior 20-year history. He was also recognized as one of the top 500 Registered Investment Advisors nationally by Financial Advisor magazine for 2011.*
Kauffman Wealth Management serves clients from two office locations: 140 South Lake Avenue, Pasadena, CA 91101 and 550 Periwinkle Lane, Santa Barbara, CA 93108. Securities offered through Wells Fargo Advisors Financial Network, member, FINRA/SIPC.
Wells Fargo Advisors Financial Network is not affiliated with any of the entities or groups listed above. *Advisor Hall of Fame: Inductees into the Advisor Hall of Fame have passed a rigorous screening, served a minimum of 15 years in the industry, acquired substantial assets under management, demonstrate superior client service, and have earned recognition from their peers and the broader community. Top 500 Registered Investment Advisors: Based on assets under management and practice growth.
Kauffman Wealth Management Securities offered through Wells Fargo Advisors Financial Network. Member FINRA/SIPC.
Pasadena Office: 626-795-6874
Santa Barbara Office: 805-969-5444
Thirty Trillion Dollars! That staggering amount is what studies predict will be transferring from Baby Boomers to their heirs in the coming years. Yet nearly 70 percent of family wealth transference and business succession plans fail, with the vast majority (actually 60 percent) of failures attributable to poor family communication and heir preparation. This begs the question “How can Baby Boomers better prepare their heirs to be successful stewards of the savings that they have spent their lifetimes accumulating?" While preparation can take many forms, my 30+ years as a trusted Wealth Manager-Advisor to many families has afforded me a unique perspective to witness firsthand what can be done right and what could be done better. This book strives to capture and share those valuable lessons so others can benefit.