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Financial

Ultimate Estate Plan Challenge: How much is enough?

by Roy P. Kozupsky & Douglas Freeman

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How much of your wealth do you want your children to receive after you are gone? In reaching this conclusion, you may choose to leave everything to them. But, before deciding, ask yourself... How much will help them? At what point will any gift to them be excessive or counter-productive, i.e., undermine their own willingness or need to earn and become financially independent? Will the amount of wealth distract them from their chosen businesses or careers? Will it encourage them to retire on the date of your death? Remember, too much, too soon, can be very harmful.

Do they need your wealth or have they achieved financial success on their own or through your prior gifts? There is a difference between “need” and “want.” Have you built up expectations about your estate and their “rights” to it? This doesn’t mean ignoring their concerns. In fact, we encourage discussion about your plans and hearing about their interests and goals. But, you don’t want to create the impression that their sole business in life is to preserve your estate for themselves. Look at each family member as an individual and answer the above questions as they may apply to him or her. Remember, anything you leave to the family is a gift, not an entitlement.

Some parents choose to leave assets to their children based on how much can pass tax free, others focus on how much will be left after taxes are considered, and yet others consider how much is appropriate.

In deciding on the distribution plan for your children, keep in mind the following principles. First, leave enough to enable the children to grow up comfortably and securely and to complete their education and begin their careers. Leaving too much could actually impede this process. Second, leave the assets in such a manner as to reward hard work, initiative, and self-sufficiency. In other words, don’t provide an “allowance” or steady income to young adult children when they should, at that point in their lives, become independent of your resources.

In deciding “how much is enough?", focus on the question “what is it you want these funds to do?” The answer will depend on a variety of factors that are personal to each family, such as the age, maturity, and experience of the children; the family’s economic circumstances; and other resources available to the kids. The most common purposes for these funds are to:

• Ensure that there are sufficient resources to provide for the support and health of the young children until they complete their education or reach an age when they should assume responsibilities for themselves;

• Provide for the education of the children and perhaps grandchildren and even later generations;

• Facilitate the children and future generations going into business by providing them the risk capital they may need; and

• Enable the children to retire comfortably at an appropriate age, though not to provide life style support during their working years.

After meeting all the needs of your family, what do you do with the rest? You might choose to add more to each of the pools. But, increasingly, the choice of many affluent families is to leave the rest to philanthropy, perhaps outright to charity, or, for some, to their own foundation.

THE PRIVATE FAMILY FOUNDATION

The family foundation has become one of the most popular vehicles for affluent families for a number of reasons. It reinforces core values of gratitude, compassion, and generosity, and it serves as a platform to:

• Perpetuate the legacy of the founders;

• Work together as a family through the generations; and

• Teach such critical life skills as leadership, collaborative decision making, accountability, and conflict resolution.

A foundation won’t avoid the fights of a dysfunctional family. But it will help to retain and strengthen the bonds of those families that enjoy their connection to each other.

Remember that every estate plan must be designed with two different time lines in mind. First, assume that you die today, and the plan you have developed will go into effect immediately. Look at your business and financial circumstances as they exist at this time, as well as the age, maturity, strengths, and challenges of the members of your family, and build a plan that will be most effective and productive for everyone.

Second, assume that you live to life expectancy. The plan must remain flexible throughout your life and provide appropriately for your children and grandchildren as they get older and mature. While the plan you design today will likely be changed many times, it will help crystallize your real goals for your family.

Finally, remember that how you leave your wealth to your children, and the message it delivers to each of them, will definitely affect how they live the rest of their lives.

About the Authors:

Roy P. Kozupsky is a partner and the head of the Trusts & Estates department in the New York City office of Smith, Gambrell & Russell. Since being admitted to practice in 1985, Mr. Kozupsky has worked almost exclusively as a trusts & estate practitioner. His practice primarily encompasses private wealth planning for clients and their families and includes the following areas: (1) intergenerational wealth transfer planning for families and business owners, (2) philanthropic planning utilizing private family foundations and charitable trusts, (3) complex trust and estate litigation involving will and trust contests and judicial accounting disputes and (4) decedent administration including complex federal and state estate and income tax planning for estates. Mr. Kozupsky also has extensive experience in complex gift and estate tax audit proceedings. An additional significant component to Mr. Kozupsky’s practice is family legacy wealth planning. Family legacy wealth planning provides for strategic planning, consulting, management and administration for wealth creators and their families. For more information, please call (212) 907-9718, email: RKOZUPSKY@SGRLAW.COM or visit www.sgrlaw.com.
 
Doug Freeman is Chairman of First Foundation Advisors. In this capacity, he provides strategic planning and organizational management advice for business, nonprofit, foundation, and family clients. He is a noted, now retired, tax attorney and founder of the law firm, Freeman, Freeman & Smiley, LLP, located in Los Angeles and Irvine, California. In 2008, 2007, 2006 and 2005, he was recognized by Worth magazine as among the 100 top attorneys in the United States, and, in 1999, he was featured by Bloomberg Financial as one of the nation's leading estate planning attorneys. For more information, please call 866-833-1112, email: yourteam@firstfoundationadvisors.com, or visit www.firstfoundationadvisors.com.


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