Frequently, families are intricately connected through business entities, assets, and estate planning. The primary goals are to build long-term generational wealth, minimize risk, and maximize tax savings. Achieving these goals often involves the use of limited partnerships, trusts, holding companies, operating companies, and C corporations as tax blockers.
Family Strategy and Structure
Efficient administration is key to managing a complex family business structure. Administration starts with the overall strategy of the family. Building long-term generational wealth involves more than just creating a complex structure; it requires a well-defined family strategy that sets clear goals for the entities and trusts.
Examples of Common Practices
To illustrate, many families hold expensive personal assets, such as homes and jewelry, in trusts to minimize risk. Real estate transactions, such as those involving Airbnb or development projects, are typically held in a limited partnership, with the general partner owning a minor ownership percentage, such as 1%. Operating companies are often created as C corporations to minimize personal taxation.
Understanding the Overall Strategy
Understanding the overall strategy is crucial for effective family business and estate planning. This involves:
- Defining Family Goals: Establishing clear, long-term objectives for wealth generation, risk management, and tax efficiency.
- Creating a Visual Representation: Developing a dynamic visual of the family businesses and trusts to see how they interconnect and support the family’s goals.
- Regular Reviews: Conducting quarterly or annual reviews with a CPA, lawyer, and financial planner to ensure the strategy remains aligned with the family’s evolving needs and goals.
- Adapting to Changes: Being flexible and ready to adjust the strategy based on changes in family goals, cash needs, or tax laws.
Ongoing Review and Adaptation
Regular reviews help determine if the family goals have changed and if the structures continue to accomplish these goals. Changes in cash needs, whether short-term or long-term, can potentially affect retirement planning. Tax planning at the personal level should incorporate the entire family of businesses and trusts, as appropriate for each family member.
Conclusion
Building generational wealth through effective family business and estate planning requires a comprehensive strategy, efficient administration, and regular reviews. By understanding and adapting to changing family goals and financial needs, families can ensure their structures remain effective and aligned with their long-term objectives.
At Market and Margin, as integrated business advisors, we guide you through every step of the process. Our goal is to ensure transparency and clarity in these complex situations, helping you build and maintain generational wealth with confidence. Contact us today to learn how we can support your family’s financial future.