Legacy planning done right

Legacy planning is about passing on what you know. When people plan a legacy, the most important thing they want to bequeath is values and life lessons, not personal assets.

A rich opportunity, therefore, awaits advisors who revisit vision and values in the family, thereby re-establishing and building trust on an inter-generational basis, said Enzo Calamo, CEO, Lugen Family Office Inc ., speaking at the Distinguished Advisor Conference 2010 in Orlando, Florida.

Calamo shared key principles advisors could use in helping families build a dynasty. “We have to rethink what we’re doing when it comes to legacy planning and helping families actually build their family dynasty,” he said. “Only 10% of what advisors do – including estate planning, family planning, tax planning, investment planning – has a direct impact on legacy planning,” he said.

Calamo’s insights underline the need for exploring a different way to engage clients while embarking upon legacy planning. A family business is a complex model and therefore family dynasty planning has a lot of moving parts. An advisor’s role, he said, is critical in those parts.

One of the issues Calamo drew attention to is the client`s sense of propriety that makes it hard for the business owner to let go. The lack of confidence in the ability of the next generation to run the business successfully presents another hurdle.

Very often these affairs get further complicated due to sibling rivalry. “We face a lot of sibling conflicts; there’re also siblings who just don’t want to be involved in the business,” he said.

Longevity doesn’t make it any easier, especially when there are more than three generations to work with. Calamo said increasing life expectancy is revolutionizing legacy planning like never before. “We have four, five, and six generations living at the same time,” he said. “In fact, researchers say that the person who’s going to live 150 years is already born today.”

Calamo stressed the need for going beyond conventional planning tools. “As advisors we may look at it from an estate planning, business succession planning, insurance, investment; but there’s a lot of other tools when it comes to legacy planning.” A lot of those tools employ human psychology and understanding of family dynamics.

Emotion makes up a big part of legacy planning. A financial advisor’s job is to be appreciative of that and keep things within the realm of reason.

“When you’re dealing as an advisor with these clients, you’re the voice of reason,” said Calamo. “Their brain will always focus on their desires and what’s important to them, but you’re the ones who have to also tell them there are still financial and business principles which have to be followed. “

Another emotional aspect that compromises financial and business principles is the mistaken belief that business must be handed down to the next generation. “A business should always be for sale,” asserts Calamo reminding that longevity isn’t the reason for setting up a business.

“As far as I remember the core of a business is to make a profit; to be successful, to grow.” Longevity is but a side event,” he said. “Business should always be for sale and business owners should always remember that “succession planning means without you”. Many people who run a successful business view it as important to be involved every step of the way and tend to be controlling. The reality is, you’re dead, or you’re retired, it can’t be based on you.”

Philanthropy, he said, was another important, but underutilized, competent of legacy planning. “The reason why a lot of wealthy people do philanthropy is because it’s a great way to get the family to start working together and sharing ideas.” It forces members of the family to start working together.

Calamo drove the point home rather philosophically. “Remember, financial success and a strong business cannot make a strong family, but a strong family can build a sustainable business which brings financial success.”