Let’s Get Serious – What Happens to Them if Something Happens to You?!
May 10, 2011
Contributed by CRT Sponsor, Christopher Weil, Chairman of the Board of Christopher Weil & Co Inc.
True or false: “Families with substantial means almost always have a relatively high level of financial sophistication.” The answer is … “rarely.” More commonly, it is one member of the family who has that high level of sophistication, and that person serves as the family “business manager.”
The family business manager has the family financial “story” in his or her head, files and computer. He or she understands the balance sheet, income statement, tax position, business relationships, insurance coverage, estate plan, and so on. The non-business-manager spouse may have little or no real understanding of these matters.
When family wealth involves few “moving parts” and little complexity, the economic consequences to the non-business-manager spouse on the death or incapacity of the other may not be severe. But how often are there “few moving parts?” There are simple estates, and wealthy estates, but there are very few simple, wealthy estates.
Where the affairs of a wealthy family are complex, subtle, and many-faceted, the death or incapacity of the family business-manager spouse can impose a terrible burden on the survivor. Now, in addition to living with the trauma of death or incapacity, the non-business-manager spouse must take on the responsibilities of family financial management, responsibilities for which he or she is often ill prepared.
Consider this one real-world example: the family business manager (in this case, the husband) dies suddenly; the wife has no significant business or financial experience and little understanding of the family’s finances; within weeks of the husband’s death, the wife receives a multi-hundred thousand dollar capital call from one of the private equity deals the family owns.
Certainly, her lawyer can advise her on the legal implications of meeting or not meeting the call. Certainly, her accountant can advise her on the tax implications of meeting or not meeting the call. But who advises her on the business decision? It had better be someone who understands that decision in light of the totality of her assets, liabilities, cash flow, family obligations, and estate plan and who understands the character and prospects of the enterprise calling for the money. That almost certainly means a competent wealth manager, multi-family office or business manager.
The problem, of course, is that an active and healthy business-manager spouse may not want to abdicate overall responsibility and control to anyone, much less third-party service providers.
But there is a middle ground between control and abdication: it involves making sure that the non-business-manager spouse knows more than just the whereabouts of the family’s files and the names of its professional advisors.
The middle ground consists in establishing an “advisor lite” relationship with a selected service provider – now. This means designing, but not fully implementing, a family business management plan. The plan should be developed with both the husband and wife so that each of them knows how the plan will work and what safeguards are built into the plan for the surviving spouse. Implementation is triggered as and when certain agreed upon events occur (typically the death or incapacity of the business-manager spouse or his or her election to retire from active involvement in family financial affairs).
Selecting the right service provider – particularly one willing to establish an “advisor lite” relationship now and likely to be around at some indeterminate point in the future when he or she is needed– is not a simple process. But finding the right advisor now can allay the concerns of the non-business-manager spouse (ask him or her now if you need confirmation) as well as give the business-manager spouse the comfort of knowing that competent and concerned people will be looking after the family’s economic wellbeing at a time otherwise fraught with risk and uncertainty.
For both present peace of mind and an untroubled transition in the future, the effort is justified.
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Christopher Weil is the Chairman of the Board of Christopher Weil & Company, Inc., a securities broker-dealer and registered investment advisor. He is also the CEO and President of Storage Managers, Inc. (“SMI”) and Chairman of the Board of CWC Asset Advisors, Inc. (“CWCAA”), companies involved in the formation and management of a number of private-equity funds owning various real estate, oil/gas, small business, venture capital and hedge fund assets.
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