Legacy planning done correctly



Legacy planning is about passing on what you know. When individuals plan a legacy, it is important they want to bequeath is values and life lessons, not personal belongings.



A rich opportunity, therefore, awaits advisors who revisit vision and values in the household, thereby re-establishing and developing 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 can use in helping families develop 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 explained.



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



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



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



Longevity doesn’t make it any easier, especially when there are more than three generations to utilize. Calamo said increasing life span is revolutionizing legacy planning for the first time. “We have four, five, and six generations living at the same time,” he said. “In fact, researchers state that the person who’s going to live 150 years has already been 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 lots of other tools with regards to legacy planning.” A lot of tools employ human psychology and understanding of family dynamics.



Emotion makes up a big part of legacy planning. An economic advisor’s job is to be appreciative of that and keep things inside 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 invariably focus on their desires and what’s important to them, but you’re those 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 ought to always be for sale,” asserts Calamo reminding that longevity isn’t the reason behind setting up a business.



“As far as I remember the core of the business is to make a profit; to achieve success, 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”. Lots of people who run a successful business notice as important to be involved every step of the way and are usually controlling. The reality is, you’re dead, or you’re retired, it can’t depend on you.”



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



Legacy planning - Calamo drove the point home rather philosophically. “Remember, financial success and a strong business cannot make a strong family, but a powerful family can develop a sustainable business that can bring financial success.”