A couple of weeks ago, we wrote about the family office and described the single-family office, as well as the multi-family office. What if you are below that $20 million threshold, yet fall into that group of those who has between $2 million and $20 million in assets?

We have had conversations with many who, between financial assets, business interests, and real estate, have assets of between $2 million to $20 million. For those of you in this category, how do you manage well and prepare for transition to the next generation?

Managing financial assets, business interests and real estate can be a self-directed exercise, or completely outsourced, or some combination thereof. While our team has experience in these areas, it would be a disservice to you to attempt to offer a “how-to” management guide in a fairly short article such as this.

As you manage and grow an asset base, how do you think across decades and generations to assure preparedness? Where do you start? We offer the following.

Values
Financial statement entries come and go. The phrase “shirt sleeves to shirt sleeves in three generations” remains part of our lexicon because it is so common. The question regarding values starts with those Philosophy 101 questions of “Who Am I?”, “Why Am I Here?”, and “Where Am I Going?”. The more clarity we have around those questions, the simpler the identification of our personal values becomes. As we identify those values, we as the adults in the home can then discuss and decide how to pass those values along to our children. If we have no children, we can determine how we live out those values currently, as well as decide how best to use our assets to transfer those values once we are gone.

Identification and Evaluation
Next, identify what you own, whether business interests, real estate, or financial assets. Our household uses a customized excel spreadsheet to hold these entries and is updated at least annually. I review the holdings annually and run through a series of mental questions. Does the operating agreement for business or holding entities reflect current circumstances? Does it adequately address what happens if a member or stakeholder wants to sell, dies, becomes disabled, or legally incompetent?

Are real estate deeds in good order? If there is debt, are market conditions such that I can refinance or have covenants removed, in order to improve cash flow or operating flexibility?

Are financial statement accounts titled appropriately? Are beneficiaries on IRAs, life insurance policies and similar types of assets as I want them?

For those who want to give, which of these types of assets are best suited for charitable giving? Which assets would have the greatest benefit to the receiving organization and the biggest positive tax outcome for me or you?

Using the rules of 72 and 105 and taking into account both a reasonable rate of growth and any needed or desired household distributions, what is the expected size of the financial statement over the next ten, twenty, or thirty years or more? How do these numbers compare with current estate tax law? What actions do we take in light of these findings?

Documentation
For real estate and business interests, we prefer holding both hard copy and soft copy versions of deeds, mortgage documents and operating and shareholder agreements. For financial assets, we typically hold those only in soft versions. We recommend that all soft documents be protected with pin and password and that hard copies be stored under lock and key. Personally, we use a password manager which requires multi-factor authentication (MFA) and keyed boxes or drawers at least slow down those with ill intent.

We also use something called an Inheritance Letter. The name needs some work, but the document is solid. It is essentially a place to record for your executor and others where everything is held. You can record the location of wills and other end of life documents, the location of all documents, whether held in soft or hard form, and who to contact first. We would be pleased to send a template of this to you, if you would like to see it.

Communication
Once you know that all is as it ought to be and you have identified where everything is and you have made notes so others will know how to find what they need, what’s the best next thing? Let someone else know. Typically, you want someone other than a spouse to know where to find the instruction letter and know the first three calls to make. This could be a family member who will assist, or a CPA, attorney, or financial advisor, or a combination of any of these.

Final Questions
Do you leave all assets to heirs, or some or all to charity? If to heirs, how do you prepare them to steward well what you have built? Have you memorialized your plans with wills, end of life documents and in written form so those who will be caring for your estate know what to do and who to call? Do you have charitable bequests which are best fulfilled with life insurance? Have you evaluated the risks associated with loss or harm to assets, life, and cash flow, as well as other threats to your liberty? Have you decided what risks to retain and what to hand off?

Summary
I know.  It is a lot of questions.  I’ve heard the comment that “if I just had $1 million (or $10 million), all my problems would be solved”.  As you know, the greater the asset base and cash flow, the greater, and the more complex, are the decisions required. More than anything, these observations are offered to encourage all of us to stop, think and assure that we and the generations which follow us are well prepared.