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Above the Line Planning - Pat Soldano

Thank you to The Madison Group for this email.

Twenty years ago at The Madison Group we wrote a book that said, “Status quo planning perpetuates the belief system – that numbers and documents are all there is, all there can be. How can these tools alone be the endgame?”

The why of planning is sometimes referred to as “above the line” planning whereas the how is sometimes described as “below the line.” The how is the tools and techniques: These are the structures that help move money between generations, such as, IDGTs, GRATs, GRUTs, PRTs, SLATs and ILITs. This is, of course, just a small sampling. There are also CRUTs, CRATs, Dynasty Trusts, Family Foundations, etc. None of these strategies are good or bad. They all exist in order to help legally avoid gift and estate taxes while preserving wealth for the benefit of others, usually descendants of the wealth creator (grantor).

It is our experience that often there is too much focus on these tools and techniques while a number of important questions are left unanswered-the why of the planning. Examples of these questions include:

  • Is my estate planning improving the life course of the beneficiaries?
  • Are my heirs prepared to manage the responsibility of great wealth?
  • What are the guiding principles to guide decisions about family wealth?
  • Will these trusts infantilize my descendants?
  • When should my descendants have access to their inheritance?
  • What are the acceptable uses and non-acceptable uses for family wealth?

These questions are examples of “above the line” planning. Do you know a family where great wealth has proven a great resource for stewardship, leadership, and entrepreneurship? We certainly have seen that in our professional engagement. Have you ever seen a wealth transfer plan fail because children could not handle the inheritance? Once again, we have seen this as well.

Based on interviews, out of 1,000 large estates, 700 failed by the family’s own definition. Why? The top 2 reasons are as follows:

  1. Trust and communication broke down.
  2. Failure to prepare heirs.

All of the other causes, i.e., taxes, investment losses, and legal complications, were all subordinate to these top two reasons for failure. As an industry, we spend a lot (too much?) time on how but not enough time on the why, and it’s the why (or lack of awareness of the why) that ultimately causes the most careful of plans to fail.

One of the foremost guiding principles among the families we work with is that adult children should take responsibility for their lives.

A powerful question to know to help you understand when and how much should be transferred to your children is asking them, “How do you feel a financial inheritance would serve you in your life?” Listening to that answer can reveal much about when and how much is appropriate.

There are many reasons why “above the line” planning is so difficult:

  1. It’s messy -When you ask a question, you never know what you will learn and sometimes it isn’t pleasant.
  2. It’s time-consuming – “above the line” planning is really a never-ending process.
  3. The results are not as quantitative – when you create a trust and complete a gifting strategy, you can quantify what you have achieved in terms of taxes saved, and wealth preserved or protected and that is satisfying.

Nonetheless, successful families are accustomed to doing the hard things and know that doing the hard things is usually where the greatest rewards lie. If you haven’t already, we encourage you to explore “above the line” planning for both your family legacy and for your philanthropic legacy.

At The Madison Group, we offer solutions for your planning. We are dedicated to the financial goals of high-net-worth families and businesses in their use of life insurance. As a member of the M Financial Group, we have access to specialty products and a multi-carrier underwriting approach. With almost $3 billion under management, we offer creative solutions for unique situations. Our engaged service team offers proactive monitoring of client policies. Benefit delivery averages $50 million a year since 2019.

About The Madison Group
The Madison Group is one of the largest independent financial firms in the U.S. dedicated to comprehensive wealth preservation since 1968. We specialize in providing affluent families, business owners and executives with unique, tax-efficient wealth transfer and business continuity strategies. We value solutions that have simplicity at their heart and are manageable across generations.

Family Enterprise USA Family Enterprise USA promotes family business and job creation, growth, viability, and sustainability by advocating for family businesses, their lifetime of savings, and the issues they face running their businesses every day. The issues we fight for or against with Congress in Washington DC are high Income Tax Rates, possible elimination of Valuation Discounts, increase in Capital Gains Tax, enactment of a Wealth Tax, and the continued burden of the Estate Tax (death tax), and with the possible elimination of Step up in Basis. Family Enterprise USA represents and celebrates all sizes, and industries of family businesses and multi-generational employers.

Family Enterprise USA is a 501(c)(3) non-profit organization. Family foundations can donate.

We hope you’ve enjoyed this article. While you’re here, we have a small favor to ask…

As we prepare for what promises to be a pivotal year for America, we’re asking you to consider becoming a member.

The need for fact-based reporting of issues important to multi generational businesses and protecting a lifetime of savings has never been greater. Now more than ever, multi generational businesses and family businesses are under fire. That’s why Family Enterprise USA is passionately working to increase the awareness of issues important to generationally-owned family businesses built on hard work, while continuing to strengthen our presence on Capitol Hill. The issues we fight for or against with Congress in Washington DC are high Income Tax Rates, possible elimination of Valuation Discounts, increase in Capital Gains Tax, enactment of a Wealth Tax, and the continued burden of the Estate Tax (death tax), and with the possible elimination of Step up in Basis.

@FamilyEnterpriseUSA @PolicyAndTaxationGroup @DitchTheEstateTax #FamilyBusiness #Business #SmallBiz #EstateTax #Deathtax #CapitalGainsTax #StepUpInBasis #Taxes #gifttax #Generationskippingtax #InheritanceTax #repealestatetax #promotefamilybusinesses #taxLegislation #AdvocatingForFamilyBusinesses #incometax #Generationallyowned #Multigenerationalbusiness

Family Enterprise USA is the organization that represents all family businesses on a national level in DC; it is not unique to any industry. Family Enterprise USA is different from other organizations because it represents and advocates for the families of family businesses and the issues, they face running their businesses every day. Our sole mission and purpose is to promote family businesses and their job growth in America. We also support the work of Family Business Centers across the country. We hope your family will choose to be a member of Family Enterprise USA.