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Aspen current thinking column


Spring 2013

August Current Thinking Column

Sunday, August 30, 2015

Know Your Advisor's Succession Plan

by William E. Roberts, CLU, ChFC

An often overlooked issue in family business succession planning is the succession plan concerning the advisors to the family.  It is a sensitive and sometimes delicate subject to broach with advisors who, oftentimes, have worked with the family for several years. That being said, it is a subject that should be a definitive aspect of the family’s agenda, as demonstrated by the following story.

We spend our lives with clients, assisting them in devising sometimes complex succession plans for their family businesses.  While doing so, we and the other advisors build a significant body of embedded information and history that is brought to mind at almost every review meeting.  Having the memory of or recorded documentation of why certain decisions have been made is an important element in keeping the family on track as they progress into their transition plan.  The availability of this information is often assumed as a "given."

That is, until one of the advisor collaborative teams is taken out of the planning circle by events beyond their control.  In an instant, all the wealth of their cumulative knowledge and experience with the family is lost. Trying to reconstruct this information is both difficult and time-consuming.  

We encountered such an occurrence with one of our most valued clients.  The business is currently passing to the third generation, and the family has spent significant time and resources in the succession planning from Generation-1 (G-1) to G-2, and now on to G-3.  They have done an amazing job of remaining consistent to their family values and principles, all of which are deeply embedded into their planning advisory team's memory. Two members of the advisory team have worked with the family for over 35 years, and in regards to the family’s planning, "know where all the bodies are buried,” to use a cliché.

All was proceeding normally until suddenly, the family attorney, one of the 35 years of service to the family advisors, announced in an estate planning update meeting that he had been diagnosed with stage 4 prostate cancer, and was anticipating significant radiation and chemotherapy treatments.  He asked to resign from the planning to focus on the difficult task of beating the cancer.  Unfortunately, his battle was not successful, and he passed a mere 9 months to the day from his resignation.

The problem this created quickly became apparent.  He had been a very successful estate planning attorney, but was a sole practitioner practicing out of a home office.  With no successor nominated or mentored by him, there was a vacuum in the knowledge and history of the complex legal work the family had accomplished through the years.  This essentially brought the important planning that neared completion to a halt.

The family spent nearly a year acquiring recommendations of qualified attorneys and interviewing them extensively.  They were fortunate enough to find a very competent replacement with vast family succession experience and good rapport with the family.  However, even with his remarkable skill sets, it took months to retrieve the family's legal files from the home office of the deceased advisor and additional time to read through and understand the complex set of trusts and other structures.  Meanwhile, the estate planning projects previously mentioned were at a standstill.  Fortunately for our situation, nothing happened that adversely affected the family.

This experience was not lost on the rest of the planning team, as the CPA has brought a very accomplished cohort into our meetings, who is currently building her knowledge of past history, as well as contributing additional perspective and impetus from the accounting side.  I have brought my son into the family meetings because he will be a significant presence in my transition planning.  He is now working with G-3 on his estate and succession planning.

The moral of the story is in the title of this article: know your advisor’s succession plan.  Ask them the same tough questions that they have posed to you.  What or who is the successor who would step in should, God forbid, something happen to you?  What are you doing to bring them up to speed on past planning?   How are you mentoring them to improve their ability to be the good successor if the unthinkable happens?  When will they become part of the planning team and what role will they play?  You can create your own agenda of questions, but the important point is actually creating this agenda for discussion.

As the life insurance industry's legendary figure, Ben Feldman, stated many years ago, "No one has a lease on life.” That includes your advisor team.  Hard questions that motivate an actionable agenda by the advisors can save your family an enormous amount of angst and time-consuming difficulty.


July Current Thinking Column

Friday, July 31, 2015

Family Businesses and Cultural Evolution

by Joe Paul

The Engles’ family business enjoyed great success throughout its career in the marketplace. As they neared retirement, Charles and Virginia, parents and founders of Engles Imports, turned their attention to philanthropy. However, a unifying concept failed to govern their generosity, and their money mostly went to charitable requests. The Engles’ will stipulated that their four children could spearhead the family’s philanthropy, requiring the siblings to meet and discuss the charitable giving.

Upon gathering, the children struggled to determine not only a process to evaluate gifting, but also a specific field to channel their philanthropy. The youngest sibling, Jane, had an epiphany.  In going through the history of their parents' gifting, she began to see a pattern. More and more, her parents donated to two areas: medicine and design. The first because of their own aging, and the latter because Virginia never fulfilled her desire to pursue interior design. In a blinding flash, Jane realized they could offer scholarships to graduate students who developed innovative design solutions to medical challenges. 

Although the grant has only existed for 5 years, the competition is high. The grant has already funded the development of orthopedic implants and a new kind of apparatus for patients with sleep apnea. The four siblings managed to honor the desires of their parents’ philanthropy, yet still adapt to the demands of the social and cultural ecology.

"Cultural evolution is the idea that human cultural change––that is, changes in socially transmitted beliefs, knowledge, customs, skills, attitudes, languages, and so on––can be described as a Darwinian evolutionary process that is similar in key respects (but not identical) to biological/genetic evolution. More specifically, just as Darwin described biological/genetic evolution as comprising three key components––variation, competition (or selection), and inheritance––cultural change also comprises these same phenomena." –Dr. Alex Mesoudi, Cultural Evolution

The processes of succession and inheritance are replete with beliefs, knowledge, customs, etc., that organize this transfer and perpetuation of the tangible and intangible assets among the family business stakeholders.  Thus, when an elder begins to contemplate their estate plan, or an advisor begins to create such a plan for their client, they are acting (usually unconsciously) as an agent of cultural evolution.  In the estate planning process, western or civil rules allow that we can give an inheritance to anyone that we wish, be it a family member, an outsider, or even a pet. The civil law recognizes such desires and upholds these wishes despite depriving the natural heirs of, often, millions of dollars. It can be considered an injustice to the heirs, but they are helpless. Even when challenging the legitimacy of such wills, the civil courts tend to recognize and uphold these wills to be valid. In contrast, Sharia law, derived from the Quran, stipulates in great detail whom can inherit what. Here is a sample of Islamic estate planning taken from the Quran:

"Allah enjoins you concerning your children: the male shall have the equal of the portion of two females; if there are more than two females, they shall have two-thirds of what he has left, and if there is one, she shall have the half; and as for his parents, each of them shall have the sixth of what he has left if he has a child: but if he has no child and only his two parents inherit from him, then his mother shall have the third; but if he has brothers, his mother shall have the sixth after the payment of any bequest he may have bequeathed or a debt. You know not whether your parents or your children are nearest to you in benefit. These are settled portions ordained by Allah and Allah is All-Knowing, All-Wise” (4:11)

In contrast to western civil law, Sharia treats individual rights and women's rights as unnecessary threats to the collective. It is based on divine injunctions rather than legislation. Thus, Islamic rules of inheritance do not allow any variation from the very specific, pre-determined rules about whom gets what from the estate of the deceased. 

Western and Sharia legal systems have evolved over centuries. New concepts challenged old ones as both legal systems adapted to many variables.  We can see from the contrast of two cultures' rules of inheritance that the survival of new ideas depend on their fit in a given culture. Not so long ago Western cultures persecuted women and allowed slavery. While both legal systems have been changed by new liberal ideas, the pace of assimilation has differed.

When we delineate an estate plan, we are weaving the beliefs, knowledge, customs, skills, attitudes, languages, wisdom, etc. into an evolutionary package that will either sink or swim in the surrounding social ecology, which includes family dynamics. In this process, each estate plan becomes an experiment that may or may not give the family an evolutionary advantage. Family patterns of behavior and a business system’s accountability are also factors that may give a family/business advantages in the world. The fact that one decade's competitive advantage is the next decade's liability speaks to the evolutionary importance of the ability to change the allocation of assets in anticipation of fluctuations in the marketplace.  Families that are still wealthy benefactors into the 5th generation usually have the ability to change, yet remain the same. Or, as Victor Hugo said, "Change your leaves but keep your roots intact."

We live different lives when we know what those roots are.



June Current Thinking Column

Sunday, June 28, 2015

Balancing the Emotional Ledger: Axioms and Guidelines for Counseling Families in Business by Joe Paul is now available!

Why should you read the most recent publication of the Aspen Family Business Group?  Because whether you are in a family business, their service provider, or a professor, the book will provide you with insights and facilitation tools that will deepen your understanding of your clients.

Our colleague and author, Joe Paul, has distilled decades of experience and thoughtful reflection into pearls of wisdom in his new book. Readers can learn about the basis of your influence, your practice, your ability to facilitate change, and your skills in reducing anxiety and creating more trust among family members.

After many years of collaboration with Joe, I continue to draw upon his insights and perspective to inform my work, and often find myself pondering one of his profound statements long after we have visited. For instance, he encourages us to embrace other's resistance because it is usually based in a desire to protect something important in the individual, the family, or the business. This affirmation of each client's resistance as an attempt to help the family reframes the resistance and increases the willingness to trust.

The generation and transfer of knowledge among family members, especially during succession, is a crucial element in family business sustainability. Just so, each profession defines itself via its unique body of knowledge. I think you will find Balancing the Emotional Ledger: Axioms and Guidelines for Counseling Families in Business to be a significant contribution to the multidisciplinary profession of counseling families in business. -Leslie Dashew


In other AFBG news, Leslie Dashew is proud to announce the 20th Annual Women in Family Business Program for 2016. The four day event will take place on March 10-13 at the Miraval Resort and Spa in Tucson, Arizona. This upcoming year's topic, "Wise Women Revisited," will draw upon the various topics from the past two decades of the conference, while continuing the tradition of gathering, collaborating, and learning from each other. For more information about the program or how to register, click here.



May Current Thinking Column

Saturday, May 30, 2015

Leslie Dashew recently connected with longtime colleague, Tom Plaut of Deloitte Tax LLP, to discuss business legacy and its entrenchment with succession planning. See below for an excerpt from their conversation:

Tom Plaut: Leslie, you’ve written a lot about the seven dimensions of succession planning in a family business. I’d be interested in getting your commentary around what those seven dimensions are and specifically, which of those dimensions apply to legacy?

Leslie Dashew: Typically when people think about succession they think about succession of leadership or management — and, for estate planning purposes, transition of ownership. But what we found is that many times the succession that is successful has to address four other areas as well. One is succession of authority. In closely held businesses, we find that one of the challenges is the inability of an owner to let go of control. The challenge is that the owner thinks, “This is my baby! I know it better than anyone else,” and it’s hard to let go. So many times they’ll appoint somebody to be president and vice president with the anticipation that they will succeed them, but not let them make any significant decisions.

One of the reasons someone may not trust the next generation of leadership is because they don’t trust their values. A classic one that we see now is when a younger generation wants balance in life, but they’ve seen the older generation be workaholics. The older generation may say the young ones just don’t work hard enough to keep the business alive. The next dimension that contributes to this issue is a succession of knowledge. I often hear leaders say the next generation doesn’t know enough: “I’ve built the business, I’ve learned every aspect of the business, and they need to know all of that and if they haven’t created it they can’t know it well enough.” I also hear leaders say, “I have a number of key employees who have been like family to me; they’re really essential to this business, and I want to make sure they’re taken care of and that they’re retained.” Often the other side is a younger generation who say, “Dad has held on to people way too long.”

To see Leslie's full featured interview, click here

To learn more about Deloitte and their thoughts on business succession planning, click here


April Current Thinking Column

Thursday, April 30, 2015

Transition of Leadership: Where the Rubber Meets the Road in Succession

by Burak Kocer, PhD

A wise father posed three questions to the son selected as his successor:

  1. Are we in the right business?
  2. Are we able to find the right people to run this business?
  3. Do we have effective controls in place to monitor them?


This founder of a very successful 50-year-old business had long ago discovered that the knowledge required to answer these three questions was critical to his success.  He was convinced that his successor must also have the relevant knowledge to answer these questions in order for his business to thrive beyond the succession process.

The continuity of a family business refers to its ability to survive across generations. Succession is perceived as complete when the ownership and authority to make the ultimate decisions have been passed to the members of the next generation.  However, transfer of leadership, the final stage in succession, requires more than a mere transfer of shares or leaving board seats and/or executive positions to the successors. Indeed, answers to the father’s three questions, especially the first two, require strong leadership qualities, including intuitive decision-making ability.

Succession as a Mutual Role Adjustment Process

While discussing succession planning, in most cases the focus is on a leader’s willingness to pass on the business or the successor’s readiness to take over the business. It is thought that in the event that any or both of these factors are missing, the ability for a family business to overcome the challenge of succession is limited. While this perception points out two major impediments of effective succession planning, it fails to concentrate on the interrelatedness of the two. Indeed, Wendy Handler defines the succession process as a mutual role adjustment between predecessor and next-generation family members.* This approach aptly shows the parallel stages that face both the leader and successor. The leader moves from sole operator to monarch (having preeminent power over others) to overseer-delegator, from where they finally transition to consultant (who is disengaged from the organization). At the same time, the next-generation family member progresses from no role to helper (to the monarch), manager (under the monitoring of the overseer-delegator) and finally, leader/chief decision-maker (when the owner is disengaged). Thus, in a carefully planned succession process, both the leader and successor advance through these stages simultaneously to maintain a healthy climate that promotes trust and personal development.

Aside from focusing on the interactivity of the processes that the leader and successor embark upon, Handler’s approach places the leadership role at the final stage of the succession, which I find particularly powerful and accurate. This is also where the rubber meets the road. Continuity of many family businesses often unravels. This is not due to a lack of developed shareowners or managers from the members of the next generation, but rather a lack of leaders among them. 

           Inevitable Leadership Tasks Awaiting the Successor

Following disengagement of the former leader, the next generation family member needs to capitalize on value drivers (i.e., factors that provide competitive advantages to the company) and reinventing the most appropriate governance structure to ensure preservation within the organization. Indeed the father’s first question—are we in the right business?–was implicitly pointing out the value drivers. Products or services that the company offers may not necessarily be the appropriate business case for the family in the future. Puzzling over the right business avenue while taking the value drivers into account helps the next generation family member fulfill their leadership responsibility of creating wealth. Limiting the new leader to a “wealth user role” might put the continuity of the family business at risk.

Similarly, as the business evolves, the roles of the family members evolve, too.  A family member’s current position may not be the most efficient role anymore considering various factors such as size of the business, diversity of initiatives or the next generation’s past operational involvement. This refers to the father’s second and third questions—finding the right people and putting effective controls in place. Overcoming these critical tasks requires a well-prepared leader, who knows what to maintain and what to change. Differentiating between these requires a type of knowledge, which is only developed by effective leaders. Thusly, this is why leadership development is the most critical and often overseen element in a well-prepared succession planning. Preparing heirs for the top of the organization through a career path in lower levels does not usually address this need on its own. While this planning approach trains the successor in learning the rules to run the business, it fails to help them develop the wisdom, which is most needed to identify when to apply rules and when to change them.

Therefore, a carefully planned leadership development program with internal and external elements should be the integral part of an effective succession planning. Internal elements can involve periodic strategic discussions led by the successor with a specific agenda and method to unleash the tacit knowledge possessed by the leader and key executives. External elements of leadership development can be established by creating advisory groups, where successors meet regularly with their counterparts, who develop themselves from each other’s experiences.

Concluding Remarks

To ensure that the rubber meets the road safely, the succession process must be managed as a two-dimensional process, the phases of which are to be adapted according to the other. The merit-based promotion as a career path may allow successors to become well-trained managers, yet this will not be sufficient to develop strong leaders. Additional platforms must be created where successors--beyond their formal managerial role definition--regularly meet with the leader, key executives, as well as their counterparts in other organizations. The knowledge and intuitive decision-making ability accumulated throughout this process will present its next leader to the family business.

*Handler, W.C. "Succession in Family Business: A Mutual Role Adjustment Between Entrepreuner and Next-Generation Family Members" Entrepreneurship: Theory and Practice, 1990, 15 (1), 37-51.


March Current Thinking Column

Tuesday, March 31, 2015

The Importance of Knowledge Transition In The Family Business

by Leslie Dashew

Most often, if one applies for a job, the people hiring know what skills, knowledge or competence is needed for that role and can evaluate the candidates for it accordingly. And, if I am a candidate for that position, I may already know what it takes to be successful at that job and prepared beforehand.

However, in family businesses, we often end up with roles or responsibilities for which we have had no preparation or understanding of success factors—we may have inherited the role or responsibility. For example, a leader who has developed a business may have done estate planning, yet his offspring who have inherited the business, may not have been prepared to be owners or operators of said business. The heirs may not feel equipped to guide the business, while the elders may not trust the competence of the heir, either.

This is sometimes true of those who have gained a position in the family business because of his or her role in the family, not necessarily because of training, experience and/or competence. So how do we have trust in family members who get the job to run the family business when this occurs?

Further, entrepreneurial ventures and family businesses are sometimes operated by people who may be creative, but lack skills in managing or mentoring. Oftentimes, these people learned the business as they built it, and lack the formal conceptual training others may have in business. Thus, it is difficult for them to transition knowledge about the business/role to others. In these situations, others may end up with additional responsibility in helping successors or employees learn their roles in the business.

With the improvement in the economy, family business executives are among those who are now struggling with how to fill “the skill gap” that resulted from downsizing during the past 7 or 8 years. Developing capable employees is now an even greater challenge.

For all of these reasons, transition of knowledge is particularly important and challenging in the family business. Knowledge management and transfer happens from two directions: the delivering end and the receiving end. This is illustrated by the two voices in the following poem.

Sometimes I feel like I don’t know “nothin”
And sometimes I really don’t!
Other times it seems that the answers are right there
And I don’t know where they came from
I think I am just lucky when I learn through osmosis
Yet then I don’t feel confident that I know where to get more knowledge

How do I share what I know
when I just learned by doing?
I don’t have a book or a curriculum, I just figured it out
Over the years the business grew, so did I
I learned by trial and error
Making mistakes I don’t want to repeat…
and I don’t want them to repeat them either!

I created the wheel
Now I don’t want it reinvented
So I have to figure out how to share that process
With patience, persistence and clarity
But I am no teacher, I am a do-er

I am not the creator
I am a learner
Who may be able to add to
But I have to understand the basics first
So surround me with lessons and compassion
With tools and talk

Let’s learn together
Grow through our process
Enrich our souls through the collaboration
That our family transitions provide for us.
The reality is, that each day I am both a learner and a teacher
And I have to succeed at both.

-Leslie Dashew

Developing a system to assure that knowledge is transitioned requires attention to three important dimensions: role, content and method. Click here for an explanatory graphic.

Each role in the family business requires a different set of competencies and knowledge. Depending on the individual and his/her life stage and access to learning opportunities, the method may be different.

In future posts, we will share more about the tools that help the transition of knowledge. Meanwhile, there are several assumptions I hold about the importance of knowledge transition: 

1. Without growing our knowledge, we lose our competitive edge as a business;
2. All stakeholders need to develop their capabilities so that the family business as a complex system (3 roles;/2 subsystems) will benefit no matter who is involved;
3. We need to take responsibilities for our own education: no one knows what we want to do or our needs better than us. We can’t assume anyone else will lead this charge! 


February Current Thinking Column

Saturday, February 28, 2015


 Additional Thinking

by William E. Roberts, CLU, ChFC

In August, we wrote about basic issues that are compelling reasons for NexGens to have an estate plan in place.  Should both parents pass, guardianship for children is one of the primary concerns for parents of young children.  Devising thoughtful distribution patterns for both income and principal to their children at appropriate ages/amounts while identifying areas where additional funding with appropriate guidance would be allowed is a strong motivating factor toward creating wills and trust documents. Incentive trust provisions is a strategy that many employ to inject their family core values into their documents.

Values-based planning has become somewhat cliché and is often more a marketing ploy than a well-thought-out process of clarifying deeply-held core values intrinsic to a multi-generational family legacy. Clearly identifying these values early on is an important step before agreeing to an appointment with an attorney.  Often, our experience is that parents do not completely agree on their values. A discussion of these differences and negotiation to resolve them is better done before incurring expensive hourly fees.  Our firm uses a questionnaire developed by Scott and Todd Fithian of the Legacy Group to form a foundation for husband and wife to have substantive discussions of the legacy they want to leave to their children. This can lead to research into strategies that might assist in resolving the differences in values between husband and wife.

In family business situations, it is informative to have a clear understanding of the family's core values—particularly regarding ownership of company stock.  Family-agreed-upon restrictions, as to who can own company stock, could have significance in the planning for young families.   For example, we have worked with numerous families whose value system dictates that only bloodline can own or inherit stock.  They usually have restrictive agreements governing who stock can be passed to and what rights they may have.  Knowing that these restrictions exist and providing copies to the planning team will be important to creating documents consistent with family estate values.  It is also important in knowing what economic resources are available to provide ongoing survivorship income to spouse and children.

Often we encounter questions about the probate process.  What is it?  How complicated is the process?  How expensive is probate?  How can I avoid the probate process?  Probate is the process of closing the estate after a death, paying liabilities, taxes, transferring title to assets consistent with the will arrangement and filing any necessary tax returns.  In states with the Uniform Probate Code, the process is generally very simple and straightforward. Consequently, it is not considered an expensive process in those states.  To determine if your state of residency is subject to the Uniform Probate Code (UPC) you can search the website   For those states that have not adopted the UPC, the process can be complicated and somewhat expensive.  California is often mentioned as having a relatively expensive probate process.  Your legal advisor should be very familiar with the probate law of his or her state and consequently inform you of the complexity and expense of the process.

This leads to a question of whether it is necessary to have a "Living Trust," also known as a "Revocable Living Trust," as part of the estate plan.  Some attorneys are strong advocates for having a living trust, while others are less so.  In states where the probate process is complicated, cumbersome, lengthy and expensive, a living trust is almost always recommended for the following reason.  If a living trust is created and assets are actually transferred into the trust (an essential part of the planning process), the assets in the trust are no longer subject to the probate process. Instead passing under the provisions of the trust document, the living trust avoids the expense and complication of probate.  It also avoids publicity since trust-owned assets are not subject to public disclosure.   This confidentiality has motivated many in states where probate is not an issue to create the living trust as part of their plan.

An additional reason for having a revocable trust might be to have an orderly method to provide ongoing oversight if a traumatic event causes a loss of ability to manage assets.  Clear direction and orderly succession are part of the thought-process in creating the revocable trust document.  The trust is revocable--meaning if one wants to change it, they can at any time. Banks and financial institutions are familiar with this arrangement and remain untroubled by assets being titled in the name of the trust.  Clients have had to produce the document to prove its existence and the power to sell or transfer assets.  However, for a relatively minor inconvenience, clarity can be created, cumbersome administration avoided and an unnecessary expense bypassed—making this trust worthy of your consideration.

Another motivating factor for a few young families to complete their estate plan is the possibility of the federal or state estate tax placed on their estate. As of 2015, everyone has a federal estate tax lifetime exemption of $5,430, 000. If married, both spouses have this exemption and therefore can pass $10,860,000 to the next generation estate tax-free.  Many formerly taxable estates may pass tax-free to heirs now.  Some of the complexity of planning has been simplified by a recently passed "Portability Provision.”  In simple terms, it allows any unused exemption in the estate of the first-to-pass spouse to be applied upon the demise of the second spouse.  Your legal advisor can explain in more detail than intended in this article, but for our purposes it means that until an estate exceeds the lifetime exemption amount (an amount which is adjusted annually for cost of living increases), there is no estate tax.

However, for those living in states that have enacted a state estate tax or inheritance tax, the exemptions often do not align with the federal exemption, and are often quite a bit lower.  This can lead to surprising tax bills if not carefully considered.  For a list of the 24 states that have their own estate tax (18) or inheritance tax (6) law you can google  If you live in one of those states, it would be prudent to discuss with your advisor the details of the exemption amounts and plan accordingly.

For those who, at a young age, already have the asset base that exceeds the federal or state exemption amounts, the planning may become somewhat more extensive and complicated. The tax on the amount above the exemption is 40% (and can be as high as 50% in states that have their own estate or inheritance tax). Most entrepreneurs do not keep 40%-50% of their estate in assets that can be readily turned to cash.  The tax is due 9 months from the date of death, which adds a time constraint to an already difficult situation.  We recently worked with a 30-year-old with a considerable estate, who had been advised by counsel to apply for life insurance in excess of $50 million.  A rare situation indeed, but when the planning team evaluated his base of assets and forecasted a conservative rate of growth, it became clear that the need for liquidity in his estate could become severe. The recommendation was made to obtain life insurance while he is young and healthy and at premiums that are relatively inexpensive. Life insurance is but one strategy for consideration and a good estate planner will be familiar with other strategies that may be used in conjunction with life insurance to address the liquidity issue.

In a following newsletter, we will discuss some of these strategies and provide examples of applications we have seen in client situations. Whether the needs are relatively simple  or more complex, the importance of having an orderly plan of disposition reflecting your family values cannot be overstated.  In a time when grief wears resiliency thin, having a clear plan that is communicated and understood, with a cadre of professionals who are clear about their roles, can make a significant difference.  Ignoring the issue or procrastinating is no excuse—all of us are "too busy.”  If you make this project a priority, I promise you will have a deep sense of satisfaction when it is completed.


January Current Thinking Column

Friday, January 30, 2015

The Emotional Ledger: Part 2

by Joe Paul

The November 2014 blog was illustrative of three contextual theory concepts: the Emotional LedgerDestructive Entitlement and the Revolving Slate.

You may recall that the Emotional Ledger describes a condition in the web of a family’s internal relationships. In most cases, it automatically and autonomously reflects the balance of give-and-take in these relationships and results in the ambiance of the family. It emerges as a consequence of the degree of balance between fulfilling an individual’s legitimate drive toward self-fulfillment with their obligations to each member of their family. While this ledger is typically governed by unconscious or semi-conscious factors in each individual, the emotional ledger can be rebalanced by giving conscious attention to the considerations of one’s family members. The dynamics of succession are a particularly challenging time for a family that is in business because the process tends to activate Destructive Entitlement.

Destructive Entitlement (“I have a right to expect more because I was not treated fairly”) is a consequential condition created when children are raised in the atmosphere of an unbalanced emotional ledger. Destructive entitlement can be created in a child either by neglect, by over-giving or by the exploitation of the child. In the family described in the last blog, Ruth’s destructive entitlement is vividly portrayed by her willingness to manipulate her parents via her children in order to punish her brother. 

“She thinks the world owes her a living” or “He always has a chip on his shoulder” are samples of the things people say about destructive entitlement in others.

The Revolving Slate refers to the transmission of family patterns from an older generation to a younger generation. This is illustrated by the link between the abuse of Jim by his father and the estrangement between Jim and his own kids in spite of him never being a physically abusive father. In Jim’s case, his children were afraid of him even though he refused to repeat his father’s abusiveness. Jim’s strategy for controlling his anger was to suppress it as much as he could, only to erupt later when enough had built up over time. It is an example of the great irony that often, when we anticipate a problem, we develop a strategy to prevent the problem from happening. Ironically, the very thing we did to prevent the problem creates the problem. This usually occurs when our ineffective solution was directed toward symptoms instead of the source of the issue.

In this follow up blog, we will look at the ethical dimension of relationships. Contextual theory postulates that there are four dimensions of human experience. They are:

  • Objective facts
  • Individual Psychological Issues
  • Systemic Patterns
  • Relational Ethics

Facts are the demographics of a person’s life, such as their ethnic origins, their intelligence, their physical condition, historical injustices to you, your family or your people, etc. The abuse of Jim by his father is a fact that created psychological issues for Jim. In the process of dealing with his issues, he repeated patterns of thinking, feeling and behaving characteristic of his family system. The repetition of these patterns created imbalance in the form of destructive entitlement based upon unjust feelings or unfair treatment and the consequential imbalance in the emotional ledger. The assessment of the interactions of these four dimensions is an accounting of the emotional ledger. 
Individual advisors, counselors and therapists are idiosyncratically predisposed to view a client/family predominantly through one of these four dimensions. For example, an accountant might focus on facts and attempt to manage the other three dimensions via rational conversations and contractual agreements. This adviser may tell Jim that the solution to his situation would be a formal succession plan. Another adviser may account for Jim’s dilemma from the perspective of individual psychology, and recommend that Jim’s daughter begin individual psychotherapy. 

However, I have found that the most highly leveraged dimension for an adviser to enter the client’s family business system is through the dimension of Relational Ethics. This perspective accounts for the first three dimensions in the context of the fourth. This approach would focus on the balance of give-and-take; the consideration of each individual’s concern for the well-being of other family members; and the level of trust, trustworthiness and fairness each person experiences. 

When a family attempts to resolve old issues of unfairness and/or injustice by moving toward greater trustworthiness, it becomes easier to resolve issues in the first three dimensions. Such a process overcomes relational stagnation and increases the range of possibilities for the family.

In the blog, Emotional Ledger: Part 3, we will look at Merit, Multilateral Partiality and the relationship to Posterity. 

If this discussion of the emotional ledger is useful, you will be interested in our soon-to-be-published book, Balancing the Emotional Ledger: Axioms and Guidelines for Counseling Families in Business


December Current Thinking Column

Sunday, December 21, 2014

Charitable Giving Year End Thoughts

 by William E. Roberts, CLU, ChFC

While thoughts of charitable giving are often motivated by the best of intentions, there is nothing like increasing tax rates to catch the attention of high income earners. This year, after April 15th, when the new income tax rates became apparent, clients received a very unfriendly call from their tax accountants that, to their surprise, they owed a very large tax bill to the IRS. Our office has fielded questions about strategies that could mitigate the tax pain, including the use of tax deductible gifts to qualified charities.

With top income tax rates exceeding 50% (California's top rate is 56.7%) and capital gains rates at 25-35% depending upon what state you live in, we often are considering income tax planning as a part of estate and business transition plans. Some of these strategies are prospective, that is to say plans put in place before the sale of a highly appreciated asset. Strategies such as Charitable Remainder Trusts can be effective in reducing income taxes while implementing long-term income objectives and charitable gifting wishes.

However, discussion of charitable giving is often accompanied with highly emotional positioning. When we ask clients about their charitable intentions, we often hear the phrase, "our charity begins at home.” While supporting church, schools, medical-related concerns and the like with annual gifts, the thought of making substantial gifts as part of a long-term estate plan is foreign to their thinking.

Other families want to make contributions to charity to avoid passing largesse to their children with the fear they may become "trust fund babies." Their concern over entitlement issues with their children may or may not be founded in fact or performance by their children, yet is a very real fear in the senior generation's thinking.

We find that most often, the decision for a family to make philanthropic contributions centers on the core values they have or have inherited from previous generations. Whether it is motivated by the desire to better their community around them by making gifts to charities, or causes they are deeply dedicated to, or simply because they have a passion to solve a societal ill, families will give up some of what they could have kept for their children and often make significant gifts to charitable causes because of their heartfelt values.

Therefore, it could be of significant benefit to explore different strategies involving charitable giving to understand both tax and other advantages that might just fit into family core values, goals and objectives.

Because of the concern to both benefit a charity as well as the heirs, several of our clients have implemented a strategy that has been used by very wealthy and well-known families. One such family passed significant valuable real estate with very little estate tax consequence, reaped a large income tax deduction, benefitted charities of their choice for 20+ years with healthy donations and ultimately returned the asset back to the family intact with no income or estate tax consequence. The real estate will provide the family an income stream for generations to come.

While you may not have the wealth of one of America's first families, this strategy might be an effective approach to saving both income and estate taxes while benefiting charities of your choice and possibly passing a substantial inheritance to your family. The strategy that was used in the above illustration is a Charitable Lead Annuity Trust (CLAT). It is a philanthropic estate planning tool in which a donor can transfer assets to a trust for a set number of years. Each year, payments are made from the trust to the donor's designated charity or charities. Once the trust's term expires, what is left in the trust is returned estate tax free to the donor's heirs. Thus, the assets appreciation can be sheltered from estate taxes. More importantly to our clients today, though, is that since the CLAT is a charitable trust, the IRS will allow a generous income tax deduction in the year the assets are transferred to the trust.

Those facts, along with some interesting applications, make this an intriguing structure for those who already have philanthropic intent. There are many variations on the simple illustration above, but let’s look at the components of the Charitable Lead Annuity Trust (CLAT) and some thoughts as to why it is such a good strategy in the current interest rate environment.

CLATs are irrevocable trusts that pay an annuity amount to a charity for the lifetime of the grantor for a fixed number of years. At the end of the annuity period, non-charitable beneficiaries, who are usually the grantor's family, receive the remainder, free of estate or gift tax. CLATs may be set up during a lifetime or at death as part of testamentary trusts.

As previously mentioned, the CLAT qualifies for a gift tax charitable deduction at its inception, or an estate tax charitable deduction at death. The income tax deduction occurs when the transfer to the CLAT occurs, and the amount of the deduction is the present value of the future annuity payments to the charity. The interest rate used is a specifically prescribed rate known as the Section 7520 rate. Currently, the rate is extremely low, +/- 2.00%. This opens some interesting possibilities for planning if the asset is earning in excess of the 7520 rate, such as an 8.00% return, the amount returned to the family could be significant.

One interesting application is to contribute a paid-up life insurance policy along with cash. The strategy provides the grantor an income tax deduction, while removing a portion of the life insurance out of the estate of the grantor at the end of the CLAT.

There are many charitable gifting alternatives and you should consult with your advisors as to which strategy best fits your situation given your objectives, values and tax situation. But if you are like many of our clients, reviewing your potential income tax with your tax advisor is a prudent move, and a charitable giving strategy may have a place in your planning. 


Reflections on Legacy

by Leslie Dashew

Recently, I have been called upon to reflect on the concept of “legacy” in several contexts: how do family business owners think about the legacy they want to leave to heirs and family members? What is the legacy we wish to leave, both professionally and personally? And what is the legacy that has had an impact on our own lives?

Legacy includes the tangible and intangible assets that we inherit, develop and pass on to those who follow us. These legacies can be either enriched or weakened through the experiences, opportunities, and systems that we create for the future stewards of the legacy. (Joe Paul)

For some, a legacy may be property: e.g. a vacation home that has been in the family for generations and has memories, traditions and emotions attached to it. For others, it is a business that was created and maintained with the hope that it would provide opportunities for generations to come. Still, others feel that they have a “spiritual legacy” to transmit in documents such as an ethical will, and hope that the values and lessons of their life will benefit those who follow.

As my father turned 95 and faced the end of his life, I wrote the following poem as a birthday gift:

Daddy-o’s Legacy

Your legacy began early in your life and certainly in ours
Showing us the way
By venturing
Into new territories
By taking us on the sea before we could walk
Through setting up shop in a new state
Creating new machines and new industries
And new ways of financing our lives

Your legacy is an attitude, a philosophy
That says
“You Can Do It!”
And you demonstrate that by never giving up
By seeing possibilities and opportunities
And by insisting that we be independent
And self-sustaining
As soon as we could

Your legacy is to be creative
In your inventions
Your photography
In problem-solving
And in the design of your life

Your legacy is to build
To build boats
and machines
and systems
and organizations
and family
and wealth
and community.

Your legacy is to be generous
With your family
Your friends
And the people around you who need help
With guidance, love and money.

Your legacy is love
of beauty
And the sea
Of your family
And your friends

Your legacy includes your
Great grandchildren
And all the other lives you have touched.

I feel blessed to have the benefit of your legacy

Your legacy will continue well beyond the days of your life.

(September 16, 2011)

As I reflect on the legacy I received, my dad’s values, model and impact were the greatest gifts I received. As we think about the legacy we wish to leave through our own lives, it seems most important to me to share wisdom, opportunities and to leave the world a little bit better.

The end of the year is often a time of reflection. If we use the reflection to gain clarity about our vision for our lives and the legacy that we wish to leave, we will move more purposefully into the New Year. I wish you clarity, love, wisdom and peace during this holiday season and in the coming year.



November Current Thinking Column

Sunday, November 23, 2014

Balancing The Emotional Ledger: Revisited

by Joe Paul

Several years ago, we devoted a column in our newsletter to the Emotional Ledger. In the next few months, we will be expanding that discussion in the context of contextual theory. This will include topics such as, one’s relationship to posterity, the ledger of merit, trustworthiness, the revolving slate, destructive entitlement, constructive entitlement, among many others.

You might not realize it, but you have two “sets of books.” One of the books is for your business—tangible and under the control of your bookkeeper. The other book, the “emotional ledger,” is invisibly intangible and under the control of no one. Yet, the emotional ledger defines what is possible in a family. While the business ledger keeps track of the money, the emotional ledger is self-organizing and monitors factors such as the level of trust, the earning of merit in the family and the indebtedness/entitlements of each of your family members.

Every family has an emotional ledger, but families that own businesses sometimes have a harder time with it. This is because the two ledgers often become entangled. Eventually, emotional ledger issues like mistrust among family members begin to have a profoundly negative effect on the bottom line of the business ledger.

The concept of the emotional ledger was formulated by Ivan Boszormenyi-Nagy, a Hungarian psychiatrist/family therapist and founder of contextual theory. He was most interested in the relational ethics intrinsic to all social species. Attention to reciprocity is a common factor in all social species. The emotional ledger accounts for what is given and received in familial transactions with one another. The accumulation of merit by showing due consideration for others moves the family toward trustworthiness. The disregard of fairness in transactions within the family leads the family away from trustworthiness. Based on factors such as the willingness to show due consideration, a person earns merit in their family and constructive entitlement. Another family therapist, Murray Bowen, delineates the emotional ledger as follows:

“The lower the level of differentiation, the more likely the family, when stressed, will regress to selfish, aggressive, and avoidance behaviors; and cohesiveness, altruism, and cooperativeness will break down.”

One measure of a balanced emotional ledger in a family in business is the capacity of the family to encourage the individuation of successors. The individuated successor has found a way to maintain a calm, non-reactive presence when confronted by anxiety of others; e.g. his sibling/ business partners, his parents or senior non-family executives. He has a clear sense of purpose and can convey that sense of purpose to those who follow his lead. If the family business system is not accustomed to having an individuated leader, the less mature members of the stakeholder group will attempt to sabotage a new individuated leadership style. The individuated leader stays calm and understands the normality of human systems to resist change. At the same time, he steadily makes new requirements of the family and the business.

Balancing both the financial and emotional ledgers while developing a successor can become very complicated, as discovered by one father a few years ago. Jim was his father’s successor in a manufacturing business. As he neared his targeted retirement age, three of Jim’s four children were working in the business. His only son, Bo, with 20 years in the company, was the COO, managing both manufacturing and sales. Bo had taken the company from $3 million in sales to $9.6 million in the last five years. Jim’s middle daughter, Joyce, had become the Personnel Director seven years ago. His youngest daughter, Betty, was hired to be the Office Manager four years earlier. Although Jim was very uneasy about it, he yielded to the pressure from his wife to pay his three children in the company the same. 

His oldest daughter, Ruth, didn’t work in the company. Jim felt that she was a difficult child to raise, always seeming to have a chip on her shoulder. For years, Jim tried to persuade Ruth to join her siblings in the company, but she would have no part in it. She married well was well-off financially—no pertinent need to join the company. As delineated in Jim’s estate plan, Ruth, along with Jim’s other children, would each inherit 25% of the ownership of voting shares in the company. Jim and his wife were satisfied with their estate plan, but were not prepared for their children’s reactions. 

Ruth reacted to the estate plan by threatening to withhold her children from her parents if Bo became the next CEO. Between gritted teeth she said, “ I will be at every board meeting with my sisters. We have discussed this, and if we don’t approve of what our dear brother is doing, we will begin a search for a more compatible CEO. We have lived our whole lives with you making us feel we are stupid, Dad. But I guarantee you that I won’t passively accept the same relationship with Bo that I have endured with you.” Joyce squirmed in her chair and Betty began to panic as the two sisters suddenly found themselves in a split loyalty between their sibling and their parents. 

Ancient wisdom tells us that the “sins of the father will be visited upon the children into the third and fourth generation.” This is especially true for the successors in a family business. Jim was seriously physically abused by his own father, for whom he had also worked. The resulting emotional wounds led Jim to decide that he would never punish his children physically. While he was successful in controlling the physical abuse, he still had a tendency to let problems slide for a long time in an attempt to avoide conflict, only to later explode at a minor offense. When he finally did explode, his kids would feel their grandfather’s red hot rage alive in their dad. Each of his children found ways to stay connected with their father in spite of the poor messages he gave them when he was angry. Working for him was a way to be connected and maybe someday earn his blessing.

Bo’s family and business were full emotional ledger issues. Trust was seriously eroded, Ruth’s destructive entitlement was a significant problem, there was little concern for others, and the adult children’s hunger to earn merit in the eyes of their family was thwarted. It was in this state that Bo sought out the services of an executive coach, Matt. Having been trained to work with family businesses, Matt chose to help Bo individuate while staying connected to his family. We will hear more about how Matt helped Bo in a later blog. However, I can tell you that Matt focused on helping Bo to maintain a “calm, non-reactive presence” whenever a member of his family was overcome by their anxiety. Using one little trick to help Bo remember to stay calm, Matt instructed him to use the phrase “nevertheless.” For instance, if Ruth barged into his office saying, “What makes you think you can be CEO?” Bo would respond, "I understand that you have no faith in me yet as the next CEO, nevertheless, I think that I have the knowledge and skills to protect our assets just as I have done for the last four years. I hope to earn your trust.”

Matt highlighted that the act of creating a response using the words “nevertheless” will help you focus on being calm when interacting with Ruth, letting her know you understand her concerns and that you are not going to fight. Matt also asked Bo to memorize a line from the poem “If” by Rudyard Kipling:

"If you can keep your head while those around you are losing theirs and blaming it on you…”
-Rudyard Kipling

The Aspen Family Business Group will soon be publishing a book entitled, Balancing the Emotional Ledger: Axioms and Guidelines for Counseling Families in Business. Watch for announcements. 



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