Strategic Estate Plans for UHNW Individuals

(Forbes) - Ultra-High Net Worth (UHNW) individuals, those individuals with a net worth over $5 million, are now more at risk than they have been in decades.

The economic, environmental, social and political situations are, and will remain, uncertain. The federal estate tax reverts back to $5 million after 2025. States and the federal government are increasing income tax rates while inflation erodes accumulated wealth. If you are a UHNW individual, you should ask if your estate plan works in the face of these uncertainties.

Most estate plans are based on your needs and wants, primarily focusing on protecting assets and saving estate and income taxes. These estate plans assume that your estate planner can accurately predict that a specific course of action, such as funding a trust, will have the same result tomorrow as they will have today.

Since tax laws are changing, the value of assets is varying from day to day; and, social and political turmoil are sending shock waves globally. Accurate predictions are harder and harder to come by. Assuming that what is true today will be true tomorrow is no longer a valid assumption.

In these uncertain times, what you need is a plan that is tied closely to your goals and objectives, one that can be validated. In other words, a Strategic Estate Plan.

What is your Common Goal?

Your Common Goal is a Statement with which you and every other stakeholder including your family, your employees, your vendors and service providers, your customers and your community can agree.

Examples:

  • Our Common Goal is to make money now and into the future.
  • Our Common Goal is to have greater financial security.
  • Our Common Goal is to have family control of our family business now and into the future.
  • Our Common Goal is to make a profit from our great idea.

Once you can clearly articulate your Common Goal, your strategic planner helps you define the objectives necessary to achieve your Goal.

What are your Objectives?

An Objective is a necessary aspect of your Common Goal, which is necessary to move you closer to achieving your Common Goal. There are some objectives that are explicit in the Common Goal, such as profiting from a great idea; and there are also implicit objectives, such as security, satisfaction and growth at the personal, group and organizational level. The Objective completes the statement "We achieve our goal of [Goal] by [Objective]."

Examples:

  • We achieve our business goal of making money now, and into the future, by growing sales by 15% each quarter over the same quarter last year.
  • We achieve our personal goal of financial security by saving 10% of our gross income annually.
  • We achieve our goal of controlling our family business now, and into the future, by gifting stock to our children.
  • We achieve our goal of profiting from our great idea by starting a business and successfully taking it public in 5 to 7 years.

What is your Strategy?

The Strategy is integral to achieve your Objective. It is an articulation of why you are doing something. There is, at any one time, only one strategy which is the best for achieving your Objective, though what is the best strategy may change due to changes in circumstances. The Strategy completes the following statement: "Only by using [the Strategy] can we achieve [the Objective]."

Examples

  • Only by using a SEO optimized website, we can achieve sales growth of 15% each quarter over the same quarter last year.
  • Only by using a Qualified Deferred Income Strategy], can we achieve savings of 10% of our gross income annually.
  • Only by using a strategy of annual gifting of equal amounts of stock to each child, can we achieve the transfer of the business to our children.
  • Only by using a strategy of attracting Venture Capital can we achieve going public in 5 to 7 years.

The underlying assumption that the Objective can only be achieved through this Strategy must be made explicit, then tested as to whether this is a valid assumption to make in the present circumstances. To determine if this is a valid assumption, answer the following questions:

  • Is this Strategy absolutely necessary to achieve the Objective, or are there other viable Strategies?
  • Is this Strategy, by itself, sufficient to achieve the Objective, or are there other actions required?
  • Is this Strategy taking into account the possible risks along the way and is not just wishful thinking?
  • What is the tactic needed to implement the strategy? Can that tactic possibly be implemented in the current situation?

What are your Tactics, Needs and Wants?

Tactics, Needs and Wants will determine which actions are required, and which are barred, to Implement the Strategy. If the Strategy can be considered, “The What of the Plan.” Tactics are, “the How of the Plan.” The Tactic is what completes this sentence: "We will take [the following actions] to implement a course of action, based on our [strategy] to achieve our [Objective].”

Example:

  • We will fire our existing technology staff, hire a social media marketing firm, and outsource our sales and marketing efforts to them and implement an SEO optimized website to increase sales 15%.

Underlying Assumptions of Any Course of Action

Like strategies, tactics have underlying assumptions; primarily, that this course of action is the best way to implement the strategy. This assumption can be based on your, or other people’s, needs and wants which may be unrelated to achieving your Objectives. These underlying assumptions, needs and wants, must be made explicit and examined to determine whether they are valid assumptions to make in the circumstances.

To validate these assumptions, ask:

 

  • Is this course of action absolutely necessary to implement the Strategy, or are there other viable Tactics?
  • Is this course of action, by itself, sufficient to implement the strategy fully, or are there other actions required?
  • Is this course of action taking into account the possible risks along the way to the Objective, or is it just wishful thinking?
  • Under which scenarios will this course of action fail, and what are the viable alternatives?

Conclusion

By following these steps, you will have a clearly articulated Common Goal that everyone agrees upon; identified the objectives that are necessary to achieve your Common Goal; a valid strategy for achieving your objectives and a course of action — that is not based on what people feel they need or want— that is both realistic and achievable: that is the result of having a defined Strategic Estate Plan.

By Matthew Erskine
December 12, 2022

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