by Wayne Titus, author of “The Entrepreneur’s Guide to Financial Well-Being“
As an entrepreneur, even if you’ve hired the right adviser to make your wealth grow, you are not done managing that wealth. You’ll also need to consider wealth transfer: making sure your assets go where you want when you die or if you become incapacitated.
Two of my clients recently died of cancer, and their stories illustrate the importance of planning ahead. Gary was a gregarious soul, the type of person everyone likes immediately. Gary left a large marketing company to start a small business selling frozen foods to grocery stores. It was his dream to be an entrepreneur.
At fifty-two, he was diagnosed with colon cancer. Within a year, he was gone.
Gary had no life or disability insurance. He had used the majority of his retirement account funds to start his business, leaving little for himself and his wife, Julia.
Still, even as he grew more ill, eventually becoming bedridden, Gary remained in denial about advanced planning. When Gary died, he left behind Julia, their twelve-year-old son, and Gary’s nineteen-year-old daughter from a previous marriage.
Julia was a freelance writer with inconsistent income. After Gary died, she went back to work at a corporate job to bring in a steady paycheck and benefits. To pay off their debt, Julia had to sell the couple’s dream home in a beautiful, close-knit community.
However, because the home was in Gary’s name, the title had to go through probate court, delaying Julia’s ability to sell it. She also had to hire an attorney to go to court on her behalf. Meanwhile, Gary’s son had to change schools and leave his friends. His daughter was forced to transfer to a more affordable university far from her friends and boyfriend. On top of grieving, Gary’s family lost their stability and social support.
David was the second client who passed away. He was an entrepreneur with a successful real estate development company. David had a blended family of three children. He, too, was diagnosed with colon cancer around the same time as Gary.
However, David had planned years ahead for a crisis. His financial life was extremely complex, yet he had taken the time to work with an adviser and create a solid wealth transfer plan. David owned a business, residential property, and rental properties. He had a large 401(k), IRAs, and a family farm with oil and gas lease rights.
When David received his diagnosis, he had a disability policy and life insurance in place. He had time to oversee revisions to his family trust, and he put the farm into a sub-trust so the income could be used immediately to assist his kids in moving forward. Gary’s kids had to navigate adolescence and college with grief and money worries.
David’s family, while devastated, felt taken care of by him, even in his absence.
Whatever You Do, Don’t Wait.
If you’re like many entrepreneurs, you are intensely focused on your business. You may have a risk-taking personality; maybe you even feel bulletproof. That serves you well when it comes to starting companies and creating innovation.
But the shadow side is unpreparedness and the possibility of leaving your family with little understanding of how assets will transfer, exposing them to a great deal of risk. Wealth transfer is about not leaving things up to chance if something happens to you or your spouse. It is about putting legal mechanisms in place to ensure your loved ones won’t experience chaos and stress on top of grief and loss.
Above all, wealth transfer is about being intentional.
Most people don’t think about wealth transfer and estate planning until they are near retirement. But it doesn’t matter if you’re 35 or 65; you must be prepared, particularly because, as an entrepreneur, your life is more complex than most people.
You have complicated legal structures surrounding your business. The company is dependent on you in multiple ways as the pilot of the plane.
If you don’t leave clear instructions and a strong plan for a copilot, you’re setting everyone in your company and your family up for disaster.
I’m aware end-of-life planning isn’t a popular, upbeat subject.
But when the time arrives, as it does for all of us, you can’t underestimate the peace you and your family will experience if your financial affairs are in order.
I use the concept of financial “scrapbooking” to help with this process. Financial scrapbooking is an exercise where you identify specific risks and ensure you have written instructions in place to address them. For example, a Financial Scrapbook holds items such as your trusts, durable power of attorney, and will. It documents where assets are held, as well as your legal entities and how they operate.
If someone needed to operate or wind down your household, it contains important contact information, log-ins, and passwords, household account and subscription information, and more. Financial scrapbooking can be a fun and valuable exercise.
*adapted from “The Entrepreneur’s Guide to Financial Well-Being“
AMDG Financial and AMDG Business Advisory Services in 2002, he spent fifteen years at two large accounting firms, working with Fortune 50 clients. With assets under management of more than $150 million, AMDG Financial integrates tax, financial and investment strategies to help clients make financial and life transitions successful on purpose. He is author of “The Entrepreneur’s Guide to Financial Well-Being“.