Business Succession Planning for the Baby Boomer Generation - New Tools, Opportunities and Issues

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1 Business Succession Planning for the Baby Boomer Generation - New Tools, Opportunities and Issues Eileen Gallo, Ph.D Gallo Consulting Los Angeles, CA Michael J. Jones, CPA Thompson Jones LLP Monterey, CA DeeAnn L. Thompson, CPA Thompson Jones LLP Monterey, CA David R. York, Attorney York Howell Salt Lake City, UT Wednesday, November 5, :15 am 10:15 am

Jones, CPA Thompson Jones LLP Monterey, CA DeeAnn L.

2 Business Succession Planning for the Baby Boomer Genera7on New Tools, Opportuni7es and Issues David York, Esq. York Howell Eileen Gallo, Ph.D. Gallo Consul0ng Michael J. Jones, CPA DeeAnn L. Thompson, CPA Thompson Jones LLP

3 Family Business Rela0onships: Mul0ple Roles Are Common FAMILY BUSINESS OWNERSHIP

4 FAMILY Related by marriage or by blood Ideals: Nurture individual and family development Recognize inherent value of each person and the family as a whole Nurture ethical views and behaviors Emo0onal expression is welcome (within norms) Business ownership and/or employment may equate to perceived status

as a whole Nurture ethical views and behaviors Emo0onal expression is

5 BUSINESS Exploits markets (ethics plays a role) Organizes capital & labor Roles: Board of directors Execu0ve staff Managers & labor Pays wages and salaries Presence of family increases need for clear rules about opportuni0es for business roles

Managers & labor Pays wages and salaries Presence of family

6 OWNERSHIP Elects board of directors Value resides in ownership interests Pays return on capital (dividends) Vo0ng rights can differ Subject of estate planning

7 Baby Boomers and Estate Planning Baby Boomers are substan0ally less interested in transferring assets mul0- genera0onally than their parents In general Baby Boomers do not see inheritance as an obliga0on they have towards their children The Baby Boomer Genera0on will ul0mately transfer four 0mes more assets than the Genera0on before them Baby Boomers are far more concerned than the prior Genera0on with: Legacy Their own current lifestyle The poten0al nega0ve effect that inherited wealth will have on the next genera0on Sources: U.S. Trust Survey Insights on Wealth and Worth and Allianz American Legacies Pulse Survey

assets than the Genera0on before them Baby Boomers are far more concerned than the prior Genera0on with: Legacy Their own current lifestyle The poten0al

8 Why Should Estate Planners Care about these Shi[ing Views? The tradi0onal model of estate planning (dump, divide, and defer) does not resonate with Baby Boomers and they are not nearly as mo0vated by wealth transfer as the prior genera0on They are increasingly concerned about the nega0ve effects of inherited wealth and, as a result, many do not see estate taxes as a nega0ve but rather as a governor which reduces this issue and therefore estate tax avoidance is either not a concern or much less of a concern Baby Boomers are more concerned with the Whys of estate planning while most estate planners are concerned with the Hows of estate planning, which leads to a disconnect and results in clients who are not fully engaged in the process

are increasingly concerned about the nega0ve effects of inherited wealth and, as a result, many do not see estate taxes as a nega0ve but rather as a governor which reduces this issue

9 Why Should Estate Planners Care about these Shi[ing Views? (con0nued) Baby Boomers are more concerned with their own lifestyle and flexibility than the prior genera0on so tradi0onal planning tools (irrevocable trusts, life0me gi[s, family partnerships/llcs) are of less interest Estate taxes, tradi0onally one of the primary mo0vator used by estate planners to convince people to do planning, is less of an issue for more than 99% of the popula0on The goals, values, and objec0ves of Baby Boomers are far more diverse than the prior genera0on and understanding these will take more 0me and effort on the part of the estate planner and will likely take a much more mul0- disciplinary approach

family partnerships/llcs) are of less interest Estate taxes, tradi0onally one of the primary mo0vator used by estate planners to convince people to do planning, is less of

10 RESOURCES 2014

11 A New Approach To Trusts: The Financial Skills Trust & The Business Skills Trust 2014

12 Live within your means Save a portion of your income Financial Skills Results Understand and manage credit & debt Maintain financial records Prudently manage your personal investments Ability to generate additional income if required Support charitable activities 2014

financial records Prudently manage your personal investments

13 The Uses Distribution guidelines Curriculum guidelines Trusteeship guidelines 2014

14 Understand the Trust Key Objectives of the busines Business Skills Results Management s strategic plan Key managers & board members Strengths, Weakness, Opportunities & Threats Financial statements Dividend Policy 2014

Key managers & board members Strengths, Weakness,

15 TRUST BASICS General trust principles Trust provisions Trust assets Trustee Standards BUSINESS KNOWLEDGE Management experience Able to select board & managers Understands issues affecting business BENEFICIARY NEEDS Understand beneficiary body of knowledge Mentorship capacity 2014

select board & managers Understands issues affecting business

16 Suppor0ng Informa0on David York

17 Greatest/Silent/Mature Genera0on Those born between 1927 and 1945 In general, they married for life, avoided debt, wife/ mother stayed at home, and they lived below their means. Had on average 3.6 children Experienced at least some of the Great Depression and WWII

stayed at home, and they lived below their means.

18 Baby Boomer Genera0on Those born between Fall into two general categories. The first half of the genera0on was marked by the change the World hippies of the 60s and 70 s and second half was marked by the yuppies of the 80s. Tend to view life much less conserva0vely than the prior genera0on. Divorce, debt and working mothers became much more mainstream and acceptable. Had on average 2.1 children

second half was marked by the yuppies of the 80s.

19 Greatest/Silent/Mature Genera0on and Estate Planning They tend to regard inheritance as an obliga0on and very important 75% consider wealth transfer important 34% have already begun the process of wealth transfer during life 22% believe that they owe their children an inheritance In the process of transferring $12 trillion They tend to see the rela0onship between wealth transfer and benefit as directly correlated (i.e. the more assets you transfer the beoer) Sources: U.S. Trust Survey Insights on Wealth and Worth and Allianz American Legacies Pulse Survey

In the process of transferring $12 trillion They tend to see the rela0onship between wealth transfer and benefit as directly correlated (i.e. the more assets you transfer the beoer) Sources: U.

20 Baby Boomer Genera0on and Estate Planning They do not tend to regard inheritance as an obliga0on or very important 49% consider wealth transfer important 9% have already begun the process of wealth transfer during life 3% believe that they owe their children an inheritance Only 30% are confident that their children could handle an inheritance Will ul0mately transfer $41 trillion in assets They tend to see the rela0onship between wealth transfer and benefit as an inverted U curve (i.e., just because transferring some assets is good doesn t mean that transferring more assets is beoer) Sources: U.S. Trust Survey Insights on Wealth and Worth and Allianz American Legacies Pulse Survey

inheritance Will ul0mately transfer $41 trillion in assets They tend to see the rela0onship between wealth transfer and benefit as an inverted U curve (i.e., just because transferring some assets is good doesn t mean that transferring more assets is beoer) Sources: U.

21 Baby Boomer Genera0on and Estate Planning "I do not see my baby boomer clients giving up a vacafon or wine or dinners out so that they can leave more money to their children, because they feel like they've already done it for their kids. Advisor "I've given them a terrific foundafon in life. I've helped launch them with their educafon and their careers. If they can't make it on their own now, they can never make it. I've done my job. Now I'm going to enjoy life. Baby Boomer Source: Los Angeles Times, September 5, 2011

22 The Reforma0on Movement - Phase 1 For hundreds of years, estate planning was primarily focused on the transfer of land In fact, the genesis of trust law came from land ownership and succession planning Inherited land, however, was simply the transfer of an opportunity from one genera0on to another as was the transfer of a means to an end It sill required hard work, faith, and effort on the part of heirs to produce any value

23 The Reforma0on Movement - Phase 2 With the industrial revolu0on and urbaniza0on, wealth became separated from land and began to be accumulated in stock, bonds, and other intangible assets Accordingly, estate planning and wealth transfer became increasingly focused on the end and not the means to the end

24 The Reforma0on Movement - Phase 3 As wealth transfer became decoupled from opportunity, or from a means to an end to the end, people began to see the nega0ve effects of inherited wealth and the birth of so called Trust Babies Others have referred to the nega0ve effects of wealth transfer as Affluenza

25 The Reforma0on Movement - Phase 4 Baby Boomers are increasingly looking at restructuring their wealth transfer to focus on specific behaviors which, in turn, allows each successive genera0on to accumulate their own wealth They are increasingly focusing on the transfer of opportuni0es which, as a result, requires hard work, faith and effort on the part of succeeding genera0ons Behaviors that Baby Boomers desire to encourage: Educa0on Home Ownership Entrepreneurship

ESTATE PLANNING QUESTIONNAIRE

DATE: _ ESTATE PLANNING QUESTIONNAIRE I. FAMILY AND OCCUPATIONAL DATA: Name: Date of Birth: Address: Citizenship: SS#: Telephone # Home: Work: Cell: Email: Occupation: Name of Employer: Business Address: