Taxes

Tax blunders and people problems: Experts reveal biggest blunders of rich families

A famous line in an F. Scott Fitzgerald short story declares that while 99.9 percent of people strive to make a living, 0.1 percent of them are working out what to do with the wealth they already have.

Preserving, investing and donating and spending wealth is more than a full-time job, and it requires multiple types of expertise. Pitfalls abound, especially within families. Speak to a few family office experts, and you’ll hear the phrase “When you’ve seen one family office, you’ve seen one family office.” In other words, there’s no uniform method for handling great wealth.

But press them on common errors, and they have a lot to say about patterns that trip up even those with the best intentions. In this article, a group of professionals from family offices, investment managers, estate planners, art advisers, and other disciplines describe mistakes they’ve seen. Fitzgerald wrote that there are “no types, no plurals.” But it turns out there are some lessons we can all learn.

Avy Stein
Co-Founder Cresset Capital Management

The biggest mistake a wealthy family can make is not having a family governance structure in place [that provides] education, a clear mission, and clear communication. If you don’t get that right, nothing you can do – taxes, wealth planning, you name it – is going to save you. The percentage of families that go from shirtsleeves to shirtsleeves in three generations, driven by failures in communication and lack of a mission, is incredible.

Stewart Kesmodel
Head of Global Family Office for the Americas
UBS Group AG

We see families who, in an effort to maintain cost control or to decrease costs, try to put an entity together with a bare-bones crew. In that effort to contain costs, they end up putting in a lot of inefficiency. In some cases they are not setting themselves up to be successful, to achieve the goals they set out as a family.

We had one client last year who ultimately ended up severing all their relationships on the street and basically replacing their entire investment team from scratch. We have others that are a little more thoughtful – who have had multiple generations, who are constantly monitoring or seeking out guidance on best practices, and who are making more minor adjustments. Then, unfortunately, we have some clients who are very set in their ways. They appreciate getting guidance and thoughts but continue to operate with the status quo, without making any changes even though it’s detrimental to their goals and objectives.

Read the full story at Bloomberg. 
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