The Importance of Legacy Assessments

How prepared are you your family and your family business for when one generation passes away? I'm David Shaw the publishing director for family business magazine and I'll be discussing how to conduct a legacy assessment with Wendy Diamond who is us family Enterprises leader for Deloitte private Wendy. What's a legacy assessment? And when is it needed? A legacy assessment is the creation of a plan. It's intended to be used when a principal who holds significant assets commonly a family Enterprise as the most significant asset within the portfolio and it's really designed to help the family understand what happens when the principal passes away what happens to the family's assets and what happens to the business? The plan is really tailored specifically to take stock of the assets at a point in time. Of an ultra high net worth family member and it really ensures that the wishes of the principal are going to be met within the family's capabilities. Like many things each plan's timing is unique. There's not a one-size-fits-all approach, but there are some commonalities that we consistently see as we prepared Legacy assessments for family members. some of those may be we model the estate tax liability. We determine after reviewing the documents prepared by the attorneys. What will The Heirs and the beneficiaries receive upon a principal passing? Most significantly. We'll take us a snapshot and look at what is the estate tax liability that is owed when the individual passes. We'll take a look at the documents to evaluate. What will the errors and beneficiaries receive upon the principal passing? One of the most significant issues is determining does the estate have the liquidity to pay the estate tax due and how would they go about paying that estate tax liability? And most importantly this will also Drive discussions around business succession planning. Legacy assessment plan can be done at any time but there are some pivotal moments during the life cycle of a family Enterprise where we commonly see a principal take a look and evaluate. So that may be a change in family Dynamics. It may be a marriage. It may be the birth of a child and maybe achieved within the business all of these are good points in time to evaluate. And do a legacy assessment. So why should a family proactively engage in Legacy assessment as opposed to just letting an attorney sort of sort it out after the event? Yeah, there's a real benefit to proactively modeling out the numbers. We have the legal documents. They the attorney will often work closely with the principal to design the plan and write that plan up but really to mitigate the potential for surprises. It is important to take the actual values at a point in time and run that through a model so that what you're really trying to avoid are surprises that could have otherwise been mitigated surprises that are identified after a principal passes that we could have addressed before they're passing. Also, the balance sheet may change over time and you know tax laws could change time over time as well. So it's really important to over time every three to five years really take another look at what is the written plan say, how are the assets going to be disposed of and are the intended consequences? What's actually happening? So once you've put this kind of plan together, is there an option for the family to alter it? How does that work? In many instances what will happen is as I mentioned, they'll review the plan every three to five years, but annually, they'll do a Refresh on the liquidity modeling to understand as values of the business changed new assets are acquired. What is the estate tax due at a moment in time? In addition as you noted, there are things that the family can do once they have done that First Legacy assessment to evaluate are my assets going where I want them to go that may be considering additional distributions to heirs or that maybe charitable contributions as an example. These are the types of things that may be reevaluated over a period of time. Any significant changes in asset values though as well would be another reason to refresh the plan. Excellent. Well, thank you very much for walking us through what's involved in Legacy assessments. Thank you.