What are “Family Offices” & “Family Mission Statements”?

Video Chapters & Transcript:

[Music] Howdy folks. Thank you once again for watching and welcome to another edition of Smarter Money Matters. It really really does with your wealth Dr. Jeff Camarda joined by our super CFPs Lou and Anna. Thanks so much for watching. Today’s topic is uh is family offices what they are and talking kind of about family mission statements and then we’ll give you a couple of examples good and bad of but the first thing is a family office which is still not a very well known term basically means an office or you know a collection of professionals whose job it is to run the business interests you know the the financial interests more specifically of affluent families that have accumulated, you know, significant assets. And typically these days, um, I think the line is drawn, you know, in order to to to to warrant a family office of couple hundred million dollars, that sort of thing, which is pretty rarified air for most of our viewers. Uh, but still the core concepts and the services are really applicable to most people that have accumulated even, you know, fairly modest wealth. So you know family office typically and the way we do and we’ll talk about Kamar Komad’s total wealthare is kind of family office light you know the core responsibilities are portfolio management of course generating income if there were rental properties managing the rentals and the real estate um then the cash flow taxes estate planning legal um what else Lou I’m sure asset protection protection insurance you know insurance you know uh the anything else that I missed Anna? I mean sometimes you know even like bill paying those types of even you know more administrative functions. Yeah core services like that and then depending on you know the affluence and the a I guess or the appetite of the the family. It also often includes travel concurs, maintaining a fleet of private jets, picking up the dry cleaning, walking the dogs, pretty much all the services that are required by a specific family. And uh um many of you probably, you know, uh won’t have an interest in in, you know, in those really complicated examples, but the core services of putting everything together, what we call total wealthare, is really really important. It makes it easy on the family. uh things fit together better. You know, when you have a tax person uh that’s just looking at the tax returns once or twice a year, an insurance agent and a broker over at a major brokerage firm, um they tend to kind of be, you know, isolated and don’t really communicate and they’ll coordinate things well. So, what may make sense tax-wise could be a horrible investment idea. Um, and since they they they don’t confer and try to find the best solution that accommodates both opportunities, often things aren’t, you know, aren’t as well done. Absolutely. You know, so I I I’ve been talking probably too much, you know, which is unusual for me, but uh if you guys would like to add to that, that’d be great. Yeah. Know, I mean, you know, that that pretty much sums it up in terms of what family offices are and what they do. Um, and we I guess we can talk about the mission statement and kind of how we, you know, how we can help with in that regard. Yeah. Anything to add? I mean, I I would just say, you know, the model, the family office model that we kind of have now, right, where we have different professionals under one roof, it makes things like Camarda. Yeah. It makes it easier. Um, and you know, past experience, um, you know, when I’ve gotten in touch with another with a client’s, let’s say tax advisor, right? Sometimes they’re a little stingy at previous forms. I guess true here. Yeah. and and they’re just maybe a little stingy with information because they don’t want to give up any of their relationship with the client potentially. We’re at a family office type model like a Camarda, everyone’s, you know, the clients have the option of having all those professionals under one. It’s much more collaborative. We’re all working for the good of the client. That’s a really good point. You you find that when you have this uh this isolated advisor model where you have the C they’re like, you know, it’s floating in space in little capsules. you know, the the um the CPA and the lawyer and the insurance agent, they’re all very jealous of each other. They don’t want to give up client control. They’re afraid that somebody’s going to steal a client from them. So, they become very guarded and often they’ll attack each other just to demonstrate how valuable they are, right? And I also think I also think with the days, you know, today’s day and age, you know, they also have to be kind of careful and cognizant of what, you know, how much information to disclose because, you know, you don’t want to give away information that may hurt a client too, right? So you know if you don’t have a relationship with that professional on the other side of the table then you know it becomes stingy. Absolutely. Well which is really it’s a really good point though and that’s why it’s so important you know something that we insist on if a client’s you know the attorney or or tax advisor whatever if we’re not doing it all in house if they want us to share information the client’s got to give us written authorization before we do that. um which has become really kind of you know automatic right for for a long time and but you should as viewers you know look upon those that that don’t do this with somewhat John Dy which to say that you know if you got an adviser or a calendar attorney that’s willing to give up your data without asking you first for written permission that may be a hole in your financial security and identity theft risk that you might want to plug but that’s a really good point but anyway we find it much more colleial by having legal and the tax team and everybody work together with one specific objective, maximizing the wealth profile of the client to be actually less expensive and and a lot more effective. But on to your point about family mission statements, which is a really really good idea and this is based on a Wall Street Journal article that probably appeared, you know, in early October. Um the uh um so most folks know admission statements are for companies, right? Um the ours is we we call ours the constitution. It’s been hanging here on the boardroom wall for probably 25 years now, but you don’t really hear it much about families. But boy, what a great idea. What a great idea. And a family mission statement according to journal lays out principles and goals in a few sentences. The aim is to avoid the fighting that has destroyed fortunes and left relatives battling in court or just to make sure that younger generations don’t squander the fortune. There’s an old Chinese, I think, expression shirt sleeves to shirt sleeves in three generations. You guys, have you heard that? Do you know what it means? I have not heard it, but I think you have a pretty good idea. Yeah. It means, you know, the first first generation makes the money, gets rich, right? The second generation blows it all, and the third generation’s back in the dirty cap, you know, which there’s a lot of truth to that, right? You don’t train the kids, well, oh, gee whiz, I’m entitled all this money. We’re rich. you know, and they they kind of the connection between what produced the wealth and what is needed to maintain it gets lost. Um, so you had a couple we’ll come back to the mission savings in a second, but you had a couple of stories that you wanted to share about, you know, some disaster stories. I think both of you, right? Yeah. I mean, you know, I think we all come across uh these, you know, horror stories from clients and and uh you know, they’re close to obviously, you know, close to heart, close to us and and uh you know, recently I sat down with a client who um you know, very very good client of ours has been on loyal client for a number of years. Um you know, he had a medical procedure that that he kind of went through and and a heart operation and so it was pretty scary. He didn’t know how that was going to turn out. Thankfully, everything was fine. But right before, you know, he went under the, you know, under the knife, so to speak, and it sings first, I hope. Yeah. Hopefully. But, uh, but, you know, anyways, he set his family, he had he set his two kids down and, uh, he’s, um, he was, he’s divorced and, you know, he had he met a a, you know, new new, you know, lady in his life that that he also has, uh, you know, he’s planning on marrying her now. But, uh, at that time, this was probably about a year ago, uh, when this took place, they were kind, you know, he he wanted to leave her some of his assets. He’s got some significant assets including the family home was going to be trans transferred to to this new you know love in his life. I bet bet that inspired a lot of affection amongst the children. So exactly. So, you know, in the middle of his, you know, surgery procedure, instead of, you know, worrying how the dad is going to, you know, come out of it and everything’s going to be fine, they were actually they went backstage and and uh, you know, argued a lot and it was, you know, became a blowout and and um, you know, a whole fiasco so to speak, you know, over over inheritance over who’s going to get what assets because they went through the will and and the trust right before he went under and uh, you know, and obviously that’s created a lot of tension within the family now because, you know, because of that disagreement which will take a long time if ever before you participate. Correct. So, you know, that’s just one recent story that I kind of wanted to share, but yeah, absolutely. If you if you guys haven’t watched the HBO show Succession, which is just a brilliant, wonderful show. It’s all about this. It’s really, really worth watching. You have some stories, Adam? Yeah, I mean, I’ve I’ve helped clients, one in particular, um only child, dad passed away, didn’t have things, you know, outlined and as robust of an estate plan that we would recommend for our clients. This was from a prior firm I worked at and um his dad had passed and he ended up getting introduced to me and most of the assets you know he was beneficiary everything flowed to him but there was a small you know employer stock account that his father had through Walmart and that had to go through probate and some like third cousin came out of the woodwork and she challenged him being the heir of that and they spent probably about two or three years in court uh back and forth trying for him trying to you know get it through probate. Um again two or three years all those fees and the account you know was not that significant. It it became you know for for my client real bone of contention. Yes. It just became like a this you know u he felt that it was his money or it was entitled to him. he was entitled to it and she wasn’t. And it just became, you know, him essentially fighting her off because he felt it was the right thing to do. Yeah. Which just blows up the relationships and, you know, which is so unfortunate. Um, and I’ll tell a quick story. This is actually a family story. I’ll I’ll blur the details a little bit, but those of my family members that were affected, I’m sure, will remember painfully. Uh but a story of two aunts that uh were in a southern state um with which a nephew and u um I guess a great nephew and and and a niece had a very close relationship which they had cultivated over me every year many had genuine affection and toward the end of the aunt’s lives when they were needed care and and a little bit perhaps of dementia you know swoop down another cousin from a northern state and I’ll just call him Joey because that was his name. But right who whined and dined and booed and got said god knows what to the richer of the two ants. They both had a good bit of money, you know, and convinced her, you know, in her demented state or semi-demented state, you know, with a lawyer in cahoots to go ahead and upset the uh estate planning apple card, rewrite the trust, you know, whisk all the money off back to the northern state. Um, and this kind probably was actionable. there’s probably something that shouldn’t have been done and you know the the person who lost the capacity to make these changes but it happens all the time all the time you know and by having a back to family mission statements having some agreement and clarity over what the wishes are helps to run things smoothly just like a business’s mission statement or strategic document you know which is kind of what you know wealthy family is it’s more complicated and you know and dysfunctional than most businesses are accepted. Uh but the um it’s still you know these are the considerations. Um and you know back to one of the things you said earlier we’ll read some mission statements after this is that you see this a lot with second marriages you know where the couple splits up. There are kids from a previous marriage. They get remarried. And I’ll just say we have Martha and uh um and Roger here, you know, and Roger’s got three kids from a previous marriage, but he’s married to Martha. Maybe he has kids with Martha. Um but he still wants to take care of his kids from the previous marriage. And he’s a lot more motivated to do that than Martha probably is. She may be a good stepmother, may get along, but she probably, you know, she she doesn’t have that that maternal, you know, bond with them. And without the proper planning, without Roger and Martha sitting down, say, “Okay, if I go first, I’m the man. I probably will. This is, you know, we’ll split. You’ll have the use of the assets for your retirement for your lifetime or most of them. But when you finally go, then my kids got to get this piece, which is typically done in device called a Q-tip trust.” Um but without having not only the legal documents in place but the understanding and the agreement that this is our plan, this is our mission for the money, things often go quite a Yeah, absolutely. I think it’s very important to have these u you know family financial meetings and I know you know you you do that Jeeoff uh with your family also but uh you know to to educate you know your your family you know and even you know disclose you know I know some clients don’t like to disclose what they have. It may not be for for everyone but usually if you talk about money in your in your household if you you know have those you know educate your kids kind of you know how how hard you know how hard you had to earn to kind of what you have not to all you know not not to kind of visit all the way you know and to inculcate or instill in them the work ethic you know a lot of things that I do you know my kids don’t really do said look no you go ahead and do it yourself daddy can’t do it for you have to learn how to do yourself you got to learn how to fish um so here’s are some of the mission statements and they’re quite varied. Um, and it really just depends on you. A lot of times I’ll people say, “What should I do?” It’s not up to me. These are your values and your goals. My job is to identify the opportunities, give you clarity as to what, you know, what path you may want to take and then help you get there, you know. So that’s, you know, we’re, you know, agnostic in terms of what is right. It’s for you to determine what is right, but you know, understand how to really get to what you think is right. But here’s one. Life is a gift that cannot be wasted. Family is the essence of that life. And as a family, we will work hard. We will play hard. We will live in the pursuit of knowledge. We will love our family unconditionally. We will give more than we take to ensure a better world, which is beautiful. And that’s what, you know, they agreed on, you know. So the u um before we get to another one, you know, some families have a more formal document called the constitution. For families that own businesses, constitutions can lay out what minimum requirements family members and their spouses must meet to be able to work at the business, which is important. You know, nepotism is is really very corrosive. Uh to try to avoid drama later, they can even define who counts as family such as stepchildren and not. And that that that’s an important consideration that I hadn’t considered before. Right. Uh here’s another uh the a family that that kicks off their annual meeting by reading the mission statement aloud and leading a discussion of whether it needs revision. Kind of like a board of directors meeting. Then they update the family on the finances and the estate plans before they break off to have a nice meal. Um and here’s another mission statement uh which is a little bit closer to uh uh to my personal feelings. Our mission is to preserve, grow, and steward resources while prioritizing generosity so we may invest in family through education, lifeenriching experiences, and quality time together. And that really hits it for me, but what matters to me don’t matter to you. You got to figure out what it is that’s important uh for you all. And uh the last thing I’ll quote from the article is that this one guy um has named all the family trust beginning with different variations or of DSTP which stands for don’t spend the principle. Don’t spend the principle stupid. But once that’s gone, it’s all gone. Do you guys have any concluding uh stories or remarks? Yeah. I know I just want to say, you know, I mean, just judging on those on those on this article and those quotes from there, u you know, how important it is to to have these conversations, you know, to have these conversations, not to wait until it’s too late, not to wait until, you know, there’s a death in the family that someone passes away to start these conversations. Start it early. Uh, you know, talk, educate yourself, educate your family members, and hopefully that is going to alleviate some of these, uh, you know, heartaches down the road. Yeah. And I would add with what Lou was saying like take the time, you know, educate your family, educate your children, because the more education you provide, the better stewards of wealth, you know, they likely would be. If they don’t know anything about how you grew it, how you preserved your wealth, they’re not going to understand how to take care of it when it’s in their hands. They won’t appreciate it as much, right? Exactly. And and invol engage them, talk about it. You know, people tend to be especially, you know, greatest generation folks tend to be very guarded about their money and but it’s it’s important that you don’t have to really reel everything and show them the account numbers, you know, and then give them a power of attorney, which means they can write a check to themselves, but involve them to the extent that you’re comfortable. We had these accounts here. This is where the real estate is or mortgages. This is how the trust set up. This is I I think you’re going to be the best one. Whatever. have a discussion and involve them as stakeholders in the family wealth which they really are unless you’re going to spend it all in retirement and many of you won’t you know give them some guidance as to how to carry on and preserve your legacy which is really what it is so you know just uh um on a unrelated topic and thank you very much we have another question from a viewer that was actually I think directed at Lou and uh this fellow was uh past the RMD age pulling money out of traditional IRA had a question about Roth conversion specifically. What was it? Yeah. So, he was asking if he can use his RV requirement of distribution that he’s required to take this year towards his Roth uh convert to convert that into his Roth account. And uh you want to answer it? I mean, yeah, I can answer it. So, you have to satisfy that RMD requirement first, right? Then you can convert additional money um into the Roth. But you can’t take the RMD money on which you have to pay tax anyway and use that same tax to justify making it taxree. Right. Right. That’s kind of be double dipping kind of. Correct. So just you know just put it in numbers. If if you have let’s say your R&D for the year is 10,000 and you want you know you have to satisfy take that out of the IRA and then if you want to do additional Roth conversion you can’t on top of that 10,000. You can’t use that 10 towards the Roth. So just to now that I’m confused Lucy don’t stray me out. Okay. So we have, you know, the first $10,000 can R&B, right? Yes. Got to pay tax on that. If I want to do a Roth conversion for 10,000, I take another 10, I pay the tax on that. So I pay tax on 20. Correct. I can’t put the RMD money into a Roth. No, because you know, you got to pay the tax on that. Just as kind of a correct. Please keep the questions coming, guys. We’d love to answer them whether you’re clients or not. This happen not to be a client. Uh but we’re very happy to to spread the wealth of our knowledge. That’s all for this week, folks. Thank you so much for watching. Until next time, it is your super CFPs and Dr. Jeff Camarda with another scintillating episode, we hope. Thank you so much for watching. Smarter money matters. It really does. And we’ll see you next time. Thank you.