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By Liza Horvath


Commando Estate Planning


Both the military and unsuccessful businesses use scenario planning when attempting to assess and address the risk of certain proposed actions. Families, when doing estate planning, could benefit by applying scenario thinking and planning to their own situations. If a course of action holds a wide variety of problems with multiple possible outcomes, scenario planning can help attain desired results.


In doing this type of planning, an organization or gamily combines the known facts of a situation and the anticipated outcome against future plausible alternative outcomes. The planning forces participants to ask themselves key questions designed to reveal hidden weaknesses and uncertain or unknown outcomes.


When families do estate planning, the attorney, tax advisor or financial planner will usually employ a formalized method of thinking and planning - similar to the method used for their thirty or forty previous planning clients. However, most families, especially those that have a business, significant accumulated wealth or blended family situations, would be better serves by employing a scenario based format in their planning rather than a standard, fixed method. Very rarely in these more complex circumstances does the outcome even remotely resemble what been in the "plans."


Most families address planning - the passing of a business, wealth and assets to children - by using known variables. For instance, two daughters are excellent in the family business so they will get to the company to run jointly and the rest of the family assets will go to the two sons. This follows an expected path that is derived from past experience. However, you know that statement we see when we read financial prospectus - "Past performance does not guarantee future returns?" Apply this to your family estate planning - just because the two daughters are working well together now does not guarantee a successful outcome.


In this family, for example, the two daughters did not continue to work together in the business. One daughter passed away unexpectedly leaving her share of the business to an estranged husband - a man who had left the family and who was now addicted to drugs. Nonetheless, the husband inherited shares of the company and attempted to become involved in the day-to-day operations of the family business. The result was, of course, full employment for several members of the legal community, stress and unhappiness for the remaining daughter, and the eventual failure of the family business.


Had this family done scenario planning they would have projected several "story lines." The family would have sat down together and discussed what would happen if one daughter or the other died prematurely, what would happen if the business was valued at $10,000,000 and the rest of the family assets - those that were going to the two sons - had been depleted to only $20,000. These weaknesses - and more - could have been uncovered so the risk could be eliminated or at least mitigated.


So, in your family estate planning be like the military and go commando! Identify key uncertainties, look for extreme possible outcomes, define scenarios and develop methods to make sure the plan does not end up as a zero sum game.


Liza Horvath has over 30 years experience in the estate planning and trust fields and is the president of Monterey Trust Management, a financial and trust management company. This is not intended to be legal or tax advice. If you have a questions call (831)646-5262 or email liza@montereytrust.com










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