Are You Betting Your Family Fortune On Good Intentions?

Helping High-Net-Worth Families Steward their Wealth Enterprise

We spend most of our lives working… investing both time and money into an ultimate outcome most would agree should ideally reflect our core values. We spend billions seeking good advice. Yet, despite an abundance of talented advisors with their cutting-edge strategies, sub-optimal overall outcomes are easily the norm and not the exception.

Are you willing to go all-in on red or black with your life’s investment of time and money to define your ultimate legacy?

How Will You Be Remembered?

What will ultimately define our legacies? Will they be determined by the plaques and trophies we collect, the size of our portfolios, or how high we’ve climbed up the corporate ladder?

Or will it be from the fingerprint we have left in how we lifted others and embraced and stewarded the blessings in our lives?

Capacity as a Blessing

For high-net-worth families, wealth is a blessing that offers a unique opportunity to impact both family and society and warrants great care and wisdom.

“For of those to whom much is given, much is required.”

John F. Kennedy spoke these words in 1961 as he spoke about the qualities of great leadership.1 Bill Gates also used the quote in a speech to new graduates, calling them to a life of service and responsibility.2

Whether you are a person of faith or not, there is wisdom to be gained from the teachings of the Parable of the Talents.3

  • All have been entrusted with blessings
  • We are to use our unique gifts and talents wisely
  • We are responsible and accountable to a standard commensurate with our blessings

While many aspire to hear the words “well done,” let us remember the servant who was condemned for doing little with what he was given. This teaches us it is not acceptable to merely put those talents, our lives, and our capacity on a shelf and waste their potential – even if we excel in other areas.

In the context of wealth planning, high-net-worth families have been entrusted with the blessing of capacity, and these words remind us to think deeply about how we pursue, use, and deploy our wealth responsibly.

Two Strategies to Explore for Transformational Impact

1. Adopt an Entrepreneurial Approach to Wealth Planning

Entrepreneurs invest capital; they seek desired returns on their investment and pursue opportunities that they believe are worth building. They focus on potential outcomes and deploy whatever tools are necessary to deliver the desired results.

Traditional planning, by contrast, generally focuses on technical expertise, often in silos, usually to minimize threats, such as taxes, creditor exposure, risk, etc. – no doubt important, and these should be pursued with excellence.

The entrepreneurial approach utilizes deep vision casting at its core to attain integrated wealth optimization. Framing a vision uses critical thinking and applies wisdom to explore uncommon potential outcomes, serving as a powerful catalyst to empower both clients and their advisors. It is well known in the investment world that using the wrong benchmark will likely lead to critical misunderstandings, possible detrimental decisions, and unintended results. The same is true when planning for wealth optimization.

Deep vision casting establishes clarity, ideally through a planning benchmark (or Wealth Optimization Index), intended to help evaluate both overall outcomes and integrated planning strategies. Without this clarity, it is nearly impossible for even the most astute advisor to guide clients to optimal results, which is why there are often great strategies embedded in overall sub-optimal outcomes.

2. Explore the Entrepreneurial Use of Life Insurance

Life insurance ranks among the most complex financial instruments, designed to be viable and relevant over many decades. But unfortunately, it is one of the most misunderstood and misused or underutilized planning tools.

Accordingly, sophisticated insurance planning represents perhaps one of the most impactful remaining tools for transformational planning, especially if advisory teams approach the product through the lens of a fiduciary. The reality is that insurance is one of the most significant tools used by the ultra-high net worth.

Consider Malcolm Forbes. Here is a family that has access to nearly any legal, tax, and financial subject matter expert or firm on the planet, and yet it was reported that he was also heavily insured.

“The Forbes family says that Malcolm Forbes had begun buying huge sums of life insurance policies – no doubt very expensive for a man in his late 60s who had a penchant for motorcycles and hot air balloons.” Forbes Heirs Hire Tax Team, USA Today, October 16, 1990

Life insurance has many key attributes and benefits, especially when integrated with advanced planning strategies. When evaluating the product, it is critical to avoid analyzing the cost in a vacuum but rather compare the cost of the insurance vs. the capital requirements facing the plan itself.

For example, many practitioners advocate for term insurance and investing for retirement in mutual funds – a valid strategy for many. But consider the cost of tax drag vs. the cost of insurance. Assume for a moment someone could save $1M, which grew to $2M, which was earmarked for consumption in retirement. If applying a hypothetical 25% tax on gains, the cost/tax budget would be about $250,000. If one were to add up the cumulative deductions against a policy you might find during the protection years, the sum of all deductions may be $240,000. Certainly, more detailed analysis is required, but at face value, this scenario applies potential tax savings to offset the cost of insurance – and is the key to allowing the death benefit to be maintained and repurposed for transformational planning later in life. Furthermore, it is appropriate to add the financial advisor fee (not just the fund manager) on investments to the taxes incurred to evaluate total cost/drag on net performance for the pure investment strategy, a concept presented by Jonathan Blattmachr4, listed in the Best Lawyers in America. It is also critical to understand the cost of insurance is not always the premium. In many permanent policies, part of the premium is allocated to pay for the cost of the death benefit, while the balance is allocated either to the general account of the issuing carrier or separately managed accounts if a variable policy. To ascertain the product’s effectiveness, we need to bifurcate the cost for the net death benefit and the accumulation feature to apply the components correctly.

In the case study, the cost of the net death benefit was determined to be about $230,000. If financed, at 7%, the annual carry cost would be $16,100, with the balance going into the general account of the issuing carrier. The client’s CPA implied the client was oversold insurance he did not need, and under traditional planning, the observation was accurate. However, consider the family had done many other planning strategies to reduce their tax exposure, leaving (at the time) $20M exposed to a 50% estate tax. After a deep vision casting exercise, the plan identified a charitable opportunity consistent with the client’s core values. By executing a $10M policy, the insurance enabled the client to amend and execute the estate plan to send the $20M to a family foundation – to privatize and steward the family’s investment in humanity, locally, without disinheriting the family. Reducing $10M of tax and creating a $20M foundation is a $30M swing in the use and deployment of capital. As a result, the client agreed it was well worth investing $16,100 annually. A complete analysis explored the cost of insurance vs. the cost of tax vs. the value of an entrepreneurial outcome worth investing in.

The remaining capital allocated to the policy was designed to accumulate in the insurance company’s general account, as a potential complement to the client’s fixed-income holdings.

Fate or Destiny – Which will you Choose?

With age and experience comes wisdom, maturity, with the capacity to think critically and seek transformational purpose.

“You were put on this earth to make a difference.” A great‐grandmother’s wisdom, John Murtha, U.S. Congressman5

Avoid complacency, and consider pursuing transformational impact by expanding your vision and exploring what might genuinely be possible. The cost of exploring is nominal, while the reward, if applicable, can be life-changing.

As you steward your wealth enterprise, consider digging deeper and exploring what you would do if you had no limitations – then find a way to make that vision your new reality.

1 John F. Kennedy speaking to the Massachusetts State Legislature on January 9, 1961

2 Bill Gates speaking to recent graduates at Harvard University in 2007 on shared advice that his mother had

expressed to him and his then spouse, Melinda

3 Matthew 25:14‐30

4 Jonathan Blattmachr is a Principal in ILS Management, LLC and a retired member of Milbank Tweed Hadley &

McCloy LLP in New York, NY and of the Alaska, California and New York Bars. He is recognized as one of the most

creative trusts and estates lawyers in the country and is listed in The Best Lawyers in America

5 From the Memorial Addresses and Other Tributes in honor of John P “Jack” Murtha, Pennsylvania’s Longest

Serving Member of Congress, published by U.S. Government Printing Office, 2010

LEGACYpcs is a private company proud to offer New York Life.

Todd Purich, Agent, New York Life Insurance Company, a Registered Representative for NYLIFE Securities LLC (Member FINRA/SIPC), a Licensed Insurance Agency and a Financial Adviser for Eagle Strategies LLC, a Registered Investment Adviser, NYLIFE Securities LLC, and Eagle Strategies LLC are New York Life Companies. Legacy Private Client Services and the American College are not owned or operated by New York Life Insurance Company or its affiliates.

Examples provided are for illustrative purposes only and are not an offer or solicitation for any particular product or service nor a guarantee of performance. Legacy Private Client Services, New York Life Insurance Company and, its agents, do not provide tax, legal, or accounting advice. Please consult your own tax, legal, or accounting professionals before making any decisions. SMRU 5189432.1 (exp. 12.13.2023)

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