In light of the Great Resignation, many workers—including high net worth individuals—are leaving full-time careers to start their own businesses. The entrepreneurial lifestyle impacts more than just the founder; when starting a company, one must consider how their decisions will affect their immediate family and the wealth thereof. The early days of a company’s founding and growth are undoubtedly chaotic, but they also present a key opportunity for the founder to conduct in-depth estate planning. Why play catch up later on, when you can build a strong foundation from day one?

Financial advisors are in a unique position to support their clients as they found companies. Financial advisors can help guide clients toward prudent, long-term decisions, even during the most chaotic early days of the founder's journey. Smart estate planning at the outset can help with the success of a new business venture, as well as securing the ultimate goal for high net worth individuals: a well-rounded plan for protecting and preserving their family’s legacy.

From Family Planning To Family Business
Financial advisor teams are uniquely positioned to work hand-in-hand with clients to align business goals with personal goals. Financial advisors bring a unique perspective as a family consultant and savvy business strategist. An estate plan that takes both sides into account is the critical foundation for long-term success.

Financial advisors can assess how families will need to reevaluate personal goals and immediate plans to accommodate new business plans, while keeping family values at the forefront. Having values-driven conversations with clients is an excellent strategy for aligning the professional with the personal, as both areas should be guided by a governing set of principles. Keeping those values at the forefront of planning conversations can help clients find clarity in chaos.

If your client hasn’t articulated their personal or professional values yet, ask them if they’d be open to a qualitative conversation around values. Ask questions to draw out what your client already knows intuitively but perhaps hasn’t been able to articulate, like, “What drove you to start this business?” “Which of your personal values will be reflected in how you run this business?” “What lessons did your parents teach you that you want to pass on to your children after you’re gone?” The answers should start to paint a picture of the legacy your client wants to leave. That is the root of a strong estate plan.

The financial advisor's relationship with the client is critical in this situation: Rather than start from scratch with a new team, as some clients may be prone to do, it can be invaluable for business founders to leverage established relationships with financial advisors when starting a new business, especially when it comes to incorporating personal plans with that of the company.

Shifting From Qualitative To Quantitative
Once values are determined and goals are aligned, the financial advisor's role becomes more technical.

A family business succession plan can look similar to the family’s personal succession plan--but the factors to consider are very different.

If the goal is to pass the business ownership and management to family members, a succession plan may include gifts of equity (outright or in trust, considering tax efficiency) or bequests of equity at death along with a liquidity plan for estate taxes.

Coach clients to consider the allocation of equity among family members. Will each child inherit an equal share? Is each child’s involvement in the business going to impact the equity allocation? Encourage clients to address family conflicts that may arise based on shared ownership. If the goal is for employees to continue the business, plan as far in advance as possible, prepare the company for transition, and consider financing options and tax consequences.

Believe it or not, determining equity allocation may be the easier part of these conversations. As it relates to management (who will run the business and under what reporting hierarchy), plans must determine who participates in management (family or not) and who will oversee day-to-day operations and/or serve in management positions. These conversations can be even trickier to navigate, as they blend personal feelings with professional performance in a truly unique way. These decisions must stem from longer conversations around responsibility, individual career goals, and skill sets, oftentimes with multiple generations, and sometimes involving non-family business leaders. Financial advisors can play a critical role by finding the most appropriate way to start and coach these discussions while keeping the focus on moving the estate planning process forward.

Leverage Specialists To Achieve Success
Financial advisors can sit at the helm of the business estate planning process, guiding their clients through the tough decisions to achieve success. That leadership comes with the responsibility to leverage technical specialists when necessary.

Estate planning attorneys can be important members of the business estate planning team. Knowing when to pull them into the process is critical. Leveraging other practitioners will help the client in the decision-making process by providing technical expertise and consultation around specific rules and documents.

Financial advisors could be invaluable resource to estate planning attorneys who are creating a trust for clients. While these conversations may be difficult to have, especially so early in the planning process, it’s crucial to avoid probate and ensure a fair distribution of assets upon succession and/or death. Together with the estate attorney, work with your client to walk through each vehicle to help the client make an informed decision. Compare options to be sure that everyone is taken care of.

An estate planning attorney is a big part of this process, as they can make sure that everything is done correctly and according to law. Legal documents must be compiled, such as:
• Basic Will
• Revocable Living Trust
• Durable Power of Attorney
• Health-Care Directive
• Irrevocable Life Insurance Trust
• Buy-Sell Agreement

As careers change and many high net worth individuals take a new risk for their career and income stream, financial advisors are equipped to couple the new business’ goals with that of their client’s existing estate plan. With the experienced professionals that provide legal, tax/accounting, investment banking or financial/investment advice, new business founders are able to rely on their advisors’ experiences and expertise while aligning it with their previously determined long-term goals. In turn, families can count on their financial advisors to help them achieve business, personal and family-wide success.

Sarah McDaniel, CFA, is head of UHNW Content & Analytics and head of the Art Resources Team (ART) at Morgan Stanley Private Wealth Management.