Paul Meloan – Vested Interest

Many of our clients own successful, growing businesses.  Many also have young children, and anticipate a day where they may want to sell some or all of their businesses.

They read that if they place some of their company stock into irrevocable trusts for the benefit of their children (while the company’s value is relatively low, compared to a future sales price) they will get the future growth of that company stock out of their estates.  In cases where the businesses may sell for big money, this is a potential tax savings in the millions.

It is also frequently a terrible idea.  If their plan means passing $5 million in wealth to a child of theirs (who is currently 11 years old) in 10 years, I ask them to imagine the following: Pick the brightest, nicest, most considerate 21 year old you ever met.  (You’re remembering yourself at 21, aren’t you??) Now hand that person $5 million and wish them luck.  Hilarity ensues.

Since our tax code was written by wealthy people, I assure clients that they will have ample opportunity to distribute their wealth and avoid much in the way of estate taxation.  The greatest argument for and against the estate tax is that it is completely voluntary, if you are willing to do what is necessary with your affairs to sidestep it.  Thankfully, most people are not: it is after all only money, and they will be dead.

Most clients prefer to give their children the opportunity to become adults and contributing members of society unburdened by the reins of family stewardship.

As it is with the first-round draft pick athlete, so it is for the offspring of wealthy, successful people.  As there is no privilege without responsibility, it is often best to begin distributing both in measured doses.

Paul Meloan is the co-founder and co-managing member of Aegis Wealth Management, LLC, in Bethesda, Maryland USA. Before Aegis Paul was a practicing attorney as well as working in the tax practice of Ernst & Young, LLP.

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