Legal documents alone can't solve the wealth transfer problem, because there's an emotional part.

[02:06]

"But if there's a a gap in there, often times G2 or G3 will feel stuck, not knowing what to do with all this money and then sometimes it just runs out or they don't know what else to do with it, so they spend it"

[06:01]

"Because if legal documents could resolve the wealth transfer problem, which today is 70 trillion plus that is going to be transferred to the Next Generation within the next 25 years, if we could resolve that problem by just having gift and estate planning. That would solve everything, but it actually doesn't, because there's an emotional part to it"

[03:11]

"And then the last aspect is leadership, and the average family has about 27 advisers. So, if you think about it, you you're in 50 to 100 deal. I mean, that's 50 guys right there that you're talking to, unless it's all with one person"

Full transcript

Welcome everyone. Uh, I live here in Dallas, so if you're not from here, welcome y'all. You know, um, yeah, so, uh, so my name is David and I've worked with a lot of high net worth individuals. I started out in Sun Valley, Idaho, and uh, the clients that I was working on there were worth about 50 million, and then I got down to uh San Francisco and I started working with clients that are making about 50 million a year.

So I've had a really interesting perspective on how people make wealth, um, how they generate it and all the complexities that go on with that, and so family office can mean a lot of things to a lot of different people. Um, first of all, some people look at this and say: what's our Mission, Vision, Values, and a lot of times it starts with the, the entrepreneur, and then they have to um translate: what are they actually trying to do for the family? As the, as the wealth transfers from generation to generation? This can be a?

Um, it's more of a conversation that happens throughout the generations. Um, then you get something like operations where it's: hey, we need to facilitate a payment or we need to fix the house or our vacation home, or who is uh working with, uh, the property managers? And there's lots of things that go on in operations that need to get done, because most of the time the founder, the ENT entrepreneur, is out there trying to get deals, trying to build, Build and Grow the wealth which goes into the next point, which families can sometimes have a lot of wealth that was created with an exit but sometimes get static and they're not really sure how to grow the wealth, where to grow the wealth, at, what kind of deals they should get into. And often times the founder or entrepreneur will be really good at one thing, okay, um, whether that's manufacturing, whether that's Tech or whatever it may be, but the kids oftentimes don't have that skill.

So it's creating a process as to how are we going to continue to grow this wealth and setting kids up to do that. But if there's a a gap in there, often times G2 or G3 will feel stuck, not knowing what to do with all this money and then sometimes it just runs out or they don't know what else to do with it, so they spend it right. We see, we see a lot of that. The other thing that folks come to me is gift an estate, and it really starts talking about what do we do with the kids?

How much money are we going to give them? Um, is this too much? Should we give the charity? How much are we going to be paying in our estate taxes? So right now, the estate tax is$ 25 million for Lifetime gifting. So if you're anywhere above that, it's 40% taxes in the US.

And so when we look at a balance sheet, we say: A, you either have a problem or you know we need to figure out how are we going to pay this tax, especially if you're in a lot of illiquid assets. And the other thing that we see in family offices: uh, coner services, this is: hey, I need you to book a flight, I need you to book my meetings. Uh, we need to have a family get together. Um, who is coordinating all of these things.

And then the last aspect is leadership, and the average family has about 27 advisers. So, if you think about it, you you're in 50 to 100 deal. I mean, that's 50 guys right there that you're talking to, unless it's all with one person, um, plus you have your wealth manager, plus you have your tax accountant, plus you have your bookkeeper, uh, plus you have your executive assistant, and then it's like all the private Bankers that you have, and the list goes on and on and like how are you going to be coordinating with all these people? And all of these things can mesh together to be a very blurry uh, uh, um, I should say like definition as to what family office is.

So it can be very, very broad. So a couple ways that I see family structured: Um, this can be anywhere from folks who are a billion dollars to it. Just, it really depends on your complexity. So the first way that I see is an executive assistant. This is somebody who is your uh right-hand person and you just look to them and you're like, hey, I need to schedule a meeting or we need to do this.

Well, what happens is they're so involved in the business they wind up paying your bills, or they wind up doing bleeding into the personal side of your business and they really become your right-hand person. Well, what happens is if you continue to grow in your wealth, then they start going into more of like: well, we have a lot of bills that we're paying and now we need to transfer money from one LLC to the other. And then do you really want them to have wire access or, um, money transfer access, and so that's when they will hire on a controller to help support the executive assistant. But then you may grow uh further into this.

Where it becomes, you need a fractional CFO where somebody is just managing the finances. Okay, and this can sometimes come from the business side, where they're bridging both the business and the personel because things are so intertwined, or it may just be that the personel has so many Investments going on that they actually need a fractional CFO to help them. So if they're fractional and they begin to outgrow just the fractional Services, then it can grow into being a personal CFO where you are full-time helping this uh person out, running all the things from cap calls to bill payments to um, helping the kids understand what's going on with the money. And then the last can be if that personal CFO winds up outg growing.

Having so much to do, they wind up hiring more and more staff. Your legal bills become more uh to the point where you actually have to hire somebody full-time. So there's two things that I like to talk about in family office, and the first is the hard structures and the soft structures. The first one, the hard structures, are very simple.

We're talking about them here. We're talking about deal flow, we're talking about accounting, we're talking about legal structures. But the reality is is that family is more than just uh legal documents? Because if legal documents could resolve the wealth transfer uh problem, which today is 70 trillion plus that is going to be transferred to the Next Generation within the next 25 years, if we could, if we could resolve that problem by just having gift and estate uh planning.

That would solve everything, but it actually doesn't, because there's an emotional part to it, right, where it's like how much should I give? Or, um, how much data should the kids be seeing? Or what is our actual Vision or values that are going on behind the wealth, what is driving those things? And so it's important to see that there is the in, uh, the interlap, or I should say um, in this Vin diagram here, how those two um intersect.

And so family office has a lot of things going on. There are, uh, interest rates. There are you know how much money am I actually spending? It's what are the taxes that we're paying, and the list goes on and on. I was um, even uh, breaking this down the other day. Even a single family home has about like 25 pieces of information right, when you start talking about uh Parcels, you start talking about interest rates, you start talking about the loan.

Who's the lender to it? Uh, if it's not here in this space, who is managing that property? What is their email address, what is their phone number. How do you get this? That's just one house. I was talking to a guy the other day.

They have six houses in Dallas, they have six houses in New York and they got another three California. All right, 25 times that is what, all right. So where are you keeping all those details at? And it becomes, uh, quite an issue where you see this chaotic, um um element going on in the family where they can't get bills paid on time and they're having a hard time communicating and nobody knows where anything is at.

And that's because there's really not a process. And so a process, I think, is: um, you know, when you go bowling with your, your kids, and, uh, you put in the bumper lanes. And why do you put the bumper Lanes in? Right, you put them in so they don't, they don't, bow gutter ball. That's the same thing with the process.

You put, you're putting gutter, uh, gutter rails up so that when you're bowling, it's like you know that you're going to hit a strike, maybe not a strike, maybe one pin, maybe two pins, but you're not going to bowl a Gutterball. You're not going to miss a payment, you're not going to miss whatever it is that is absolutely important to the family office, and if you don't have a process and you begin taking on more and more deals, it starts getting very, um very chaotic. And so here is what. Here is where I start, with families.

Okay, I, I know this may seem seem very basic, but the first place that we start is getting all of the information into one spot.