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A Special Advertising Supplement to Crain’s New York Business | S1
GUIDE TO Wealth Management
A Special Advertising Supplement to Crain’s New York Business
I N S I D E� Paying it Forward: Successfully Passing a Small Business to Heirs� Do You Own Digital Assets?� 6 Growing Dangers to Investors
S2 | A Special Advertising Supplement to Crain’s New York Business
Successfully Passing a Small Business to Heirs by ALEC FOEGE
For most, passing the business to a family member is the fit-
ting coda to a successful career, and what appears to be an
easy answer to the question of succession. In reality, the pro-
cess takes serious planning to avoid common pitfalls.
The biggest mistake the owners of small, closely-held busi-
nesses make is not starting discussions about their succession
plan early enough, says Jim Malski, president of Next Level
Strategies, a small business consulting firm in Fairfield, CT.
“Many family-run businesses will wait too long to have the con-
versation and start the process,” Malski says. “The father or
mother takes too tight control until it’s too late.”
Any discussion about passing a business on to the next gen-
eration must begin with the question of whether there is an
heir that is interested in taking the helm. Closely tied to that
question is the issue of estate taxes.
Some New York-area laggards may catch a lucky break. New
York State tax law changed on March 31, 2014 regarding es-
tate tax, income tax on certain trusts and the repeal of the New
York State generation-skipping transfer tax. The most relevant
switch is an increase in the amount of a decedent’s taxable
estate that can be exempt from the New York State estate tax,
from $1 million under prior law to an amount that will rise to
$5,340,000 by January 1, 2019, to match the federal estate
tax exemption. This will allow some smaller businesses whose
owners suddenly pass away to avoid what are sometimes dev-
astating tax events.
Regardless of a small business’ circumstances, understanding
the tax code is crucial if the goal is to pass the baton to family
It’s the dream of many small business owners: to hand down the family business to their heirs.
(Continued on page S4)
Your family. Your legacy.Building wealth today and sustaining it for future generations can be challenging. Eff ective investment management should be integrated with strategic tax and estate planning, philanthropy and family culture.
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S4 | A Special Advertising Supplement to Crain’s New York Business
members. “Many family businesses are lost to estate taxes unless
planning is done,” says Sanford J. Schlesinger, an estate attorney
with Schlesinger, Gannon & Lazetera in New York City.
Another important wealth management decision centers on how to
divide profits from the business once the original owner is no longer
in the picture. For example, if one son or daughter has agreed to
run the business, should other siblings not active in the business be
entitled to an equal share of the proceeds?
If a non-family member is currently in charge of the business, it is
also important to determine whether that manager will receive an
ownership share in the transition.
In today’s complicated families, the wealth management issues can
grow even more complicated. “Now we typically have to consider
multiple marriages and children from prior marriages and subse-
quent marriages when establishing the rights of heirs,” Schlesinger
says. “Sometimes a child doesn’t want to support his father’s sec-
ond wife.”
Not surprisingly, some small business owners decide the best way
to proceed is to sell the business, or, if it’s large enough, take it
public. The main reason: a majority of small businesses don’t make
it to the third generation, primarily because the family member who
inherits it simply isn’t very good at running it.
Whatever the business owner chooses, the key is to assemble a
team of qualified professionals to help make the proper decision.
That team should include a trust and estate attorney, a certified
public accountant, and possibly a business advisor who can aid
with the strategic planning process.
“With business owners who have built their businesses over a pe-
riod of years, it gets very personal,” Malski says. “The biggest, most
important thing is clearly establishing roles, responsibilities and de-
cision-making authority. Otherwise, the family dynamics start to take
over in the workplace.”
Regardless of a small business’ circumstances, understanding the tax code is crucial if the goal is to pass the baton to family members.
The biggest mistake the owners of small, closely-held businesses make is not starting discussions about their succession plan early enough.
Our goal is tochange the way you feel about
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S6 | A Special Advertising Supplement to Crain’s New York Business
Do You Own Digital Assets?
The statistic in the above quote is from a recent Harris Survey poll.
While the Harris Poll statistic is interesting, it is also very alarming.
Fifteen years ago, very few people had “digital” assets. It’s only been
in the 21st Century that consumers have created a large number of
online accounts – some of which have value. Consumers need to be
aware of how they should protect these accounts and have a plan in
place should they pass away.
What is a digital asset?
Are the pictures of your children on your office desk an asset? If you
die today, your spouse would think so, and would move the pictures
to your house. To your spouse and family, those pictures have value.
They are physical assets.
As such, the photos you have on your iPhone, Facebook or Ins-
tagram are assets – which are valuable to your spouse and family –
that are kept digitally. Thus, a digital asset is any item stored digitally
that has value to someone else.
Traditional assets pass according to your will or trust, something
a majority of Americans do not have. Most wills specifically state per-
sonal property passes to an individual, typically a spouse, children
or other loved ones. Therefore, if I die, my physical photos and other
personal property pass to my spouse as directed in my will.
What about all the assets stored digitally that have value to your family? How do those items pass?
Right now, they don’t pass legally in most states. The terms and
conditions of websites direct what happens to a digital account once
the user has passed away, or in some cases, after a certain period of
time has passed.
For example, Snapfish – an online photo and printing service –
notes that after 12 months of inactivity, they have the right to termi-
nate your account and delete your photos. The Apple iTunes agree-
ment states that you have a non-transferrable right to the files stored
within iTunes.
In essence, at your death your family loses access to those ac-
counts unless you have documented your username and password.
If your family uses your username and password in a state that
doesn’t allow digital assets to be transferred, then they are breaking
two federal laws and can be prosecuted by the company that sold
and stores those assets.
What can you do if these assets don’t pass legally ac-cording to your will or trust? There are four important steps you can take to make the process easier for your family.
1 Write down or document where you have created digital accounts.
2 Document the login credentials for those websites.
3 Document which email address is associated with the account.
4 Write down why those websites are impor-tant. Do they have online bill pay, airline miles, important family photos or host necessary documents?
These simple steps can help heirs know where digital assets are stored
and quickly determine the priority in which the accounts need to be
accessed. During the stressful and emotional period after your death,
these simple steps can be immeasurably helpful.
“93% of Americans with digital assets don’t know or are mis- informed about what will happen to those assets when they die.” – Harris Survey
by WILLIAM BISSETT
S8 | A Special Advertising Supplement to Crain’s New York Business
Growing Dangers to Investors6
Jack Bogle, the 84-year-old founder of the world’s largest mutual fund company shares his insights on the marketJack Bogle, the founder of the Malvern, Pa-based Van-
guard Group, recognizes that the great bull market of
the 1980s and 1990s has led to a focus on stock prices
over intrinsic values. The “real economy,” as he recent-
ly told an audience of 600 people, is best navigated by
long-term investing that relies on increasing value and
the productivity of companies. In his view, Americans
have been seduced by their speculative urges into play-
ing a losers’ game of trying to beat the market.
Culled from his speech, here are six ideas he offered to help Americans navi-gate the fraught world of finance.
1. Rampant SpeculationParaphrasing H. L. Mencken, Mr. Bogle told the audience, “no fund
marketer ever went broke by underestimating the intelligence of the
American public.”
During the past year, the amount of trading in the U.S. stock market
reached an all-time high of some $56 trillion dollars. Many people are
born speculators — perpetually drawn in by the latest stock trend or
fund design. The lesson: beware of the power of a hot new marketing
innovation to lure you in.
2. Headline Distractions“Investors focus far too much attention on the momentary rises and
falls of the stock market, which are in so many respects just noise—in
Shakespearian terms, ‘a tale told by an idiot, full of sound and fury, signi-
fying nothing.’ The stock market is in fact a derivative, a collection of the
current market prices of some 3,500 publicly held corporations. Stock
prices, in fact, derive their value from the dividend yields and earnings
growth that these corporations collectively generate,” Mr. Bogle said.
A Special Advertising Supplement to Crain’s New York Business | S9
3. Declining ProfessionalismBe careful to whom you trust your money, be-
cause people in financial services are losing their
sense of professional ethics, Bogle said.
The traditional industry standard, “There are
some things that one simply does not do,” has
changed to a new standard: “If everyone else
is doing it, I can do it too.” In short, our ethical
foundation has changed from moral absolutism
to moral relativism. That change has taken our
society a long way from the principal attribute of
professional conduct—a commitment to the in-
terests of clients, a commitment to serve respon-
sibly, selflessly and wisely.”
4. Money Managers’ Greed and Inattention“In 1776, the great Scottish economist and phi-
losopher Adam Smith warned investors to be
careful, for ‘ . . . the managers of other people’s
money [rarely] watch over it with the same anx-
ious vigilance with which . . . they watch over
their own . . . Like the stewards of a rich man,
they very easily give themselves a dispensation.
Negligence and profusion therefore must always
prevail,” Mr. Bogle said.
5. Ignorance of the Law of Averages“Each year, advisors, like Wall Street traders, are
paid staggering sums of money—perhaps $300
billion or more—for their presumed ability to add
value for their investors. But in the stock market,
the average money manager earns, yes, average
returns before all of their costs. What else is new?
But after their advisory fees, trading commis-
sions, tax inefficiency, and all their marketing ex-
penses and operating costs, the ‘zero-sum game’
they play becomes a ‘loser’s game,’ a game that,
in the aggregate, inevitably subtracts value from
their clients’ wealth,” Bogle said.
6. Safety Lies in Long-Term Investing“All this speculation, truth told, only matters to
short-term speculators. It should have little im-
pact—indeed no impact—on long-term inves-
tors. For, I repeat, the entire long-term return
earned in the stock market is derived, not from
short-term speculation, but from long-term in-
vestment. Further, for the long-term investor who
wakes up and smells the roses, there are options
among mutual funds that have themselves defied
these baneful trends toward excessive portfolio
turnover and investment advisory fees and other
mutual fund marketing and operating costs that
have reached confiscatory levels.”
Conclusion: Mr. Bogle advocates long-term investing in low-cost, passively managed index funds.
This article was first published in Crain’s Wealth, powered by InvestmentNews. To view this article, please visit crainswealth.com/section/slideshows.
“During my long career, I’ve witnessed great deterioration in our standards of conduct.” - Jack Bogle
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The next edition of Crain’s Guide to Wealth Management will publish in the October 6, 2014 issue of Crain’s New York Business.
Crain’s Wealth Management was produced by Crain’s Custom Connections Studio.
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