The real-life apprentices
Trump ups the ante in the wealth transfer game
When it comes to intergenerational wealth transfer, Donald Trump may be breaking new ground.
While his children and in-laws undoubtedly stand to inherit considerable business wealth someday, the president has also put them in a unique position to leverage his new job to grow their status and connections.
Now, given the potential for conflicts of interest, not everyone is pleased at seeing the likes of Ivanka Trump and her husband, Jared Kushner, playing hands-on roles in the Trump administration.
But from a financial planning perspective, Trump is doing something that even experts concede is shrewd: allowing his heirs to tap into the multitude of “soft” benefits that transcend mere inherited wealth.
And when you’re the most powerful person on Earth, those benefits can be substantial.
Little wonder sales in Ivanka’s own fashion business are soaring. Successful in her own right, Ivanka has also acquitted herself well as Trump’s official but unpaid “adviser.” This jibes with my personal view that Trump feels he can only trust family, not outsiders.
Ian Campbell, author of 50 Hurdles: Business Transition Simplified, says the Trump family members close to the presidency “seem likely to gain contacts and develop relationships they otherwise may never have gotten. Those contacts subsequently may help them when they return to their businesses.”
In an online essay, he points out Trump’s reality TV show was not named The Apprentice — with its connotations of learning on the job, at the feet of a master — without careful thought, “No doubt that was also true of his hiring several of his children into his businesses.”
It’s an approach that calls to mind the old saying that if you teach a person to fish, he or she will never go hungry again. Clearly, Donald Trump could leave his heirs a fortune that would relieve them of the necessity to ever work again. But by apprenticing them and empowering them, and opening doors to business, government and media, he’s putting them in a far stronger position down the road.
And Campbell says encountering strong personalities in business goes with the territory. In 50 years of consulting, he has observed many “strong personality” business owners who “include one or more of their children in management positions in their businesses, then work over time to mentor, coach and supervise them as they grow into senior management positions.”
Whether installing family members eventually backfires remains to be seen. Nepotism doesn’t always work out as planned but there exist “sparkling” cases that have led to successful multi-generational family business legacies, Campbell says.
Here in Canada, a torrent of family wealth is poised to change hands: As this newspaper reported last summer, according to CIBC $750 billion will be inherited in the next 10 years here, with most recipients aged 50 to 75.
However, Americans are better equipped to build and pass fortunes on to the next generation, says Tom Deans, author of Willing Wisdom.
Because they have a “death tax” not present in Canada, “they view it as culturally more urgent If they don’t use more sophisticated planning they get absolutely slaughtered by the IRS.”
(Interestingly, Trump’s own tax plan calls for the elimination of that death tax.)
Wealthy Americans also have decades of experience with Family Offices or Multi-Family Offices that prepare heirs at a young age; these are only just emerging in Canada.
Deans stresses the need for regular family meetings that serve as dress rehearsals for relinquishing control and passing on wealth while the founders are still alive.
But the “Canadian way” is to amass wealth and live a long healthy life followed by a reading of the will, which may be too late to resolve crucial estate issues.
In America, there’s more focus on transitioning wealth all along: trust funds kick in when children turn 18, after which “living gifts” become larger and more frequent at various milestones. There’s a phrase for this: giving with a warm hand, rather than a cold one. It’s an approach that can pay dividends.
No doubt the Trumps have solid estate planning in place but that doesn’t mean it’s a slam dunk the family dynasty will endure for generations to come. Technically, Donald is the second-generation inheritor of a real estate empire created by his father, Fred.
The Family Business Institute finds only 30 per cent of family businesses in the United States survive into the second generation, 12 per cent are still viable in the third, and only three per cent operate into the fourth or beyond. Failures usually stem from “an unfortunate lack of family business succession planning.”