Well, it happened again. In working with a two-generational family, the issue of taxes and personal values came up. Although there was a little bit of conflict, the real issue was confusion: “What should I do?” And the confusion was caused by an advisor’s sole focus on reducing taxes, rather than hearing the real desire of the client.

The matriarch is a very kind, gentle woman and she is also very generous. She and her deceased husband are classic examples of the “millionaire next door” (see Thomas Stanley’s excellent book of the same name). They were hard workers, frugal, lived simply, saved, and were wise investors. As a result, she has more than enough money for her needs and is able to share with others.

Because of some circumstances in the extended family (her children and their families), she decided to give a significant monetary gift to each of them. However, it was above and beyond their annual exclusion ($22,000 to each couple), and also went beyond her lifetime gifting exclusion (she had used up much of it previously). As a result, gift taxes were going to be paid on the gifts.

The question that came up was this. Depending on how the gift was structured and recorded with the IRS, it impacted whether Mrs. Y (the giver) paid the gift taxes or whether her children (the recipients) paid the taxes. And to complicate things, if she paid the taxes, the government would get approximately $30,000 more than if her children paid the taxes out of the gift they received.

Because of this last fact – that the family would be paying $30,000 more in taxes if Mrs. Y paid the gift tax – her attorney told her that the kids should pay the taxes. This made sense from the overall view of the family’s estate. However, Mrs. Y was confused. She wanted to share some money with her family, and yet by having them pay the taxes, it reduced the amount they actually would receive.

So Mrs. Y and I talked. After hearing the facts about the situation, and her resulting confusion, I told her, “This is really not just a financial decision. It is a values decision – about what is most important to you. Is it more important to you to avoid paying more to ‘Uncle Sam’ or is it more important to you to get more of the money to your children right now? There is not necessarily a ‘right’ or ‘wrong’ answer to this decision – it is more about what you want to accomplish.”

Mrs Y immediately affirmed, that in this situation, it was more important to her to get the maximum amount to her children, even if it meant paying more taxes. She then smiled and said “Thanks”, and communicated her desires (and decision) to her attorney and accountant.

Yes, the title reads somewhat like a National Enquirer headline, but it’s true – focusing solely on avoiding taxes (whether capital gains tax, income tax, or estate taxes) can lead to family conflicts.

This past week I had the opportunity to meet with a family, to review their wealth transfer plan and their plans for giving to charity. As is the case with many astute investors, this couple has experienced some significant growth in their assets as a result of some of their investments doing quite well. For example, one of their investments over the past year provided a 100% return on their initial amount invested (that is, they doubled their money). Plus it looks like the company they invested in will sell and they may receive as much as eight times their original investment! Obviously, this is “once in a lifetime” scenario which has gone well for them – it will create millions of dollars in investment income they were not planning on. (“Not a bad problem to have”, as most people reply.)

Here’s the real problem. In discussing what they should do with the extra $5 million they will be receiving, it became clear there was a difference of opinion on what to do with money. From the point of view of minimizing the capital gains tax they will be paying, there is one set of action steps they should take. From a philanthropic perspective – all of sudden having a large sum of money and seeing an opportunity to share with others, there is another set of potential action steps. And from a long-term planning point of view (investing the sum so that it creates additional income, allowing the “breadwinner” to retire early), there are other steps which could be taken.

So what is the right direction? What should this family do with their windfall profits?

It depends. On them. On their values. On their future plans and goals. On their worldview and life priorities.

That’s the point. And that is the discussion we started to have together (it is not finished yet). What is important to you? How do you want to “invest” this gift to you? Maybe we should look at balancing needs and perspectives, rather than use an “all or nothing” approach.

Unfortunately, however, most financial advisors focus solely on the financial aspect of financial decisions (and specifically, on taxes) – and miss a very important part of decisions involving money: values.

So, next time you are making a financial decision (I hope it is one where you have lots of extra money), remember – don’t base it solely on its impact on your taxes. There are a lot of equally important variables to consider as well.

“Family coach” is a relatively new term – and a new field. There are maybe 10-20 of us in the United States. There are a lot of business consultants, and even a lot of family business consultants who assist the owners and managers of family owned businesses. But most consultants focus on the business side, because that is their professional background and area of expertise. The problem is – many of the challenges in owning and running a family owned business have to do with the family dynamics and relationships that can interfere with the business.

This week, in the Wichita Eagle’s August 12^th business section, I was interviewed for an article that explains my personal journey – how I got into this field, the work I do across the country, and now my focus on doing more in my “hometown” of Wichita, Kansas. I still intend to work nationally, but more selectively – to work with those families with whom I can have the most impact. I love the people I have the opportunity to meet and serve, the fascinating and beautiful places where I get to meet the families – but traveling is also tiresome (more so all the time). So I am looking for more of a balance in my own life, as well.

A family coach, which I am, helps the family address the non-financial issues that are present in transferring wealth across generations and business succession planning. It is not family therapy – that would be disastrous (and not much fun!) Rather, a family coach helps the family members identify what their goals are for the business, for themselves, and for the family – and then develop a plan to reach those goals.

Common issues I help families with include:

*Assisting the senior generation “talk through” the important issues they face regarding business succession, wealth transfer, philanthropic giving, retirement – and help them come to agreement on how they want to approach these.

*Meeting with the family-at-large: children, spouses, grandchildren, etc. and educate them about the complexities surrounding family owned businesses, help the parents communicate their goals and desires to the family, and facilitate family meetings about important issues.

*Developing a plan to prepare the next generation family members to appropriately manage the wealth and business they will eventually be receiving.

*Career development for the next generation – whether they are in the business or not.

*Facilitating family meetings of all kinds – to decide what to do with the family lake house or condominium, to develop a plan for managing mutual investments (not the financial plan – but how to decide and communicate together), discussing what to do with the business now that dad is no longer running it, and so on.

I love helping families with these issues and find it incredibly rewarding!