How to Stop Wealth Erosion from Generation to Generation through Family Legacy Planning

Paul Adams interview Alan Pratt

Hello, and welcome to Sound Financial Bites, my name is Paul Adams President and CEO of Sound Financial Group. We’ve got a great guest on the show today that I think is going to help everybody regardless of level of wealth, or way of thinking. During the podcast today we’re going to talk to a gentleman named Alan Pratt of Pratt Legacy Advisors and is a gentleman that I met some time ago at a professional business event, and ended up having lunch. During our lunch, Alan did something unique. He had this card that he set down on the table and he said “Paul, you want to know who I work with?”. Alan looks like he should be on the cover of some sort of men’s catalogue as this dapper, well put together gentlemen; he slaps it down on the table and says, “This is who I work with”: he’s a chartered advisor in philanthropy through the American College, and a certified estate planner through the Institute of Certified Estate Planners. What he likes to do is not just charitable planning, but the family legacy planning where people get a chance to think beyond themselves. Alan, welcome to the episode today.

Thank you very much, Paul. It’s an honor to be here with you today.

You talk a lot about leading with the heart in this analytical world. People are coming from all different backgrounds, some people are in the executive space, some people are business owners. What are things that you try to do personally as you engage people in a very analytical marketplace to lead with your heart? What are things that if people, at all, feel that they’ve gotten very much above the neck? They’re in their head, inside their work every day, what are the things that you do practically every day, or you’ve seen other people do to lead with the heart and connect deeper in relationship with other sin your everyday work and in their everyday work?

There are a couple of things that immediately come to my mind. As we frame up an initial conversation or initial meeting, in the business world we often lead with “What do you do?”. I never lead with that. I always lead with, “Paul, nice to meet you. Tell me about your story.” Even though Paul might be a very busy, successful executive, it allows Paul to rethink the question, and go anywhere he wants to take it. So, as I say “tell me your story” I really do mean that. I mean “tell me about your life. Go all the way back to your childhood, and bring me forward and take 20 minutes, or 30 minutes.” They do, and eventually we will segue into the business context, and maybe some financial and tax or legal matters. Often times in the first meeting it never gets there because we talk about items, in most cases, that are much more important. So, firstly, instead of saying, “Tell me about what you do,” it’s “Tell me about your business, tell me your story.”

I heard it once said something to the effect of they asked each person first, “Tell me something about you, but I want you to start the sentence with ‘I was born’.” Very similar in the way it causes people to have to think about. I remember when you did it to me three years ago. What it did for me was we don’t get asked that, and often people in life are even wishing they could tell their story, or if they’re a type A personality they may run around trying to tell their story. To be asked, and have somebody authentically listen is a great gift, and a great opportunity to go into a relationship with somebody.

Well, anybody can do it, and the reason it’s so refreshing, or it seems refreshing, is because very few people do. They go right to the obvious, or the easy, which is “tell me about your financial portfolio, tell me about your tax situation, tell me about your business challenge,” versus “Tell me about you.” We’ll get to those other things eventually.

In some of the interviews you’ve done, and speaking engagements you’ve done both nationally and locally here, one of the things I've loved that you’ve talked about is when other advisors, whether that’s a CPA, financial person, or attorney say “Alan, my clients aren’t charitable.” How do you look at people’s charitable inclination versus how the rest of much of our analytical industry looks at people’s charitable inclination?

First of all, that response from that other advisor, that CPA or attorney could be an accurate statement keeping in mind there’s a lot of selfish wealth out there in our society where people are focused on me, me, me. “Alan, would you hurry up, I need to make another million dollars by 11:30 today.” When I’m talking with other advisors that have a plethora of different types of clients, I will generally want to chat with them with regard to how much they know about their client, and don’t bring up anything financial: tax, legal, etc. Where does your client volunteer your time? What boards does your client sit on? Where do they spend their free time? I don’t want to know anything about their balance sheet, anything about their investment portfolio, anything about their life insurance needs, nothing. I want you to describe your client, and using nothing financial. Who are they?

Now, in that response they may not know, but what it might do is give that CPA or attorney an opportunity, should they choose to embark upon it, to add some things to their next conversations. When I do this for folks, sometimes the attorney will say they don’t know. They’ve never asked. All their conversations have been tax, and legal, and financial.Okay, so they’re not charitable. How do you know that? Have you ever had a, what I call, an ‘others-centered’ conversation? What’s that? Anyway, I don’t want to go on. That’s a quick answer to your response when I get from other advisors that tell me that. Most of the time they say that because they haven’t had that conversation.

Something that occurs to me is imagine if somebody reading this interview right now is leading a business unit of ten really competent people. You ask them “Tell me about each member of your team, but you can’t talk about where they work in the office, or what their role is in the office, or how their bonus plan works, or anything like that. You just have to talk about them as a person outside of work.”

Tell me where they live, what their wife’s first name is, how many kids they have, what schools they go to of your employees.

We had an advisor that opened up an entirely new relationship and opportunity with a client because they were just having lunch, and he says, “What do you do with your free time?” and it opened up something that she's passionate about, and cares about in a community of people that she has brought him into to do the planning for a bunch of people. It all came out of something as simple as “What do you do with your free time?”

I think that’s a great thing for our folks that have people on their teams: what can you tell me about the people in your world that doesn’t have to do it the business you’re in with them? That’s great. You talk a great deal about family legacy planning versus charitable planning and bringing families together. You were sharing with me ­­ a little bit about a family meeting you recently had where some people had some big openings. Could you share a little bit about the legacy planning versus the charitable only?

I think the fundamental of where I chose to practice in the family legacy planning, which includes magnificent charitable giving, is this statement. It’s a question. “Are you planning with your family, or are you planning at your family?” In the traditional estate planning practice, whether you’re an attorney, a CPA, or a trained professional in state planning, most of the time the planning is done with husband and wife, and the children who are 35, 40, 45 years old are not involved. I’m completely the opposite. I believe that the outcomes that can transpire when adult children are a part of the process are absolutely magnificent. We have a set of workshop assignments, and homework that we give to generation two that they get to participate in the charitable giving, and in the wealth stewardship joy that their family is going to embark upon. That’s probably the biggest key is realizing that when we work with Mr. and Mrs. Jones, I want to meet Mr. and Mrs. Jones’ children, adult children, fairly early on in the process.

Why do you think most families just don’t talk about money?

Well, I’m 61 years old. I’ve been doing this for 25 years now, but I will just say a trend that I’ve seen since I’ve gotten into the business in the early ’90s, and since being a banker in the ’80s, is some trend sets. We just don’t talk about money, but there is tending to be a taboo about too much understanding about money that you hadn’t earned yourself can be damaging. There is some truth to that. I will tell you there is when people are all of a sudden coming into a big windfall. Call it an arrogance, call it whatever it might be, and they haven’t been trained in stewardship skills of financial assets. They will make mistakes. Look what happens to lottery winners. Because of that back thought, thinking it’s too much, too soon, too quickly, we just won't talk about it. So, in my world I suggest that we’re not going to talk about it right away about the fact that you’re worth $25 million, and your teenagers are going to know all this. We’re not going to tell them, but what we will do is invite them into a process that over the next five, or ten, or fifteen years of working together, is going to guide the maturity level of those teenagers, or 20- to 35-­year-old children, into ideas that they will respond to joy as the steward wealth that is part of the families and they didn’t earn it. Mom and Dad earned it, but they’re going to approach it much differently when it’s a dual generational process.

If you bring the children into that over time rather than what tends to happen that I’ve seen is the adult children find out about how much money there is all at once after death, or they find out about it way too quickly maybe in the last two years of life. Rather than a slow indoctrination of awareness, and mentoring them through the ability to understand that wealth and handle it, it just happens all at once. One of my favorite things I think is in error. I'm certainly not an estate planning attorney, but it’s where we see the trust planning documents that do something as simple as when somebody is younger, and making good money, have life insurance, some assets, and minor children, it will pay for college and then release a quarter of their money at 25, a quarter of the money at 30, a quarter of the money at 35, and a quarter of the money at 40.

The advice from the attorneys is, “Well, the good news is even if they blow the first two chunks, they won’t blow the last two.” You know what we’ve seen? They do. When we meet those people, or we know people that know those people it’s happened with, they built a habit of blowing through the money. When you do it twice, it doesn’t get any easier the third and fourth time and they go right through it.

Something that happened just the other day that I got exposed to that was this family that was left several hundred thousand dollars, and didn’t know how much money there was until grandma passed away. Grandma was generation one, generation two had already passed entirely, and grandmother was living with the only grandson. What happened was this several hundred thousand dollars was dropped in on them, and what the grandson and his wife had been saying repeatedly was, “Well, we don’t want to make any financial decisions yet because if we make any financial decisions, we don’t want to make the wrong one, we want to wait until everything settles out.”

Well, here’s the problem with waiting until everything has settled out. You know what they did feel comfortable doing? Buying over $100,000 worth of cars and putting themselves in a spot where I think they also bought some other significant consumables. The thing that took me aback, again we’re not talking about a great deal of money, but they were somewhat happy with their unawareness of ‘We just don’t know anything about this money stuff, and we want to wait and not make a financial decision’, but they were super okay with making a large financial decision, which was a horrible one.

Into a consumable, highly-depreciated asset.

Yes. If they had been taught to steward that money, they would have actually just been able to retire one day, and now the likely path they’re on now is that may never happen. I think when we talk about money it certainly happens in the eight figure net worth realm, but also happens all the way down to the “I’m going to leave somebody a few hundred thousand dollars, and I’m not talking about it until then” where people can do it.

My favorite example when you talk about the windfall errors, is our clients that go through some period of time where they don’t make much money, and then they start making a lot of money. You have the physicians that are clients of ours, and the specialty physicians that what separates the ones that build their balance sheets or not are the ones that are taught about money at a young age. When they started making more money, they enjoyed a little bit more, but they used that as an opportunity to save a ton as soon as their income went up versus committing it for things that they had been waiting around for.

As I’m listening to your stories here, a couple of add-ons that I would share with our audience here is how long did it take that grandmother to build that wealth? How many decades did it take?

She died in her 90s. So, you can do the math.

When we think about this, and this is a point that could be well taken by our audience here, one of the traits that I see in successful families around stewarding wealth is a long term perspective. What I mean by that is when you earn wealth very boringly over 40 years because you’re constantly earning 4 or 5% over 40 or 50 years, it happens.

But wait…there’s more?!

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Paul Adams is a Registered Representative and Financial Advisor of Park Avenue Securities LLC (PAS). Securities products and advisory services offered through PAS, member FINRA, SIPC. Financial Representative of The Guardian Life Insurance Company of America® (Guardian), New York, NY. PAS is an indirect, wholly-owned subsidiary of Guardian. Sound Financial Group is not an affiliate or subsidiary of PAS or Guardian.

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