Family Business Series: The Need for Family Trusts in Financial Planning
- Mark Pletts of Waypoint Capital Advisors, Founder
We are joined by guest and financial advisor, Mark Pletts, to talk about creating family trusts, the connection between trusts and life insurance for farms and small businesses, and why financial planning, if done properly, can positively impact generations to come.
Episode 41.2 | 8 min
Mark Pletts, founder of Waypoint Capital Advisors, is passionate about family and believes that financial planning, when done correctly, can positively impact generations to come. He’s been in the financial services industry since the early 1980’s and has helped host, Jamie Duininck, navigate challenges and make decisions for his family business that are best for both the organization and the family. Mark and his partners started Waypoint Capital Advisors to support the multi-generational complexities of managing wealth. He helps family businesses of all sizes align the math and the emotion when doing financial planning.
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Jamie Duininck (00:31):
Joining us today on the Water Table Podcast is Mark Pletts with Waypoint Capital Advisors. Mark, thanks for joining us.
Mark Pletts (00:46):
Again, if done properly, these trusts could affect generations to come. So they have to really be thought through beyond just the math. And you’re going to save some taxes.
Jamie Duininck (00:57):
Sure. What do you think is, I would guess that the idea and correct me if I’m wrong here, but the idea of a trust in itself is pretty easy for people to understand, and think or understand, “Yeah, I probably need to do that.” But it’s more around the, shall we say, I don’t know if it’s the right way to say it, but the loss of control that is the challenge to actually execute on it. And if I’m right on that, how do you walk people through that?
Mark Pletts (01:35):
Yeah. You want to have as many outs as possible that that loss control mechanism. Basically the way to think about this is the more loss control a granter has, the more tax effective it is. Meaning the more it’s out of your reach, the better tax advantage is from a state planning perspective that trust will be. That said, there are provisions that you can put in that trust that give you sort of in a worse case scenario, maybe access to that trust. But again, it’s definitely an irrevocable decision and many times is not thought out of in the context of this is going to be around for 10, 20, 30, maybe 50 years. But with some of the run ups and values of property in particular, you are looking at something that could be around for a very long period of time. You do the best you can for planning. You can’t predict who your kids are going to be, who they’re going to marry, what your grandkids are going to look like. You just can’t do it, so you do the best you can.
Jamie Duininck (02:47):
Sure. And I think for many people that still leaves them with a lot of questions, then that’s why it’s a challenging thing for people to decide to do.
Mark Pletts (03:02):
Yeah. That decision when it’s put on your lap and someone shows you, it might look really exciting, but then when you start to scratch and dig a little deeper and see all the nuances attached to it, it takes some time and some very thoughtful appreciation for the decision. And again, involving both parties, the person in the business and the person out of the business, it’s going to affect both of them. And then now you’re talking about what maybe the communication might look like to kids in the future, and everyone’s always paranoid about, “Oh, I don’t want to all my kids about how much money’s there,” and you don’t necessarily have to tell them the dollar value. But what’s important is to make sure they understand your personal values and those personal values are really driving the decision. If it’s all an emphasis to mitigate or dodge taxes, I won’t say that doesn’t end well, it’s just not the perfect starting and ending point.
Jamie Duininck (04:04):
Sure. I’m glad you mentioned that. Another thing that I think is kind of connected to trust is life insurance. I just turned 50. So in my working life it seems like life insurance and how people perceive it and why they should have it, has probably changed over the last 25 or so years. And during that time also things like term life insurance have become so cheap. And in your years of having small kids and things like that, I know I owned a little term life insurance just as some protection that has now run out. But things like long term life insurance and when I first got into the working world, having people trying to sell it to me around over fund it, and it can be a place where you’ll have some value and then that changes and the tax laws change and it can get really confusing. And I just want you to walk through how you guys think about life insurance and how you would suggest small businesses that whether they’re a farm or a small contractor in our world, how they should be thinking about it.
Mark Pletts (05:29):
Yeah, we could spend hours on this one. So I’ll just try to summarize. So first of all, we don’t sell life insurance. So we don’t usually have a horse in the life insurance discussion. We do however, believe in it, and it fulfills an excellent purpose for most families. The issue that sometimes small business owners run into is the life insurance agent shows up with a life insurance policy with a strategy and saying, “This fulfills the problem.” But again, going back to that last comment about the trust, if you start with the problem and you say, “Okay, here are our options for solutions,” of one of which is maybe a life insurance policy. That’s usually the best way to get to that at end result of where a life insurance policy will work. But there’s a myriad of reasons you could want life insurance.
It could be let’s say you have four kids and two kids are inside the business and two kids are outside the business. A life insurance contract could be purchased to fund a benefit for the two kids outside the business. All families struggle with what equal and fair is, fair and equal. Is fair got to be equal. Life insurance can sometimes solve that item. It also can solve the issue of liquidity in an estate. If there’s an estate tax due, life insurance is often used to create liquidity so that in the event of death there’s some liquid asset, e.i. the life insurance that’s coming into the estate so that the trustees now can use that asset and not have to sell farmland or sell a business.
So there’s really a lot of good viable ways to use life insurance. I think life insurance gets a bad rap along the way. And again, we don’t sell it, but we totally believe in it for solving the right problem. So I wouldn’t advise any of your listeners to shy away from it. Just make sure that it’s being put in place for the right reasons.
Jamie Duininck (07:49):
Thank you, Mark, for all of your advice today and discussion on the Water Table Podcast. For our listeners, if you’d like to hear the whole discussion with Mark, you can find it @watertable.a/business.