What is wealth for?

By Eric S. Wilson

When I was a kid, I loved cereal. One of my favorites was Alphabits cereal. I used to make all kinds of silly words in my bowl, coming up with some real zingers at times. When I began as an investment advisor twenty plus years ago, all of my “cereal word creations” came back to haunt me in the form of acronyms. I can’t imagine an industry that has more acronyms than the combination of the investment and estate planning professions. To that end, let’s continue with the discussion around the question posed in my last article, “What is your wealth for”?

Wealth can be used for many things, but, in my opinion, all of them come down to two generalities: wealth can provide freedom or be used for control. In crafting an investment plan, then, one needs to consider the goal they are trying to achieve.
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First, it is important to realize that your wealth is going to one of five places: (1) family members; (2) the US Treasury in the form of taxes; (3) creditors/plaintiffs; (4) strangers (in the case of divorce); or (5) charity. Most families I have worked with through the years favor the first and last over the middle three. You probably share that sentiment. And unless your estate is worth over $10.5 million, the US Treasury has a long-shot of receiving any of your assets at death. So how can a couple focused on the freedom their wealth can provide begin to think about their wealth in the context of (i) avoiding paying into the US Treasury more than they should during their lifetimes, (ii) protecting their wealth from creditors or plaintiffs in the form of lawsuits (see fellow columnist Gus’s articles), and (iii) strangers, by way of divorce?

Charles Lowenhaupt and Don Trone, authors of the book, Freedom from Wealth, talk about how, in postwar Germany, many of the Jews that survived purchased homes and set up bank accounts in many different countries. Why? So they would be free to move wherever and whenever they had to move to stay free and alive. Their wealth provided them freedom.

Conversely, I had a client many years ago whose goal was to not only control his children during life with his wealth, but also planned to control them from the grave. Where they went to school and to college, how they chose to earn a living, the size home they were to live in, where they vacationed, and how often they were to see them were but a few of the ties that bound them to him. Then it began again with the grandkids. This client had created family members that were completely dependent on the wealth that had been created. From a young age, the client had ensured they lived above the normal means of those around them. He was using his wealth for control. Can you see the contrast from the previous example?

Yet another, more common, form of control is that of protection. For instance, where there are children who are not capable of managing the wealth, or struggle with addiction(s), protection could come in the form of a trust. This is not the wealth creator acting as the dictator in example 2 above; this is parents still being parents and ensuring that their children have a good opportunity for a long, productive life by limiting access to the entirety of the wealth all at once and instead allowing only what is necessary for reasonable living to be withdrawn. After all, if these parents were to allow the children freedom to access the entirety of the wealth, they would also have to accept the freedom the children would have to spend it all.Eric wilson 12

The last freedom that I will mention is freedom from the wealth itself. If you have ever served as an executor or a trustee, you know what it can mean to be enslaved by wealth and its many processes. Too many families set up legal structures with the best of intentions, only to leave a beloved family member in charge to deal with all daily “musts” that accompany these structures. Investment advisors, trust companies, attorneys and CPAs have jobs because people choose to free themselves from their wealth structures by delegating to professionals.

Lowenhaupt and Trone sum it up this way. “What is wealth for? We find…that it is not to cause unhappiness. It is not to create fiduciary burdens. It is not to enslave in governance structures. It is not to be weighed down with responsibilities. Freedom from wealth, getting on with life..… has to be possible in whatever design is created to make the wealth do what it is for.” Provided you have taken the time to think forwardly about outcomes you desire, and then have taken steps toward those outcomes, your wealth can be positioned to assist in those outcomes instead of just co-existing with whatever the outcome may be. The very best families know that wealth is not an end unto itself…it is merely a means to facilitate the end they have in mind.

The views expressed herein are those of the author and do not necessarily reflect the views of Morgan Stanley Wealth Management or its affiliates. All opinions are subject to change without notice. Neither the information provided nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. Past performance is no guarantee of future results.
The case study presented is for illustrative purposes only. Past performance is no guarantee of future results. These strategies do not guarantee a profit or protect against loss and may not be suitable for all investors.
© 2016 Morgan Stanley Smith Barney LLC. Member SIPC.
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This material does not provide individually tailored investment advice. It has been prepared without regard to the individual financial circumstances and objectives of persons who receive it. The strategies and/or investments discussed in this material may not be suitable for all investors. Morgan Stanley Wealth Management recommends that investors independently evaluate particular investments and strategies, and encourages investors to seek the advice of a Financial Advisor. The appropriateness of a particular investment or strategy will depend on an investor’s individual circumstances and objectives.
Tax laws are complex and subject to change. Morgan Stanley Smith Barney LLC (“Morgan Stanley”) , its affiliates and Morgan Stanley Financial Advisors and Private Wealth Advisors do not provide tax or legal advice and are not “fiduciaries” (under ERISA, the Internal Revenue Code or otherwise) with respect to the services or activities described herein except as otherwise agreed to in writing by Morgan Stanley. Individuals are encouraged to consult their tax and legal advisors (a) before establishing a retirement plan or account, and (b) regarding any potential tax, ERISA and related consequences of any investments made under such plan or account.
The views expressed herein are those of the author and do not necessarily reflect the views of Morgan Stanley Wealth Management or its affiliates. All opinions are subject to change without notice. Neither the information provided nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. Past performance is no guarantee of future results.
Morgan Stanley Smith Barney LLC, member SIPC

 

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Eric S. Wilson is a Senior Vice President, Family Wealth Director, and Founder of the Wilson Wealth Management Group at Morgan Stanley and for the past 20 years he has served the varied needs of individuals and families whose wealth has the potential to change the essential nature of their descendants’ lives. Mr. Wilson can be reached with questions by email at eric.s.wilson@ms.com, by phone at 877.442.5445, or via his website at www.morganstanleyfa.com/wilsonwealthmanagementgroup.

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