TEC 
AN INTERNATIONAL ORGANIZATION OF CEOs 
SPEAKER PRESENTATION SUMMARY 
--.--- 
MAXIMUM WEALTH CONTROL STRATEGIES 
DAVID HOKANSON 

FAMILY WEALTH PLANNING 
Creative financial planning begins with creative thinking, which begins with thinking beyond 
traditional boundaries. Family wealth counseling differs from the standard financial planning 
approach, which involves little more than looking at net worth statements, tax returns and 
determining how much estate tax you will owe. 
Using the financial planning process to obtain unique and maximum benefits requires planning in 
three specific areas: 
1.	Financial aspects of family wealth. The financial aspects include financial statements, 
tax returns, investments and all the things that make up your financial picture. Adding up 
all the numbers to determine a net worth is an effective, but shallow, measure offamily 
wealth. This is the least important of the three areas. But for most people, this is where 
the planning process begins and ends. 
2.	Social aspects of family wealth. The government says you can't grow up and grow 
wealthy without supporting the general welfare of the country. What the government 
doesn't typically say, however, is that you have options in how you support it. The 
traditional method is to write a check to the IRS once a year. A better way is to gift to the 
charities of your choice rather than gifting the government. Everyone is a philanthropist. If 
you don't do any planning and just follow government rules, you are an involuntary 
philanthropist and the government is your charity. It's much better to be a voluntary 
philanthropist and choose how you will support the general welfare of the country. 
3.	Spiritual/emotional aspects of family wealth. When lawyers and accountants look at 
your financial statements, all they see is numbers. When you look at them, you see a mirror 
that reflects what you have traded your life for. They aren't just a bunch of numbers, 
they're a reflection of what you have accomplished in life. 
The spiritual and emotional aspects of family wealth involve putting some fun back into the 
concept of providing for the general welfare of the country. Sending your hard-earned 
money to the federal government is no fun. They don't even bother to say "thanks." 
Giving your money to charity provides a lot more personal satisfaction. If you took all the 
taxes you have paid (and might pay in the future) and sent the money to a charity, they 
would treat you like royalty. 
The skillful blending of these three aspects will produce unique and powerful estate planning 
solutions. 
Your wealth can be divided into personal capital (what you get to keep) and social capital (what 
YOu don't get to keep). There are two basic misconceptions regarding this division of wealth, the 
first one being that taxes are inevitable. The common belief is that the day after you and your 
spouse die, half of your estate becomes personal and half becomes social, which isn't necessarily 
true. The other misconception is that you can't pass on your personal capital to your heirs. With 

TEe 

Hokanson, Page 1 of 7 

During the first three years of the plan, Jim transfers cash assets into the asset replacement trust and 
continues making gifts of stock to the children. Then he takes stock from his company and makes 
gifts into the enhanced income trust for 25 years. For that, he gets $640,000 of tax savings over 
his lifetime. He also gifts the qualified plan to charity because nearly 80 of it would go to the 
IRS anyway. 
The corporation starts a program of redeeming the stock. (It gets the cash from the income that 
was previously paid out to the owner in salary.) At the end of25 years, the only stock left is 
owned by the son and the key employee. By the end of 16 years, the son owns controlling interest 
in the company. This process is called a "charitable stock bailout." It allows Jim to get out of the 
corporation and pass the company on to his son while still getting his retirement income. 
When Jim dies, $625,000 goes to the family trust and the balance goes to the marital trust. As a 
result of gifting all the stock, the $9.4 million company is no longer part of his estate. When his 
wife dies, the family trust goes tax-free to the children. The son who gets the business gets 
$4.8 million and the other four kids get $125,000. The marital trust brings them up to $250,000 
each. The deferred gifts Jim made over 16 years to the trust (funded with his tax savings) drop $18 
million down from the asset replacement trust (none of which has ever been taxed) to equalize the 
estate. 
Finally, the family foundation gets set up, taking everything from the enhanced income trust. 
Anything left in the marital trust can be used to pay the IRS. The children each get about 
$4.8 million and the IRS gets nothing. The children can then use the family foundation to give 
away a lot of money to charity. 
Family foundations can be a wonderful tool to create family unity. The foundation pays for the 
children to come together once a year and talk about how to distribute a lot of money to charity. 
However, don't give your kids a lot of money and expect them to give away a lot without training 
them in how to handle money. 
This family wealth plan: 
•	Reduced estate taxes from $8.6 million to zero. 
•	Reduced income taxes from $2.6 million to $600,000 
•	Eliminated all capital gains taxes 
•	Eliminated all estate taxes 
•	Gave the business to the son and key employee 
•	Gave equal distribution of wealth to all five kids 
This case study represents how family wealth planning can be used to achieve financial, social and 
spiritual goals that were otherwise impossible with traditional estate planning. The key is to be 
very clear about what you want to accomplish and why, and to adopt the mindset that you would 
rather support the charities of your choice rather than Uncle Sam. 

TEe 

Hokanson, Page 3 of 7 

• Family Foundation 
A family foundation is usually set up as the beneficiary of the enhanced income trust. It allows you 
to create an endowment that your family completely controls, support charitable activities that you 
choose and receive compensation for your charitable work. 
• Asset Replacement Trust 
This is also called an "irrevocable life insurance trust." If you own your life insurance policy, it 
gets included in your taxable estate. Putting it in an asset replacement trust takes it out of your 
estate and avoids estate taxes. Traditional planning uses the income from the policy to pay your 
estate taxes when you die. But if you have no estate taxes, you can give the insurance to your 
children. Any gifts to your children in this trust are not taxable to them. 
• Life Estate Agreement 
A life estate agreement deals with assets your children don't want (such as an old home). It allows 
you to keep the asset while you are alive and give it away when you die. You get a major income 
tax deduction today for a gift you don't have to give until you die. 
These tools may seem too good to be true, but they are perfectly legal, bona fide estate planning 
tools. All attorneys and tax accountants know about them, but they may not know how to use 
them creatively and to their full effectiveness. Like any tax tools, you can use them conservatively 
or aggressively. It all depends on your philosophy and what you want to accomplish with the 
tools. 
Despite the fact that it loses millions of dollars to charity, the government doesn't oppose these 
tools. It recognizes that the private sector has to get involved in supporting the general welfare of 
the country. These tools encourage and motivate the private sector to contribute to the good of 
the country. 
Like any laws, these tax laws can be changed. Congress may start to limit some of these in the 
near future. If they do, they will "grandfather" the laws. Do your family wealth planning based on 
the laws as they are today, and then deal with them if and when they change. It doesn't make any 
sense to plan based on what might happen five to 10 years from now. 
When putting together an estate plan, you may not know what charitable organizations to give to 
or how to give to them. Or, you may change your mind about a charity after the plan is set up. 
The reality is that charities come and go. In addition, your inclination to benefit a particular charity 
may ebb and flow. The beauty of these trusts is they give you the right to name any charity you 
want and to change the charity at any time. That part is not irrevocable. You have total control 
about who the money goes to. 

TEe 

Hokanson, Page 5 of 7 

DAVID HOKANSON 
David Hokanson 
serves as a consultant for 
the National Center for Financial 
Education, Inc., a nonprofit corporation for 
public education dedicated to helping consumers do a 
better job of spending, saving, investing, insuring and planning for 
their financial future. In 1982, Hokanson and his partner broadened their 
financial services by forming Creative Planning, Inc., a registered investment 
advisor with the Securities and Exchange Commission that provides 
comprehensive personal financial and family wealth planning. 
Hokanson is a member of the International Association 
of Financial Planners and the Institute for 
Certified Financial Planners. 
Creative Planning, Inc. 
5340 College Blvd. 
Overland Park, KS 66211 
(913) 338-2525 • (913) 338-4507 fax 
email: hokanson@thinkingbeyond.com 
TEe 
5469 Kearny Villa Road, First Floor. San Diego, CA 92123-1159 
(858) 627-4050 • (800) 934-4540 fax 
Copyright (C) 2000 by TEC. All Rights Reserved