#401 - Ryan Heath - The Family Office 2.0: How Great Families Grow & Protect Their Legacy

Chris Powers: Ryan, welcome back. 

Ryan Heath: My man, good to see you. 

Chris Powers: If you're listening to this, one, Ryan's an amazing friend. We've chatted a lot about what we'll talk about today, but you can also go back to episode 292, his first appearance, probably would have been 2023. That one's just called Estate Planning 101, kind of basic. Today, we're going to get more into this like loosely held term of like the family office world, and your practice has kind of evolved into understanding like there is a huge need in the family office world. You've seen it from the probably more humane and like personal side. It's one thing to do all the legal work, but you've gotten a firsthand glance into hundreds of different families, how they operate, what they do well, maybe what they can improve on, how to think about doing things now that'll pay dividends in years to come. And so that's where we'll kind of center this conversation around. There's lots of businesses transferring over the next generation, the silver tsunami. It's already happened. The word, like we said, family office is kind of getting looser in how we think about it. I want to be able to talk about how you see it today. And so, I think before we get into the guts of building a family office or what family offices are, depending on the size or the type of family, you made some notes that I think we should really start with the North Star to begin with. So, you said like, it's what I've learned through estate planning. Legacy is more important than money. Okay, let's start there. 

Ryan Heath: Yeah. So the fun part of doing estate planning is building the structure, setting up the nuts and bolts, pouring the slab, putting up the walls and all the tax planning features. That's a great part of it. But one of the necessary steps in what I do as part of my profession is also helping people at end of life. And at first, I feel like when I first started practicing, it was very sterile. It was very focused on getting the right documents completed to kind of ease our client's mind. And over time, what I realized is that I was missing this massive opportunity to really connect with these people on their deathbeds or in the weeks leading up to death. And so I started really having more meaningful conversations in hospitals, at their homes. And what I really uncovered was that they weren't worried about getting all these legal documents buttoned up. They weren't talking about money or how much we were going to save in estate tax. They wanted one more Christmas with their family. They wanted to be closer to their family members. And so I really started leaning into that. And I've had four or five different opportunities, unfortunately, in the last year to have those conversations. And the universal truth has been that wealth does not matter at that point. And so, I've really started from that point forward about a year and a half ago, two years ago, thinking through the softer side of estate planning. It's something that's hard for us to talk about, especially a lot of times for the type A alpha entrepreneurs, but I think it's critical to focus on the softer side, shifting legacy and values downstream. That part of the estate plan, I think, is missed by a lot of us in my profession. But it's the most important part when we're on the end of this life's journey. It's by far the most important part. 

Chris Powers: And so, when you've sat with these people that are maybe within weeks of leaving, have you asked them or is it obvious to you that- maybe they were your clients for a long time where they really did care about it. They thought they cared about it. What was the shift? Is it realizing like I'm headed off this earth? And every... is it almost a... is there any guilt in it of like everything I thought I believed I don't believe? Or like, how does that conversation really unfold? 

Ryan Heath: Yeah, I think first is that a lot of my clients, even those that are extremely faithful and religious, we live in a temporal world where we care about finances and making sure that the next generation is set up well. But I think as you start to near the end, and those families are coming in, the hardest part that I see in all of this are the sons and daughters going in to visit dad or mom for the last time. There's no conversation around money. It's, I want one more meal with them. I wish I would have potentially not worked as much and been home more, those regrets. That's what matters. And it's like, man, we're not doing client's justice if all we're doing is setting up tax planning. It's a meaningful part. The wealth transfer and the way we do it is extremely important. But I think we also need to be spending more time with families on these core values and expectations. And I think we can both appreciate that having young families. It's super important. 

Chris Powers: How many of those- we'll get into, the average family that you work with, one of the core tenets that you said you saw in successful families is they keep a flexible mandate and a flexible open mind towards this. So, this is a big question, but we can answer it in sections, like let's take an example family for how they might evolve over time and the things that they thought at one point might not be true and kind of what influences those decisions along the way. Kids go different paths than we thought. Maybe financial situation changes as we thought. Maybe they come to faith later in life while they have money. And that changes their perspective. So, you said flexible mandate’s important. And I think it'd be really beneficial to start with like, what are the things that great families do to stay flexible? 

Ryan Heath: So I think where I'll start, because that is a deep question with a lot of different layers to it. 

Chris Powers: Welcome to the Powers podcast. 

Ryan Heath: Yeah. I think people come to estate planners at different points in time. And so, a lot of what I've been seeing over the last year or two is someone comes in and they need to do immediate tax planning prior to a transaction. There's some sort of liquidity event on the horizon. And the focus is save estate tax, preserve wealth, and maybe this is their first liquidity event and their kids are young. And so we need to do planning immediately. And we're usually talking about some type of irrevocable trust, meaning it's not able to be changed, at least that's the core meaning of the word. And so in that perspective, like from that perspective, we need to do the tax planning, get it done quick. But we need to also give clients outs to change maybe certain aspects of the plan in the future. If we have young kids, a lot of times, first liquidity situation, the goal is leave everything to the kids. Then the kids get older. Wealth continues to grow. And maybe we get to a spot where we're asking ourselves, how much is too much money to leave our kids? It's a hard, hard question to answer. What I always tell clients is a typical lawyer answer. You'll appreciate this, which is leave them enough to motivate them and not enough to disincentivize them. And that's different for everyone. And so that's our starting point typically for a lot of families is we're doing tax planning with irrevocable trust, but we're going to include the flexibility to cap the amount the kids get, maybe shift some wealth to charities or to other people, other family members, nieces, nephews, things like that. That's where we usually start. And that's fine. You start where you start... So for a lot of families, that's where we start. And that's fine. But I think building in flexibility on the front end is paramount because what I have seen go wrong, to go into different family scenarios, is we don't maintain flexibility. We're making decisions in a rush. There's a transaction happening in one month or 90 days, whatever it might be, and we've got to do all this. Clients aren't paying attention to the documents and thinking through all the issues in that short of a time frame. So we go in, build all the flexibility so we can adapt to it later. 

Chris Powers: I think I know the answer to this. Is it smart to start doing this way before a transaction? And like how... In the family office realm, what would be a catalyst for, I should start thinking about this irrespective of business is going to sell at some point?

Ryan Heath: I think there are two types of people or two types of clients. I feel like almost all my clients fall into one of these two categories. One is that they're always thinking about it but they're almost paralyzed by having to make all these tough decisions. For those what I tell them is, you are making a plan for what happens if you pass away when you walk out the door. And the first day that you wake up and that answer changes, let's go change the documents. We can build in the flexibility to do that. The other category of clients are those that are just terrified of thinking about death. And death is undefeated. There's one person that's escaped it. And so those are the ones that are the hardest to wrangle. And I get it. I kind of joke with clients that I have a really high success rate of not using the estate planning documents for a very long period of time. But if you are going to set up a family office, I think part of that is the estate planning structure is going to be the bedrock. You've got to build the right structure, the right set of baskets, which we'll probably talk about later, to really have a set of options for new investments, because most family offices are doing some sort of investing. We need the options available to pick where to fund these new ventures. And so, for anyone that either has a family office or is contemplating maybe setting one up or maybe is a second or third generation of one, if the estate plan's not there, none of this matters because we don't have a succession plan for wealth and legacy. So, everyone should be putting this at the top of their list. I'm not saying this just because it's my profession, but I think it’s often overlooked. And it's so important to think through these things on the front end. You wouldn't start a business without a strategic plan or a business plan. But this plan is going to happen. At some point, your estate plan is going to kick in. 

Chris Powers: So in summary, what would you experience if you did not do this, died with a lot of wealth and no real plan? What typically happens? So that we can say this is why it's important. Because if not, here are some things that might happen. Again, families are all different, but what are the core tenants of like, besides like massive tax maybe, we can get that one off the table, what are the more humane things that start to happen when you don't have a plan? 

Ryan Heath: Yeah, so I'm going to add one thing to the massive tax piece, which is for a lot of family offices, especially in Dallas, Fort Worth area, there are highly concentrated families either in oil and gas, real estate, things that are illiquid. And so, I am going to ignore the tax piece, except to say that we may have to start having a fire sale of assets to get the estate tax paid within a nine month period. And that then leads to every other problem that we're going to talk about, which is you've got certain family members that are more active in the family office than others. They're now stripped in a lot of cases of the decision making power for the family office. You end up having gen three and four having voting rights or decision-making power with gen one or gen two. And so the entire family now has no guiding principle, no mission statement. They feel lost. And that's why I think when we look at the statistical side of things, when wealth goes from gen one to gen three and it's all wiped out by the end of gen three, I think a lot of times it's just because of poor planning at gen one. And so we've got to set up a structure that has centralized decision making, that factors in the reality that some family members are going to be more involved in the family office than others. And equal doesn't mean equitable and vice versa. You can be equitable to your family without giving everyone equal benefits. 

Chris Powers: Explain that. 

Ryan Heath: Yeah. So a common scenario with family offices is you've got a son or daughter that is very, very active in day-to-day operations. They have a sibling who is off doing their own thing. Maybe they're artistic. Maybe they want to act or do whatever else it is. They're just not involved in the day-to-day business activities. If patriarch and matriarch pass away, if gen one passes away, and all this wealth goes down to gen two, the brother who's active in the business and the sister who's off doing whatever from an artistic perspective, how do you keep the son motivated? He's doing all the work and splitting half the money with his sister. So what I'm not saying is that he should get all the entire benefit of what's there, but he should have decision-making power without having to go to the sister and ask for her approval. And second is, it might not be fair to him to have a 50-50 split. And I think so many families, especially in the retiring generation, have really, they struggle and they battle that, that feeling of every kid has to be treated equal. And my question is oftentimes, you're thinking about the one not involved in your business, but think about the one that's actually running this thing day to day. And that leads to another point, Chris, which is, if we aren't having these conversations with our kids, how are we ever going to be successful with it? One of the biggest things I tell clients is that I would rather your kids hate you today, and you have the ability to fix it, than they hate each other after you're gone. Because you cannot repair that usually. All this goes back to planning. And it's not enjoyable. I'm not saying it's enjoyable. I want to be really clear about that. It's tough, but we can help facilitate it. There are counselors that certain families use in family offices. There are a lot of resources out there to help structure these conversations and make them more productive. 

Chris Powers: What are the odds of a successful family office if the patriarch and the matriarch are not on the same page? 

Ryan Heath: Virtually zero. Being on the same page is definitely important, but I think it's being around- it's being on the same page with respect to their children, their unique needs, the importance of wealth versus charitable giving and legacy and values. Those are the things that we need to have in sync. And those are the things that I think a lot of times clients will come in and the husband and wife fundamentally disagree on how much wealth should go to their kids or how much should go to charity. They disagree with these things. And it's like, you've got to solve this, these things first. And you don't have to agree on every single point. But I think you do need to create a philosophy. 

Chris Powers: You've probably seen some- let's just pick a couple, example A, but you've probably seen this play out, especially around the wealth, where one parent thinks they should get more than the other. What does that look like happening in real time? Why is one person fighting for more? And why is one person fighting for less? Besides, the answer you would think is like, well, one just wants them to have more spending money and maybe to enjoy life more. But are there other reasons why that issue would exist? 

Ryan Heath: Yeah, it's really fascinating in... so over the last 12 years I've been doing this, almost 12 years, the side of humanity and kind of the sociology of practicing law is fascinating. And a lot of times, you're truly digging back down into the father and mother's childhood and how they were raised and what they saw within their separate family trees, the consequences of wealth or the lack of wealth. That ends up really being the root cause of a lot of these issues. And it's not easy to solve those in a six-week process of doing estate planning documents. And it's why the idea of estate planning for the vast majority of folks that probably listen to this podcast, it's not a set it and be done. You wouldn’t send off your financial advisor and never take a look at what they're doing. And that's on the wealth side. But the game plan for what happens with that wealth, I think, is more important. And so it is the most successful families, and I'm happy to share one without names that I think is kind of the storybook version of what a family office should look like, the most successful family offices and families in general, they consistently focus on a cadence, whether it's once a quarter, once every six months, of reviewing the plan and coming up with action steps to maintain and continue the legacy story of their family. And again, it doesn't have to be with my help or with the counselor's help. You can do it on your own. But I do think there's some meaningful conversations that can happen with a facilitator. That's why we're here doing this today. 

Chris Powers: All right. I've been like dying to ask this question because it's going to evoke a series of questions from you. But all right, we're walking into the office. Rattle off some questions that I might or any client might not be expecting to be asked. So, what are some piercing questions that if you're sitting here going, what could Ryan possibly ask me if I'm starting to do planning? What are some of the more non-obvious questions that you ask people that might catch them off guard? Even though they've been very smart, built great businesses, have a lot of wealth, they're like, man, I never thought about these things. What are your favorites? 

Ryan Heath: So usually I always start with kind of why are you here? What are your goals? And that one's easy. My goal is to to avoid nightmares when I pass away and to make things easy on my kids. That's usually another comment I get. And then maybe they share some differences among their children and why there's maybe a different management structure for different children after they pass away. But the favorite question I like to ask right after that is, what's your legacy for your kids? Like, what are your hopes for your kids after you're gone? And I have yet to get a well thought out answer on the first try. And I think a lot of times the question is, well, what does this matter? We're doing estate planning documents. Aren't these just forms that we're just filling in blanks and that's it? And the reality is, for family office folks especially, is I want to put the mission statement in the document because your job as the client is to think about your kids. My job is to think about your grandkids and your great-grandkids who may never meet you. I'm 37. I was doing the math the other day, and when my son turns 44, I will be 80, probably never going to meet my grandkids. Maybe I will. I sure hope so. But like, definitely not grandkids. My grandmother lives with us. She spends time with her great grandkids. That was all byproduct of having kids when you were 16 or 18, which has its own set of issues and traumas probably too. But my job is to plan for those people that may not ever meet you. And so your legacy is invaluable. I want it to be crystallized in the document. And to be clear, that doesn't mean that everybody's going to follow it. But I want them to know what the family mission and core values are. And so this model family I have, we sat down and they have a family office. The family office has a quote, a Bible verse that's kind of their family mission statement. And we took the family mission statement, the business mission statement for the family office, the core values, and we built a set of guiding principles. They call it the character clause. And that is in every single estate planning document that we prepare. If we were to form a family partnership, it's in those partnership documents as well. This is the overarching set of expectations for their kids. And so that question of what is your legacy, it is really important. If you've got a couple hundred thousand dollars and you're just leaving it to your kids, maybe not as much. I still think it's important, but maybe not to you. But when you're talking about life changing wealth and the potential to have wealth that doesn't require the next generation to do anything, you better set the expectations that this is an opportunity. It's not a right. And that is a key difference. This wealth is an opportunity for you to do great things. The great things are dependent on the family and their mission. But it's not a birthright. And it can be taken away if you don't do the right things. That's the key, I think. 

Chris Powers: To follow up on that one, what is the situation where it's like, let's just say you have multiple kids. Three of them are doing fantastic. One of them's not. We could define what not means, but for the sake of the conversation, I think we could have some ideas. What is the situation where- is there any setup where they're like, we're just not going to help that child, under no cost until they come around? Does that cause a situation where they might build resentment and hate, like what's already a bad thing gets worse because now they feel abandoned and left? How do you handle the lost child? 

Ryan Heath: Yeah, it's tough. And I think the hardest thing for me is when there is, it's a short term issue. And I can almost identify them in most cases pretty quickly. And so client calls. After the holidays, I'm sure I'll get a couple of these. There was a falling out and we're taking this person out of the estate completely. 

Chris Powers: That happens often? Just like a knee jerk reaction? 

Ryan Heath: It does. And I think, look, my job is to do what the client wants within the legal bounds and ethical bounds I have. But it's tough. And I sometimes want to make them pause and say, we can do this, but I'm only doing this if we schedule a follow up in three or four months. Because I want to revisit this conversation once things cool off, once things settle down. And so it goes back to flexibility, I think, in part of I try to structure all these estate plans so that we can adapt to changes in family circumstances, whether that's the adoption of a child in the positive sense or maybe the separation from a child as they come into adulthood, building in flexibility so that if we do decide to make a change, we can undo that change later. I think that's key. But it's fascinating to me, especially in I would say it's probably about 50% of the families that I work with, someone's not- it's either disinherited completely, or there is a significant reduction in what one person is getting versus others. And sometimes it's merely political beliefs. It's like, this person believes these set of morals and principles from a political standpoint, and so I'm not leaving them my wealth. And the effects of that, I think, are overlooked sometimes. Because you're not just taking away money. You're creating a gap that's probably never going to recover between your children. And that's tough. And so the things I do to try to fix it is that I write a statement of wishes. It's a letter outside of the estate planning documents that explains why we did the things we did. I kind of force my clients to do that because I'm trying to avoid the siblings having tremendous conflict. 

Chris Powers: How often do the siblings have conflict because of their relationship with the father or the mother? So, sibling one has a disagreement with father and mother, so maybe they're thrown out of the will, whatever it is, whereas the two siblings had a good relationship before that, but now they're being treated differently from up top. And so that splits them as... like, are they able to stay close or does it usually splinter everybody? Do you know what I'm asking? 

Ryan Heath: Yeah, no, I do. I think usually, it splinters everyone. I think that's the reality. So again, there are ways around it. I think through having conversations, letting the parents take the fall is usually the optimal way, but sometimes again, that requires someone being willing to come to the table and have a discussion. If you've already excommunicated a child from the family, they're probably not going to come back and talk about these things. 

Chris Powers: So, what's a remedy of like you said, holidays are coming in. The Heath hotline will be ringing on January 2nd. You in the back of your head are going, I know this is a short-term issue that my client’s going to regret, but they're so hot right now I'm not going to be able to talk them off the ledge. Or maybe you could. Like, what's your answer to that originally? Like, I know I'm not in your family. It's not my job to tell you how you feel. But if you were talking to that person on the hotline, what might you be telling them so that they either A, don't go make a rash decision, or B, if they do, put it in in such a way that it's reversible over time? 

Ryan Heath: Yeah. So, this is like Ryan putting on his counselor hat that I spend most of my time in. 

Chris Powers: Well, we kind of talked about this. You kind of are a counselor with a legal degree. 

Ryan Heath: ...And a lot of it for me, honestly, is being vulnerable to my clients and sharing my upbringing with them and my background and the things I've been through and how I've navigated those things. And I feel like that's- it sometimes breaks down the anger and it strips down the insecurity. Because what I hear from clients is, I know I sound crazy, but... And my point to them is usually, if you're saying that, you're recognizing that you're being irrational. And so why don't I draft this document, but I'm usually going to say, it's going to take me about six weeks to get this done. So I'm going to buy some time first. And so six weeks from now, let's have a review meeting. We don't need to review a simple change, but I want to have a conversation. I want you to really think through what you're doing. And typically, in that span of time, things settle down or wife is voice of reason for husband. Something happens over that period of time. And so sometimes it's me stalling. Other times it's me being really vulnerable and sharing, hey, I've been through this sort of issue before, and so I'm sorry that your son drank too much and said something that hurt, but maybe this is an opportunity for you guys to actually have a candid conversation about this because clearly there's some baggage there. We all have our own baggage. But there's some baggage here. Maybe we should dig deeper and have a conversation about it. And part of my job then is saying, what if I facilitate that conversation? What if we can actually have a deeper come to Jesus, so to speak, meeting with this? And that was something for me that was hard at first. I consider myself to be young for estate planning. I was afraid to share my background of life and my experiences for fear that people would think I was not capable of doing what I'm doing. But really, that vulnerability is what's built these long-lasting relationships that I have with so many families. 

Chris Powers: Okay, going back to the question we started, what are some other have you thought about X? 

Ryan Heath: Have you thought about how much wealth is too much wealth to leave your kids? We kind of talked about that briefly a few minutes ago. I don't think families really think about that in much detail. I think they're worried about it. I think it's in the back of their mind, but they haven't really put a number to it. And so many times, we're so driven by saving on the estate tax. I sometimes call it the inheritance tax. It's easier to think of that way. It is different. But they're so focused on the inheritance tax side of things, they haven't even really given due consideration to how much is too much wealth. Your estate plan can be really simple. If you want to cap your kids at $5 million each, everything else goes to charity. You'll probably avoid estate tax completely in that scenario, depending on how many kids you have. You can have a really simple plan in that case. It's something that I think people think about later as they're approaching end of life. Maybe that's one of the one things that does pop in our head from a values, I'm on death's door, what things worry me. I think the only thing from wealth I've thought about, or that clients have thought about, is how much is too much money, and am I going to screw up this next generation? And that's really hard for those of us who have built wealth from moderate means. Because we were motivated. We went out there and had to grind. On the flip side, you have families that are legacy families that had every reason to sit home and do nothing, and they still went out and were productive members of society and grew the family wealth. So from either of those perspectives, they have expectations the next generation is going to do the same thing. And so they've missed all these opportunities to talk about legacy and values. They're nearing the end. And I think, aside from wishing you had one more meal, one more meeting, one more conversation, that you worked less, I think it's also, did I screw up? That regret factor kicks in. And so, what my job is, I feel like, is to be proactive and get on the front of that and say, you don't have to have an answer for me today. But when we circle back in a few weeks and have the review meeting, try to come up with a number. I don't care if it's 100 million, a billion, or $5,000. But you need to have gone through the mental gymnastics of trying to figure out what the end goal is. 

Chris Powers: You may not have the exact answer to this, but let's say you grew up with a certain lifestyle, so it's kind of embedded. And then parents have a change of heart later in life, and it's like, we are just $5,000. Is that smart too? And again, I know these are so nuanced. 

Ryan Heath: I think it's smart if you're comfortable enough to have the conversation with your kids on why you're doing it. Because otherwise, I think it's unfair. If I put myself in the kid's perspective, I think some parents think their kids don't know how much wealth they have. And maybe that's true from a magnitude perspective. But they know what kind of house you live in. They know what kind of vacations you take. They know the handbags that you buy mom at Christmas. The kids aren't as dumb as we think they are. They're watching everything. If you have little kids, you know that's true. They digest much more than what we might think at first blush. And so those kids are expecting something. And if you're going to change that end result of how much wealth they're going to receive, I think you owe a conversation to your kids about here's why we're doing it, and here's what we've done throughout your life and what we plan to continue doing. But at the end of this, mom and dad are leaving it to charity or wherever we decide. You guys can manage it and fulfill our legacy giving goals if it is charity, but here's why we're doing it. That's probably not an earth shattering idea as we sit here and talk about it, but it's not happening. 

Chris Powers: There's been a through line through a lot of what you've said, which is transparency. So it's one thing to write a mission statement, write all these values and never communicate them, and they're just something that people read once you're dead. There's transparency around like, what is the family situation? What is the cadence that- and maybe this isn't the advice you give people. How transparent should families be with their kids, obviously among spouses, but with their kids, and when should that start? Because you hear it all over the board. Kids that will say, grew up really wealthy, had no idea. Kids that grow up and say, knew we were wealthy, but also had no idea, like it was never discussed. That's probably difference of styles of living. You talk to family offices that have an annual family meeting. You talk to some family offices that have never had any. There's some patriarchs that talk to their kids about it freely when they're on the golf course. They're just like part of it. It's like the family- they might not even work at the family office, but it's like the conversation's just this ever going thing that's very open to talk about. And then you have some families where it's like never talked about. Transparency, what does that mean to you when I say transparency? 

Ryan Heath: Success. It directly correlates to the success of the next generation. And as you're walking me through all those scenarios, I'm like, man, it's almost like triggering to me because it's so accurate. Every family does it differently. And I think I always try to separate transparency with clients of we don't have to talk about numbers, especially when kids are like 18 to 30. Those numbers may not even be relevant because there's a long runway if you live to life expectancy and those numbers might change dramatically. But I think we do need to have conversations around the dinner table, around what are- why we work so hard and why we make sacrifices. It's all this softer, again, you'll hear me say this a million times today, it is the softer side of planning. And so, like with my daughter, for example, she's three. What I'm doing right now is trying to remind her of what life was like when I was growing up. You didn't get a tree covered in presents. You got a pair of Nikes to go play basketball. And so, trying to teach her the value of money, that's really important. If you grew up in a world where you were afraid to ask your parents for something because you knew it was going to be a struggle, you learned the value of money pretty young. And in today's world, especially where we can get something dropped off to our front doorstep in a couple hours, I think it's really important to start young. And that's not- again, this isn't like an estate planning strategy. It's just a conversation around the benefits of money, the cost of money, which is time. I'm channeling my five types of wealth. But that's where I'm starting. And then as kids get older, then I think at that point, you shift a little bit to adding in some more legacy and expectations. I think things like volunteering and realizing there's another side to this world than just money is really important. And then I think as the kids get into the 20s, mid to late 20s, 30s, that's when we need to start having more meaningful conversations, especially when you start having grandkids, so your kids are having their own children. I think that's the point at which usually for a lot of my clients, their kids are stepping into medical or financial decision-making roles throughout the estate planning documents. They're maybe starting to work in the family office. You've got to start having transparency at that point. One of the big things that stuck out in my mind from you giving the example of the family that never talks about wealth is, I don't know about you, Chris, but I wouldn't turn over my $30 or 40 or 50 million business to someone without at least sharing the books. And that's how I explain estate planning to clients is, if you've got a $50 million net worth and two kids, you're leaving a $25 million business to each of your kids. 

Chris Powers: So let's take this thread real quick. So you have a lot of money, you have a family office, you haven't really been transparent about what it is, and you crash on a plane tomorrow. What is- even if you've done good planning, and you've probably seen this situation where the first time people are actually understanding what's happened is coming after like a huge tragedy. What do the kids do to get a... like, what happens? Do they get sent this document? It's like, hey, here it is. Or like, what is the process of them learning typically? Do they call Ryan? Do they call the accountant? Who do they call? 

Ryan Heath: It's like the Landman scenario where Demi Moore is trying to figure out what's going on. That's what it reminds me of. 

Chris Powers: That's a great one. All hail to Taylor Sheridan. 

Ryan Heath: Yeah, that's right. And so that truly is a pretty accurate depiction of what I feel like some kids go through. Even when they're actively involved in the family office, a lot of times they're not getting access to the bigger picture. And so there's panic. And they're usually calling their financial advisor first. That's usually the first person that gets the call. And then we're reading an estate plan to them that they've never even thought about or seen or heard. And we're talking about restrictions on access. And, oh, by the way, you're now in charge of all these businesses that you know nothing about. And so that's where a lot of times we see people selling off the family businesses or liquidating assets because they just don't know what else to do. And so if that's not the goal, then you better have some sort of emergency plan. And I think in our first conversation, our first podcast, we were talking about just families and estate planning and said, you better have some sort of treasure map that says, here's where the bank accounts are located and this is the people you call and contact. You better have that, but you also better be preparing, in these family office scenarios, preparing the next generation to take over the reins. And we all would love to live until we're 85 or 90, but the reality is some of us are going to go out sooner. So stop kicking the can down the road and start being proactive today. And that's, I think, the biggest message from our conversation is about being proactive on the softer side of things. 

Chris Powers: Okay, one total sidebar question, and then I have a follow up to that. The sidebar, it reminded me, when we were at YPO the other day, you said something like, I just came up with this document that an 18-year-old could come and sign, kids come and sign it. What was that? 

Ryan Heath: The off-to-college package? 

Chris Powers: Yeah. Explain that real quick. I know it's a total sidebar, but... 

Ryan Heath: Yeah, it's... Well, I think we're talking about kids and emergency plans, and one of the most devastating things for me is our kids go off to college. They're 18 typically at that point. And when our kids turn 18, we lose the ability to call and talk to doctors and nurses. And so undoubtedly, every late August, September, and then sometimes in January and February, kids go off to school, they're in a car accident, they get really sick, they go to the hospital, and mom and dad can't get access to information, they can't find out what hospital the kids are in. And so we put together this little college package. It's a financial and medical power of attorney, a HIPAA authorization. The kids sign up while they're home for the holidays. They go back off to school. And we're just giving that reassurance that if something does happen to your kids, there's an emergency plan in place. 

Chris Powers: I thought that was clever. Okay, back real quick. You haven't had a transparent meeting yet. You're listening to this. You're going, oh, my gosh, if I did hit a- my plane crashed tomorrow or the proverbial got hit by a bus. I don't know whoever got hit by a bus, but I don't know how that became...

 Ryan Heath: My roommate in college. He made it.  

Chris Powers: I don't know how that became the thing. What might you advise if you're going to tiptoe into transparency and set the first family meeting where, A, family members might be going, holy smokes, what are we about to find out? This is totally out of left field. This is not part of our rhythm. What might you share in meeting one to gently usher in a era of transparency within the family? 

Ryan Heath: So let me give you an example of one that I did that quite honestly, Chris, is what led me down this softer side of planning piece. So I have a family in the DFW area that it's a blended family. So it's a husband and wife. They each have kids from first marriages. The dad, among other things, owns a body shop, and his kids work in the body shop. And they are kind of like part runners. They're not at the executive level of the business. And so we're doing a lot of planning for tax reasons, just to kind of build out a game plan with a blended family and all the complexity that brings. And so we set up the plan, and I went to their house and I sat down with the entire family, mom and dad and all the step siblings there. And we had some wine, we had dinner. It was a very relaxed environment. And I threw out the question I asked you earlier. I said- we’ll call him Steve to make up a name. Steve, what is your hope for your kids after you're gone? Going back to that legacy question. And his response, it's like seared in my brain forever. He said, I wanted to change the world, which sounds like a very cheesy thing to say, but I think it's real, like he wanted to make a meaningful change in the world. And he said, my time is almost up and I'm not going to be able to accomplish what I wanted to. So he said, I want this money to go to my kids so they can change the world however they see fit. And the kids just, I get chills even just like saying that out loud again. And the kids started- there was not a dry eye in that room. And the kids’ first response was, we thought you wanted us to take over the family business. We thought you wanted us to take over the body shop. He did not care about the body shop. It was important to him, but it wasn't a meaningful part of his legacy. And so these kids are in their 40s. Dad's probably in his 70s. They had never had that conversation. And it changed the entire trajectory of what the estate plan was, of what the family mission is. We're looking at creating a foundation now. Just completely altered the course of that family, and they've gotten way closer because of it. And in that family, by the way, they have differences of what the kids are getting. Dad's side generated a lot of the wealth, so his kids get twice as much as the stepkids. We had that conversation and everybody is on board. But we're not done there. We've got to keep having conversations because new questions are going to pop up. In that first family meeting, hardly any of the kids talk. Their spouses, if they're there, definitely don't talk. So you've got to have a cadence to it so that people get more comfortable asking questions. And one of the biggest things from this successful family that at some point I want to kind of explain what they did, it's probably a good ending for us, is that we've really started asking the in-laws. You didn't sign up for this wealth. You fell in love with our child, and now you're part of this family. What are your concerns about this? We're not asking that because we're going to change the estate plan necessarily. But I do think sometimes those outsiders looking in have a much better perspective on concerns and the reality of inheriting wealth and what that can do to a family. And we've all seen the downsides – families ripped apart, fighting, spending all their money in lawsuits. That is no one's goal for wealth. I think constant conversations, looking at outsiders that are somewhat connected to the family through some sort of adjacent marriage, those are the sort of things that we overlook a lot of times. It's like, this is our core family. This is all we're including in conversations. Those conversations might look different, but I think that it's worth exploring what everyone's concerns are and trying to plan for it before the end. 

Chris Powers: The irony is, you hear about it, they sue each other and fight over all the money. Whoever wins wins, and they still all hate each other and are miserable with the money the rest of their life. It's a zero win game. 

Ryan Heath: Yeah. And families, they're ripped apart by it. I mean, truly, the agony that I see family members go through, it is worse than divorce. I think people don't appreciate that. Like when you are in a war with your family over money, it is the nastiest, most brutal fight, and all you're doing is spending the money that you're fighting over. 

Chris Powers: All right. Grandparents to grandchildren. Can parents impact that transfer of wealth? You'd say, they're my kids getting money from a parent or whomever, but does the grandparent need permission from the parent legally to give money to the grandchildren? 

Ryan Heath: No. And I think I'm going to circle back to the end of why this communication piece is so important. What we're seeing now because of this tsunami that you referred to earlier. 

Chris Powers: The silver tsunami. 

Ryan Heath: Silver tsunami. I love that. I'm going to take that if you don't mind. With the silver tsunami, what we're seeing is a lot of grandparents going ahead and doing planning and setting up trusts for their grandchildren. And there's tax reasons. There's a tax called the generation skipping transfer tax. And so there's reasons why sometimes skipping kids and going to grandkids is advantageous. And a lot of times, the children aren't being consulted. And so, it's almost like when you take your kids to their grandparents' house and grandma or grandpa stuffs them full of chocolate and sends them back home, and you're like, why did you do this and not ask me? I mean, this is that except it's a lifelong impact that you're gone and now I have to deal with it. And so, legally speaking, no, you don't have a right to control. If I want to leave money to your kids, I want to leave a billion dollars to them, there's nothing you can do to stop it. But that's not the right way in my mind. I think if we as a family are talking about values and mission and goals and expectations, then I think the hope is that the grandparents are talking to their kids and saying, we want to do these things. We want to set up a trust for your children. And here's why we want to do it. Then I think you can vocalize your concerns and say, hey, we've got this, we're a fifth generation family and there's all this wealth that's just snowballing downhill and it's all going to land in one spot. And so can we have some outs, some ability to maybe make some changes if our kids aren't being the productive members of society that we hope? Can we have some guardrails or some flexibility to maybe shift wealth to a foundation? And mom and dad, you decide what flexibility that I get, but at least give me some flexibility. And so that's where we start connecting flexibility in the estate plan with the communication with the clients and bringing that together so that everything is as cohesive as it can be. 

Chris Powers: Okay, there's this concept of ruling from the grave. The first question is yes or no. Is that a good strategy? Or is it not...? 

Ryan Heath: Yes. Yes, with flexibility. 

Chris Powers: Interesting. I thought you would say no. So ruling from the grave is basically plans put in place that dictate things that happen once you're dead. Where that goes wrong is people that loved you prior to dying start hating you as time goes by because you are controlling them in ways that they weren't expecting or wouldn't have wished. So you said, yes, it's good. 

Ryan Heath: Let me explain why. 

Chris Powers: What are good ways to control from the grave, and what are bad ways to control from the grave? 

Ryan Heath: So the reason I said yes to that is that I believe in doing estate planning from a multi-generational perspective. And that requires some level of dead hand control or controlling from the grave. Where I think people go wrong in controlling from the grave, I'll just give you an example. A client comes in and they say, after I'm gone, I want my kid to get $6,000 a month, and that's it. $6,000 a month, that's it, set in stone, really simple. I don't have to read all these health, education, maintenance, support provisions, and try to navigate it all. And my question becomes, well, what happens when your kid's in a terrible accident? Can we adapt to that? Secondly, if you have a required $6,000 distribution to them, if they get divorced or there's a lawsuit, they're going to be able to reach the money in that trust, it's more than likely. That's $6,000 they're going to be able to collect. Another example I get a lot is we want to set up a trust so that for every dollar our child earns, they get a dollar from the trust. And at first glance, you're like, oh, that kind of makes sense. Like, that's a good motivator. But the question I ask back is, is your goal to force your kid to become a lawyer just because he wants to get more money from his trust? Like, shouldn't we be incentivizing a different set of standards? And so I think it's really important that we have safeguards in place, and that's the type of controlling from the grave I'm talking about, that we want to keep this wealth in the bloodline. That's really important a lot of times. If my parents died and left me a trust and I left everything to my wife, and then I die and she remarries, all of a sudden my family wealth has gone to someone that my parents never met. So, I think we need to have some control over that. I think we need to have provisions in place around drug and mental health issues and how we navigate that. But at the same time, there are reasons why, as estate planning attorneys, we write things a certain way with a significant amount of flexibility, because you're never going to be able to plan for everything that might happen in the future. And so, you're probably hearing that answer and like, well, do you really like dead hand control or not? It's yes, I like it from the perspective of setting up trust. But I think you need to have flexibility in those to adapt to changes in family situations. 

Chris Powers: If a trustee is put in charge of a trust, do you see situations where the beneficiaries of that trust can go replace the trustee? That seems like where it could also get salty, like good plan with bad leader implementing it. So how does that usually work? 

Ryan Heath: Yeah. So when we talk about trustee, I like to use the word manager of the trust. I think it's just easier for us to grasp, like a manager type role. We always want, or I say always, we almost always want the ability to remove someone and replace them. If we name a bank as a trustee, for example, which is sometimes done in certain families, if the bank's not being responsive and won't do anything, we need to remove them. But are we required to replace them with another bank? Or can CP3 choose his college roommate? That's a question. So I think you always, or in most cases, you want the ability to remove someone that's not doing what they're supposed to do. Because if you don't put it in the document, you’re just driving a lawsuit to accomplish the same goal. But there are situations where we- one the other day was a child is severely bipolar, has a lot of- just kind of on a downward spiral right now, and that's common with bipolar disease. And so we have a corporate trustee named, and we give that child the ability to remove the corporate trustee and replace it with another. But then we limited it to for cause. We spelled out, these are the reasons why you can remove them. 

Chris Powers: I'm just curious, what's a good, what's like a reason? 

Ryan Heath: The biggest issue when you look at like corporate trustees... 

Chris Powers: Which is like a bank. 

Ryan Heath: A bank. In most cases, a bank. What we're concerned about in my mind is just it's an inherent conflict of interest that banks make money based on what's kept in the trust account. When they distribute money out to a beneficiary, it's reducing the amount they're earning fees on. And so, a lot of times in certain families, an issue is responsiveness. We're asking for distribution for a medical procedure, and no one's responding and they're not making a decision. That's a legitimate reason to get rid of someone if they're not going to take the steps necessary to be in that role. Other times, if it's a person, it could be fraud or mishandling the wealth. The trustee is the manager of everything in the trust, and they are what we call a fiduciary. They have an obligation to put the beneficiary's needs over their own. And so we want to kind of delineate, here's the reasons why you can get rid of that trustee. I also have a family where we said, you can remove a trustee and replace them, but you only get that right every five years or every ten years. So, you want to address it. I think how you address it is very specific to the family's needs. But in most cases, we’re setting ages for our children to take over control of their own inheritance. And so, it's usually if mom and dad pass away and the kids are still really young, Steve's in charge of the trust. But then when the kids reach 30 or maybe 35, they're starting to take over control. So, you're really talking about a pretty, in most cases, a pretty narrow span of time of parents passing away and kids reaching that 35 age threshold, at least for our kind of typical families that don't have side issues. 

Chris Powers: Okay, let's kind of move into what we're going to call the pillars of the family office, the different types of trusts and why they matter. 

Ryan Heath: I think before we talk about the trust, Chris, just real quick, kind of what is a family office. If you've seen one, you've seen one. That's the cheesy joke that I feel like I've heard a thousand times.

Chris Powers: It's a very loose term these days. 

Ryan Heath: To me, and I want to start by saying that I feel like the family office is the hot button topic right now. Like every financial advising firm, every bank, everywhere you look, you're seeing some group start a family office practice. To me, what a family office is, or what it requires, first is multiple generations. That's kind of the core tenet of a family is having multiple generations. And so you need two or more generations involved in a common goal. Within that, there's a difference between having a family business and a family office. A family business is just the meat market my dad owned that I grew up working in. That's a family business. A family office is a centralized structure for managing the family's wealth. So, you have multiple generations in a centralized place to manage wealth, and within that, the overarching goal is to simplify the family's life through having a coordinated effort to accomplish things like paying bills, filing taxes, doing those sorts of things. There's usually also some sort of legacy component, whether it's a foundation, charitable giving, some purpose other than just showing up and hanging out for two hours a day and leaving. And so you don't have a family office if there's one hour of work a day. It's a place for family members to go and to work and to, yes, grow family wealth, but through the lens of a business purpose. And so I probably didn't help anyone on this podcast in deciding if they have a family office or not. But I think the core tenets would be you've got multiple generations with a common goal to grow wealth, and it requires a team effort. That's the key to me to having a family office. Now, the question there, I guess, before I jump to the... 

Chris Powers: The only question, and again, it's so loose, and these are maybe for like the mega families, but basically family offices are turning into like pseudo just private equity firms. Or it's just private capital. One family made a ton of money, but the activities of that, at least how they interact with the public are like, we're open for business. We're competing against the big dogs to win big deals, get in the best deals. Now, behind the scenes, there could be planning and stuff going on. It's just not how they present themselves. I feel like they've got- even how they market themselves. It's like we are in the deal business... And again, that's different, but you think about like- So again, it really just spans the gamut. But when I think of family office now, it's like you can describe it the way you just described it. And then there's just like, oh, we made so much money, we are a private equity firm now. And we are a pure wealth management firm. And maybe they're thinking about it in the background. But anyway, I just had to make that... 

Ryan Heath: No, and that's true. I think the audience that we're speaking to here are those that are looking at building a family office. 

Chris Powers: And can you build a family office that doesn't actually have its own address where people go, but it's being managed by a wealth manager? Like it's just like a coordinated just teams doing everything. I got my estate planning attorney. I have a wealth manager. I have whatever it may be. And the office is literally maybe just like a boardroom that we meet in every quarter to make some decisions. But we're not having to do all the financial allocations and investing and everything else.

Ryan Heath: This is where the passion for this for me came from is this kind of family office 2.0 model, where you've got a patriarch, matriarch, they're simplifying their life by selling the family business. They want their kids to have a landing spot and maybe want to start having their kids more actively involved in the wealth management side of things. And so, it's a virtual family office. They're meeting on Zoom across the country. They're coordinating their efforts. That's certainly a family office. I think universal through all of these is the underlying issues, which is that if you're not working on legacy and communicating values and expectations, then I think the family offices is failing. But the question you just asked about this kind of virtual office goes exactly to these kind of, what are the three kind of baskets that I think create a family office? The first is just your personal wealth piece. You're generating wealth for you to spend and use for your burn rate each year, travel, education, whatever it might be. And to me, that basket is usually what we would think of as just our personal funds or something that's in a revocable trust, which if you go back to the first podcast I talked about quite a bit. So that's our first pillar is we've got this personal need for expenses that we need to generate income to live. The second basket is the basket that deals with, I don't like giving up control. I want to have access to wealth. I want to be able to control it. But at the same time, I want it to be outside of my net worth for estate tax reasons. And so there's a certain type of trust we can use for that. In Texas, we use something called SLATs. It's a Spousal Lifetime Access Trust. You'll hear a lot of acronyms. It's really annoying. But basically all that a SLAT is is an irrevocable trust that a spouse creates for the other spouse. You have access to the wealth inside of it. It's kind of like a retirement account. You don't want to take money out of it, but you have access to it if you need it. And that's where we do our private equity deals through. We're not relying on the income from it to live our lifestyle, but we want to have access to it. So maybe we want that trust to go buy our house in Aspen or in Palm Beach. So we want access to it, but we want the growth to be out of our estate. So that's kind of the second basket is this is our tax planning, our tax strategy basket that we still have access to. And then the third and kind of final basket for me is the legacy assets, the ranch. Things that we want to go ahead and give to our kids today. And maybe we want to manage it and be in charge of it, but we're not looking to ever have access to that in the future. And so if you have those three baskets, you have all the tools there to build a family office. And sure, you might overlay that with partnerships and business entities and other types of vehicles. But now you've got all the baskets there to make a decision on if I'm making a new investment or the family office is making a new investment, what's the goal, and then here's where to make that investment. And so that is, to me, the core of a family office from an estate planning perspective is we want to have the personal basket, the appreciation basket, and the legacy asset basket. If we have those three, we've got the family office structure in place. 

Chris Powers: 678, got to talk about it. 

Ryan Heath: Yeah. 678 trusts are really hot right now. They are a unique animal in the estate planning world because when we're talking about tax planning or asset protection, we're usually talking about either giving up access or control. Now, the SLAT we just talked about, that Spousal Lifetime Access Trust, is kind of a unicorn because you do have access and control. But for those that aren't married or just for other families in general, this 678 trust is a way to be the manager of the stuff you put in the trust, the beneficiary. You get the benefits of what's in that trust. But at the same time, the growth is outside of your net worth for estate tax reasons, and the assets are also protected. 

Chris Powers: Sounds like an amazing trio. 

Ryan Heath: You would think everybody should have one. I don't have one. And the reason is that it's a mechanical nightmare, in my opinion. If you have a full-blown family office that can track payments to and from and do all the accounting and bookkeeping, it's something to consider for sure. But the mechanics of it, and I'll try to keep it as light as possible, the mechanics would be that, Chris, I create a 678 trust for your benefit. I fund that with a $5,000 gift. That's the max I can gift in this type of trust. And then your job is to go sell the things you own to that trust and pay yourself back. So, it's not immediately saving on estate tax, but you're selling things to this 678 trust, you're paying yourself back, and all the future appreciation is outside of your net worth. The sale to that trust doesn't trigger capital gains, so it's kind of disregarded for income tax reasons. It's highly used all throughout Texas and all throughout the country. I think the best use of it, I know I mentioned this in the YPO group, is if you're going to start a new business that's very light as far as capital requirements, like a tech company, form a 678 trust, use the $5,000 gift to form an LLC, build the software business through that, and then you have an exit and now you have all this wealth that's protected from lawsuits and the estate tax. 

Chris Powers: But you wouldn't want to do something that's capital heavy? 

Ryan Heath: Just because of all the sale components back and forth. Now, for some institutional families, they have access to private banks and other folks that might be able to do lending and lines of credit to make that easier. But the struggle with a 678 trust, in my mind, are that they're a trap for the weary. If you don't follow all of the rules exactly right, you risk losing all of the purpose of setting it up. And so, for me, at least in my practice, and there are others in town that do 678 trusts by design for almost every family. For me, it's a great option if you're not married, so we can't use that SLAT concept. It's also a great tool for capital light businesses that can be launched without a lot of expense. 

Chris Powers: Family limited partnerships and entities overlapped with trusts. I hear that and my brain explodes. 

Ryan Heath: I think the first thing that people think is that a family limited partnership is some sort of unique business entity. It's just, you're just slapping the word family in front of a type of business. 

Chris Powers: Okay. You just, you literally just answered a question I've always- cause every time I've ever seen them on paper, I'm like, this is the same thing. There is nothing different. So it might as well just be called a limited partnership. 

Ryan Heath: That's right. We just use the word family because it's family members that have the ownership interest. You come across a lot of family limited partnerships in the family office context or in the estate planning context because we are trying to minimize the value of what we're gifting, which seems very counterintuitive for most people, I feel like, that we want to get an appraisal of our business, and it's the highest number to make us feel good. When you're doing tax planning, it's like, we want the lowest value possible so that we can maximize the amount we shift into a trust that's outside of our net worth for tax reasons. So all that a family partnership is, again, it's a business entity that's owned by family members. And so, in our example before, we talked about these three baskets. We had the personal basket, we have access to it, but the appreciation’s out of our estate, that's that SLAT basket. And then we had kind of the legacy basket for the kids. Well, you may not want to make an investment and have it split up between three different trusts. Well, form a partnership and have the family limited partnership owned in different percentages by those three trusts. Now, when you make investments, it's going to be consistently owned by those trusts in those percentages. And so the reason I say there's overlap with family limited partnerships and with LLCs and other entities is we're usually not having each new investment be owned in the same percentages. Like, just practically speaking, it's different deals, different dollar amounts, and different people participating in the investment. And so you have these three trusts at its core, and then we're using these FLPs and these LLCs, these business entities, to be the kind of common decision maker for different ownership. The reason I think they're really important in the family office context is if you set up a kind of master family partnership, family limited partnership, the general partner entity is where all the decision making happens. That's where our succession plan is... I mean, that's our succession plan. If we've got two kids and they're both involved in the business, it seems really clean. It's like, well, why do I need a big succession plan? Because at some point, one of your kids is going to pass away. And so now you've got an uncle and nieces and nephews trying to decide on business operations. And so the trusts have this core game plan for legacy values, expectations, and where wealth goes. Now on the business side for the family office, you need to have a succession plan for the business side. Sometimes it looks identical, but oftentimes it looks really different from the actual family office decision making side. If you've got two kids, this is a common question. I've got two kids. I want them to be co-managers after I'm gone and make decisions for everything. What's our tiebreaker? Like, who's practically going to step in and break the deadlock if your two kids can't agree? I can almost promise you they probably have disagreed in the past. So what do we do there? For family offices, a lot of times we have a CFO or a CEO. So maybe the person's hired as CEO or CFO is the tiebreaking vote, if it's not the same kids. But those are the things we're thinking about on the family office business operations side is we're not going to be around forever. And so, when we're gone, how do we have a game plan for the family office itself to make sure that we've got set decision makers? 

Chris Powers: The answer to this is obviously the TLDR is not good, but you kind of said it with the 678. But this really is, this can be an accounting nightmare. I'm sure you see families that do a really good job setting everything up. Money starts flying all over the place for 20 years, there's never been a true accounting. What are the ramifications of poor accounting besides like, well, what are the ramifications of poor accounting? 

Ryan Heath: Yeah, met with someone yesterday who's got multiple family businesses, super successful. And my question came up of where's the treasure map? Kind of going back to my question earlier. If something happens to you guys, where is everything? And they're like, well, we've got a CFO. They're more kind of like a glorified bookkeeper, so just kind of more of that role of doing QuickBooks, things like that. But no one's got a full picture of what's there. And that's when we talk about software. I'm big on software. I know you're big on AI and software as well. We need to have a repository for all of this information so that the family members know what they're entitled to, so that we've got a clear picture of what all is there. But most importantly, if we pass away unexpectedly, we've got the data. We have the information that we need. And so in most family offices, really right now, you see two kind of primary softwares. One's Adapar, which is a common one that we come across quite a bit. The other is Sage, which is more of a bookkeeping feature. That's not like a sales pitch for them, just those are the two that I come across most often. You need to have that infrastructure in place. Again, this is a business. I think people miss it. ... I think that's.... maybe we just simplified what a family office is. 

Chris Powers: It's a business. 

Ryan Heath: It's a business. Your wealth has grown to a magnitude that it requires full-time attention and care. So, give it the attention and care it needs. So, the accounting needs to be there, the motivation for the employees, which happen to be family here, the core the mission and values, all these things need to happen, even though you may not be running a meat market. You need those core tenants there. And so, it's not a place to just go escape and say that I've got a nine- I show up for two hours a day and go to the golf course. And that's great if you can do that, if it's running well, but if it's not, man, when it goes to the next generation, it's going to be a nightmare. 

Chris Powers: You can do a little bit of a plug here, but the purpose isn't to plug you. We talked about this at the beginning, but it is something you brought up at YPO. I'm listening to this. You're enjoying the episode. You're like, man, I'm going to go call a lawyer. Some people's first call is going to be to a business lawyer. You had some words to say about that. Business lawyers are great. What kind of lawyer would you be calling if you listened to this episode, hadn't done anything, or maybe had, and wanted to make the next move? Would you call an estate lawyer or a business lawyer? 

Ryan Heath: Well, I would call an estate planning lawyer. But I think it's important to know why. And I would also say that it doesn't even probably have to be an estate planning lawyer in some respects. It's a unique skill set that a lawyer has. So I was kind of replaying that conversation and thought that's probably a little bit abrasive. I love my corporate lawyers out there. What I learned... 

Chris Powers: Where would the world be without corporate lawyers? 

Ryan Heath: That's right. I mean, we'd be- there'd be more family offices. I'm kidding. Maybe cut that one out, Johnny. 

Chris Powers: No, you gotta leave it in. You gotta leave it in. 

Ryan Heath: So, over the last three to five years, I have had the opportunity to do estate planning for a lot of the most successful corporate lawyers in town. And through doing that, what I uncovered was they don't know anything about trust and estate taxes. That's not a knock on them. It's just something that I kind of thought they were more exposed to and then realized through helping them through their own estate plans that it is a completely foreign language to them. And so much of a family office, whether we want to admit it or not, is around growing and maximizing family wealth. Well, that all starts at the trust level and the decision on where to make new investments and what to do. And so, I'm not encouraging people to get rid of their in-house counsel or their corporate lawyer, but if you don't have an estate planning lawyer that's part of the team, it's probably the right time to do it. The other part of that is that financial advisors are all great too. They're really good at speaking about the basics of estate tax planning. I haven't really come across very many true advisors, they have lawyers that are on staff that are great, but true advisors that actually know how to advise clients on where to make new investments. And so it needs to be an integral part of the team. But what I want to stress is that most estate planning attorneys I don't think fit that mold. We're extremely busy. Most of us are aging out of our practice area. And so I think you need to find someone that is willing to talk about the softer side of planning and kind of put that as a priority. And there are a lot of those throughout the country. To me, it's not just an estate planning attorney, it's an estate planning attorney that's willing to get in the trenches with your family and solve the real issues from a proactive standpoint. 

Chris Powers: One of the things you list that you do, and you've kind of brought it up throughout the episode, and we actually talked about if you hadn't actually ever had a family meeting, what might your first one look like? But you wrote in here, coordinating family meetings. If Ryan Heath has coordinated an incredible family meeting, what has happened leading up to that meeting? What happens the day or days of that meeting? And what happens after that meeting? 

Ryan Heath: Yeah, so family meetings are very much like family offices in that every family meets differently. The central goal I have is to break down the barriers to meaningful conversation. And as we think about the world we're in today, whether we like it or not, we tend to sit down at dinner tables and stare at our phones or things are pulling us away from that important family meeting time. You go back a couple of generations ago and they sat around the table and they shared family history and stories. We're not getting that anymore. And so when I'm going in to these family meetings and we have them set up, I'm trying to do my own deep dive into their family history. And I'm trying to build a story. I'm trying to put myself back two generations ago or three generations ago to having a dinner at a table where there weren't distractions, sitting around the fire pit, and having a family conversation. And that's what I'm working on, is how can I tell the story of this family and maybe uncover some of the real meaningful things that actually matter to them. We're going to talk about wealth and what wealth means, the pros and cons of it. We're going to try to uncover the regrets maybe that parents have in their pursuit of wealth. There's usually regrets along the way. And those regrets can be some of the greatest lessons for the next generation. And so I'm working behind the scenes on those things. The families are working on, I’m usually giving them some light reading materials about kind of the optimal family and this is how they've done things. This is how we've crafted the mission statement. But I want to, at the actual first meeting, my goal is that we're- our homework is to build this family mission statement. I'm tearing down the walls of insecurity. We're going to get deep. We may talk about faith. We may talk about business and expectations or disappointments. It's not comfortable. And I think it's why a lot of people don't do it. But if we can tear all that down, now we can have the family meet together and say, what are our goals? That's where the stuff actually happens, man. And it's so beautiful to see it happen. And it's so rare. And I think just in my own career path, I'm like, give me more of that. Give me more of the chills when I'm driving home from a family meeting. Like that leaves a legacy for my own family hopefully as well, that I actually made an impact in this world, not just saving people money, but helping keep families together. And that's my life mission. And I think that's a lot of our missions. 

Chris Powers: I bet you there's a lot of times where everybody's on pins and needles heading into the first meeting. And by the end of that meeting, it's like a completely different family. 

Ryan Heath: I like to tell really bad jokes. That usually works well to kind of break the ice. But I think sometimes just having a formal nature to the questions, kind of going around, I'd like everybody to introduce themselves, tell me about them, what they like to do in their free time, some really easy questions. And I'm usually priming the parents. Like, these are some of the questions I'm going to ask you, because I don't want them to be caught off guard. That'd be a very bad result for me with my clients. But I'm not necessarily giving them the depth of what I'm going to go through. Because I want them to think off the cuff and not give a structured answer. I mean, that's why this podcast is so good. We don't script what we're doing. It's just off the cuff. 

Chris Powers: Okay. Leading into that meeting, you said there will be materials. Are they aware of it 90 days before the meeting, a week before the meeting, a year before the meeting? Like, what's a good cadence of this is coming up, you have plenty of time to kind of think about it so that people come in at least a little bit less off guard?

Ryan Heath: I would say about 30 days before realistically. And then I'm doing a follow up probably 15 days before the meeting. So, I'm sending out maybe, I'm pulling a LinkedIn post or a chapter of a book that I think is really relevant to the family. Sahil Bloom, is that how you say his...? Like his book to me is like a teaching guide for a lot of my clients, and it's one that I've really spent a lot of time reading. I'll take some excerpts from that and send it out to the clients, and there's thoughtful questions in it. It's almost like a Bible study in some ways. It's this pre-read, get you to start thinking about these important questions. And so for the parents, it's how are you going to answer some of these things? For the kids, what I'm trying to accomplish is don't be afraid to ask these questions. If they're important to you, they should be important to the family and that there's not a ramification for this meeting. You're not going to be- I think we have to get ahead of that. Your inheritance, the inheritance you receive is not going to be impacted by this meeting. It may be other things that happen in life. But the goal here is not to figure out who's getting a jersey and who's off the team. It's to have some real candid conversation. And so, yeah, 30 days before we'll send out some reading materials, 15 days before we'll touch base and just make sure that we're all on the same page. We go into that family meeting. And the goal for that meeting, by the way, is not to bookend a financial conversation with it. Very much like in the business world, I try to separate bonus conversations from performance reviews. Keep the money stuff separate for this meeting. And so if families are meeting once a year to talk finances, great. I don't want to participate in that meeting. I want us to have a separate meeting, a separate date that we're focusing on this. That's the goal. 

Chris Powers: And if a successful meeting had occurred, a mission statement would have been created. Anything else? 

Ryan Heath: So we're getting mission statement done. That's kind of next step. And then that mission statement, we're going to meet again and we're going to talk about it. And I want everyone to participate in refining this mission statement. So we've refined it. We felt good about it. Now the question that really sometimes stumps families is this set of guiding principles 100 years from now may not be applicable. So how much latitude, how many generations do we want to allow to change this family mission statement? There was this family, this kind of perfect family, so to speak, there's not a perfect family, but this model family, we wrote out that this money was to be used to glorify God. Some of the kids that are in their 20s said, well, people view trees as gods. And how are we defining this god? And so, for them, they landed on Christian conservative values. They wanted to be really specific, the kids that are in their 20s are saying, well, this isn't good enough. We think it should be a Christian conservative God. And so, it's fascinating, when you bring in different generations, they will participate. They'll give their feedback, especially if it's a team project and they feel valued and seen, which a lot of times they haven't gotten that. 

Chris Powers: You've kind of mentioned this perfect family, and I'm actually assuming it actually is a family. We're obviously not going to- we don't know who they are. But clearly, they've stood out to you. What else about them makes them perfect? 

Ryan Heath: I think what's so fascinating is I didn't build this family office. I came into the fold about two or three years ago. And I had the benefit of knowing the patriarch who passed away about a year ago. And he was just the most incredible human being I think I've ever met. And then I saw his kids. 

Chris Powers: Can I ask you why? 

Ryan Heath: Yeah, he had the ability to make everyone feel like they were the most important person that had ever met him. He just had that like Midas touch of you walk into a room and it felt like nothing else mattered in life. This man was incredibly busy, had a million things on his plate, but he made you feel like you were just the diamond. And he had a way of talking about his faith that wasn't abrasive, it wasn't pushy, it was just that he cared about you. It's kind of this idea, not to get too deep into the faith side of things, but just when people really know Jesus, there's this lightness about them when they have a deep relationship. And he was just an incredible portrayal of that. But you looked at his kids and his grandkids, they were like spitting images of this man. And he was actually second generation. So, we're now at gen three. Gen five we're doing planning for. Everyone works in this family office. Their mission, their goals are crystallized in everything they do. They have structure. They have intention behind what they do. When I say structure, they have the accounting stuff set up, so they know where their money's going. They have missions. Their mission in this particular family is that we're going to do some private equity type stuff. But we want our kids to each start their own business. So you go find something you love. We'll deploy capital to go start your business. We'll be here to support it. But we're not just giving you money either, by the way. We're loaning you money from a trust that you've got to repay. Like they've just figured out how to motivate and how to keep in their family what's most important to them, keeping their faith at the center of everything they do. And I have no doubt that when I look across all the families I work with, it's like this one's going to make it. It's like you go to a wedding and you see the couple, and a lot of times you're like, they're going to make it. And other times you go and it's like, you hate to say it, but it's like, I'm not sure this one's going to work out. You can see it. And it's in everything they do. It's intentional. They don't treat this like a place just to funnel money. It's a business to them. And it's important business. Yes, there's a charitable component. Yes, there's this entrepreneurial overlay to it. But it's all done with thoughtful action. And so, again, I didn't build this family office. I have the benefit now of sitting in on monthly meetings with them and watching how they do it. And it's taught me more than any law school class could teach me or any real life scenario. And so, I find myself a lot of times, Chris, thinking about how did they do this? Like, how did they go from gen one to gen two to gen three, now to gen four, and they've kept it all together? And I don't know that I have all the answers for it yet. I'm learning. 

Chris Powers: Did they create- was the family office a manifestation of somebody in the family, or did they have really good- obviously, it's their ideas, thoughts, values. But from the beginning, was there a third party that helped them construct it all, or was the patriarch just so talented at what he was able to do that he could kind of construct this and it worked? 

Ryan Heath: Yeah. So they had great estate planning council, a guy who’s no longer with us, but was kind of a legend in Fort Worth for estate planning. And the genesis of the wealth was the sale of a business. And so they had this, they made the difficult decision of selling a family business that had been in the family for multiple generations. And they thought for themselves, how are we going to keep this alive? Everything we knew and valued from a work perspective was this family business; we don't have it anymore. And so, I think they had to have some real deep thoughts and conversations. And so you have in-laws that work in the family office. It is- and everyone respects each other. They respect their opinion. They are okay to disagree. The patriarch set the standard. And so many of the families I'm working with, especially in this like family office 2.0 model, I just wish they could be a fly on the wall and see how this is running and compare it to what they're doing. And I have that benefit. And it's why I'm kind of screaming from the rooftops of, if you're not treating this like a real business and you're not motivating your family in the right ways, then all you're doing is setting up your family business to fail. And I don't think that's what any of us wish for our kids, our grandkids or for ourselves. And it takes it takes effort. 

Chris Powers: I think that's a perfect place to put a bow on this incredible conversation. Like you said, so much of this, you probably- even I came in here, you think you're going to be talking about the nuts and bolts of the legal system. And what you're really realizing is it is the softer side that builds great families. And sure, you have to legally construct ideas and ways of implementing things. But what I'm taking from this is it is the softer side that drives the family. 

Ryan Heath: This family we were just talking about, their big thing was that this legal document is as good as a handshake. It's the trust built behind it that actually is going to make that deal stick. And that's the reality. It's a pretty meaningful thing to think about. 

Chris Powers: Ryan, thanks again. 

Ryan Heath: Yeah, man. That was awesome.