The Company You Keep
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The Problem with Wealth

Wealth is precarious. Whether you struck gold in the stock market boom of the '90s or have been laboring 15 hours a day for decades to accumulate assets, affluence doesn't come with a written guarantee.

Rags to riches... and back to rags is not all that uncommon a story. Robert T. Kiyosaki, multi-millionaire entrepreneur and educator on success building, talks of powerful industrialists who died penniless, or six-figure sports figures working at car washes for minimum wage. The first challenge, it seems, is making money. The second is keeping it. (Robert T. Kiyosaki, Rich Dad Poor Dad, New York: Warner Books, 1998)

Today's prosperity is unprecedented in this country. Even with the current uncertainty of the economy, the number of wealthy households is at an all-time high. Due in part to investments of old money and the boom of new businesses (many of them e-businesses), the number of millionaires in this country has soared, doubling from 3.4 million in 1994 to 7.2 million in 1999. (Barron's, 9/18/00.)

Still, what goes up could go down. Some of it may be due to shifts in the economy. However, much has to do with common mistakes people make with their money. Our roller coaster stock market, for example, has made and unmade millionaires seemingly overnight. As a result, with over 1.2 million bankruptcies in 2000, there was a boom in the bankruptcy market, and lawyers specializing in business reorganization had a field day. ("Area Law firms Prepare for Bankruptcy Boom," St. Petersburg Times, January 2, 2001.)

The real challenge
Keeping it all in the family and passing the assets you've accumulated on to the next generation. Many people who have accumulated wealth during their lifetimes are sitting on a "tax ticking time bomb," says Stephen Ragatz, CLU, ChFC. Ragatz, vice president of estate planning and business succession planning for Swenson Anderson, said in an interview with New York Life that there is a risk that "60% to 80% of estates can be lost to the second and third generations."

Common mistakes people make, explains Ragatz, include the following:

  1. Looking at income versus net worth as the source of wealth.
  2. Failure to take estate planning seriously, mostly because they don't see themselves as being wealthy.
  3. Not being comfortable with the idea of giving it away, of surrendering too much control, even though this can be the key to reducing estate taxes.
  4. Failing to prepare beneficiaries for their inheritance. Too often, the kids have no clue.
  5. Not having a coordinated advisory team that includes an estate planning attorney, CPA, as well as a financial advisor.

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The Problem with Wealth

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