|Sustaining Your Line-Family
How will you keep your line-family going? You know some of the broad concepts,
but it’s the details that will trip you up. At the top of the list (right
below the vision statement) is the family
agreement. This evolving document is used to answer questions that come up about
how family members will support the family socially, economically and physically.
Investments are a key to multigenerational financial planning. Real property and
the improvement to that land must reflect and support family activities such as
business, recreation and shelter.
Family businesses are all but required for a serious multigenerational family
(unless you become the royal family of some nation that produces a fabulously
valuable export). Great work if you can get it. Families with substantial holdings
and businesses should look into incorporating as a holding company. This allows
for managing diverse assets while keeping the liability issues in control.
This was touched on briefly in the Family Vision section. Now let’s look at
some of the specifics you might want to address.
Topics include, how much financial support is expected from members (when working,
unemployed, retired, etc.); safer sex and outside dating; parenting agreements;
work around the home and grounds and other day to day issues regarding maintaining
house and home. Family money will probably come under the rules written into
family businesses and the family LLC and/or family holding company (see the last
item on this page). Family (group) decision making techniques are discussed in
detail in a separate section.
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Please Note: We are not investment counselors.
In this section we will let you know about a few basic investment strategies
and instruments. Study the subject for yourselves. Unbiased classes are difficult
to find. Always be aware of an instructor’s bias. This is particularly true if
they represent an investment firm. Books on investing can also have a bias.
Check out who wrote it and what house published the book. Also check out the reviews.
It is always good to have a reasonable amount of ready cash available. This is
usually accommodated by use of a checking account or savings account and making
small cash withdrawals as needed from ATMs (aka cash machines). We vigorously
stress using caution with credit cards. If you use one to collect airline miles,
make sure you have an automatic payment system set up and keep a more than adequate
amount in the account used to pay off the card each month. A “random note” will be
posted soon discussing our concerns about credit cards, too-big-to-fail banks
and searching for local lending institutions.
Get rich quick schemes almost always work – for the person promoting
them, not the sucker that gets involved with one. Even if the thief who set up
the scam is caught, the victims rarely get back the money they lost. Just Google
Bernie Madoff for a recent example.
Diversity is a time-tested concept for investment portfolios. There are many
safe monetary instruments in which to place your money. One of the safest is
US Treasury Bills (aka T-Bills) T-Bills are bonds sold by the federal government.
The return on investment is not great, but it is better than a pass-book savings
account. The only way T-Bills don’t pay off is if the US Government collapses.
In that case you will have much more to worry about than dollars.
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Certificates of Deposit
These are fixed interest rate instruments that pay more than most passbook savings.
They tie up your money for some specific period of time, generally from 3 or 6
months up to multiple years. They are FDIC insured and are extremely safe and
boring investments. We think having boring investments in your family’s portfolio
is a good idea.
Precious metals and coins
As a stable and universal means of exchange, gold coins are about as real as
money gets. The US Mint produces silver, platinum and gold coins. You can buy
uncirculated precious metal proof coins directly from the Mint. That way you
know exactly what you are buying. Be aware that there are two major types of
precious-metal coins, proof and bullion. Proof coins are polished coins that
generally commemorate an event or person. The price of the coin is generally
much higher than the price of the metal in the coin. A bullion coin’s value
is based on the amount and quality of the precious metal.
The Mint does not sell bullion coins directly. However at the
you can find a list of “authorized gold bullion coin dealers.” Iowa has only
one authorized dealer, New York has 15 and California has 55. (We just found
those statistics oddly interesting.)
Other ways of investing in precious metals include certificates, stock in mining
companies, mutual funds including or specializing precious metals and gold and
metals futures. (We do not consider futures a basic investment instrument and
they will not be discussed here.) See a broker about these investments.
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Investing in individual stocks is a good way to make and lose a fair amount of
money. Stock conveys an ownership position in a company – a very small ownership
position. Stocks can provide income from dividends paid to the stockholder. If
the company is doing well, the dividend is high. If the company is doing poorly,
there is little or no dividend paid. When a stock’s price is higher than what
your family paid for it, it may be sold for a profit. There are other things
that can be done with individual stocks such as “puts” and “calls” but these
are beyond the scope of this website.
One member of our staff bought Amazon early and it almost doubled. Then July
27, 2001 happened and the tech-bubble burst with Microsoft, Real Networks and
Sun Microsystems and other tech companies laying off at least 10% of their employees.
Tech stock prices started sliding fast. Our hero had loans come due and he sold
his Amazon stock at a substantial loss. Of course the stock recovered, but that
was little comfort. Luckily he didn’t sell his Apple stock. On average he is
way ahead but being in debt and not having cash available cost him a large profit.
Most investment counselors we have seen on TV or read in magazines suggest that
individuals do not invest heavily (or at all) in individual stocks. The one exception
they make is that if you really know the business, you might put a small percentage
of your portfolio in one or two stocks. Avoid hunches or “hot tips” from friends
or coworkers. More often than not hunches and tips do not pay off.
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Bonds differ from stocks in that bonds are loans. When you buy a bond you are
loaning your money for a specific amount of interest to be paid back along with
the principal. Your return on investment (R.O.I.) and maturity date is fixed
on simple bonds. There are bonds with interest rates that move up or down based
on a reference rate. There are also bond that have “put” or “call” options, but
these things get too involved for the purposes of this website.
Bond funds invest in multiple bonds. It might be a diverse fund or one that invests
only in municipal bonds, corporate bonds or any other specialty type of bond.
These securities can invest in a broad range of instruments including bonds,
stocks, short-term money market paper, etc. We think this is a good way for
a small investor to diversify their holdings.
Common indexed funds invest in the S&P 500, S&P 1,000, the Nikkie Average and
other large groups of stocks. Index funds can specialize in currency trading
and bond funds. This is another way to spread risk over a large number of instruments.
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Owning real property – land and the permanent improvement thereupon – provides
security and generally proves a good long-term investment. If family property
is owned by individuals in the family, an unequal balance of power exists as
the property owners are liable for the risk incurred by family use of the property.
It is better if property is owned by the family as a whole. There are many methods
for group-ownership of land. Diane Christian’s book “Creating a Life Together”
discusses this topic in detail. We will look at the family limited liability
company as one answer in the final section of this web page.
Real Property Improvement
To be “real property” an improvement must be permanent. An in-ground swimming
pool is real property – an above ground pool is not. Buildings with foundations
are real property as are trees, wells and anchored fencing. Portable kit sheds,
carrots in the garden and self-standing fencing are not real property. Any property
that is not real property is personal property.
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Drive down any business district street and you will see all sorts of business
ideas. One of the first "problems" people make for themselves when thinking about
starting a business, is that they don’t have any original ideas. We’ll tell you
a little secret, Ben and Jerry did not invent ice-cream. They started small and
found that people would pay more for a clearly superior product.
Ask around in your family. Does anyone have passion and/or knowledge about some
product? If so, you might start a business producing a higher-quality version
of the product. Conversely, a more economical (cheaper) version of the product
might also have a ready market.
How about a service business? Twin Oakes has a thriving indexing business. Is
there an artist in your family? How about starting a graphics design business?
After looking at the talent that exists in your family, check out what your land
can provide. A social responsible business would be growing heritage seeds. And
should the world monoculture crops fail, your family would still be producing
food. Do you have room to board animals? Opportunities are everywhere.
Have a business brainstorming session at your next family meeting. A business
that employed retired members of your family part time could be a great way to
provide another family income stream. We have seen several retired people who
worked even when they didn’t need to. Having a purpose and feeling like we are
contributing is a human trait that does not end at a forced retirement age.
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Family Investment and Business Management
(as an LLC or Holding Company)
In this section we deal with how family holdings are managed – not the personal
money and investments of individual family members. Individuals are solely responsible
for their own personal investments, property, money, etc and are separate from
Note: We feel that family members should have their own personal money
and property like clothes or musical instruments. Even in a line family, people
Limited Liability Company:
We are going to look at the limited liability company model (LLC). This is an
excellent tool for both investing a pool of money and managing the investments
for multiple generations. LLC money may be invested in all the investment instrument
listed above and can be used for start-up businesses.
First a definition of what an LLC is and is not. It is not a corporation and,
therefore, is not required to keep minutes. However, if you are using the consensus
procedure, notes are taken (and we feel that no matter the process, note are a
good idea). Like an S-corporation, the LLC pays no taxes. The tax burden “flows
through” the LLC to the individual members of the LLC thus avoiding what some
call a “double taxation.”
Unlike a common partnership where profits are split 50/50, an LLC can have custom
methods of profit distribution. Also LLC owners (members) have liability protection
much like corporations (LLCs are companies, not corporations). Unless a member
signs a personal guarantee, debtors can not go after a member’s personal assets.
LLCs are a powerful yet flexible management tool. LLC operating agreements can
cover issues such as keeping family members from selling their shares of the
LLC to people outside the family. Without this option, you could have nonfamily
members suddenly involved in the heart of family finances. LLC agreements can
require family members to make regular contributions of cash or other negotiable
instruments to the LLC on a regular basis. LLCs can stop managers from investing
in certain types of businesses such as arms manufacturers or dictate that the LLC
only invest in laundromats in particular parishes or counties (we don’t recommend
limiting your LLC this radically).
Your LLC agreements can provide for the management style to be used from rotating
planning boards, majority voting, family consensus, etc. (See the section on Choices
and Negotiations: Family Decision Making Techniques.) Check out your state for rules
and requirements. They differ slightly from state to state. Apparently it is possible
to form an LLC in a state other than where you live. We have heard that the rules
in Delaware and Nevada have advantages and that Delaware has the lowest cost.
Just sayin’. If your family wants to start
an LLC, study the subject and get professional help. All we have done here is tell
you that this tool is available to your family.
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Note: No financial instruments were bought, sold, harmed or recommended in the making of this web page.