Age: Late 70s
Net Worth: $650,000,000
Toshio is the founder and CEO of a major Japanese company that manufactures tires that are distributed through subsidiaries worldwide. He started the company over 50 years ago, out of the family’s bicycle repair shop. Although the company is now publicly traded, he owns a controlling interest. Toshio also owns the company’s U.S.-based distribution subsidiary in his own name.
He is married with two sons and a daughter; all are married with children. Toshio’s oldest son is president of the parent company.
The family wealth is primarily in company stock.
Toshio has repeatedly told his tax advisor that he needs to make some major long-term financial decisions, but he continues to put them off. Toshio suggests his advisor “just draft something up”; he’ll look at it when he has time. Toshio feels he’s worked hard enough. He deserves to enjoy spending his free time with his family and grandchildren.
The tax advisor realizes Toshio trusts his judgment and advice. Still he’s uncertain that he can develop all the necessary Financial Alternatives, particularly if they have cross-border implications. Also, the advisor senses there may be personal issues that Toshio doesn’t quite know how to talk about.
The advisor invites The Pacific Bridge Companies (TPBC) to meet with Toshio, having worked with the company with two other clients with succession and cross-border issues.
During the initial phase of the Ohana Methodology, TPBC was able to identify Toshio’s core concerns:
- Toshio wants to leave each of his children an equal portion of his stock. He also wants to maintain the family’s controlling interest to allow his son to succeed him as CEO.
- However, Toshio is worried that once he’s gone, his children’s divergent interests may undermine the family’s dominant position in the company and his son’s opportunity to follow in his footsteps.
- He’s also aware that to pay the U.S. estate and Japanese inheritance taxes, his children could be forced to 1) sell approximately 50% of their inherited shares and lose controlling interest in the company; 2) take out a bank loan to pay the taxes, using their shares as collateral; or 3) sell off part of the company to competitors, perhaps at a reduced price.
- Toshio also doesn’t know how to handle his U.S. assets. Should he give them to his older son to shore up his status in the company or divide them evenly with all three children to avoid favoritism?
- Finally Toshio wants to reward his long-time executives, specifically those who have helped him succeed. But how can he do that without compromising the family’s stock holdings?
Financial Planning Focus:
Wealth Transfer to Heirs and Future Generations
Business, Executive Compensation and Employee Benefits Planning
The Financial Alternatives and Strategic Planning proposal recommended:
Estate and Inheritance Taxes: To be funded through a lifetime gifting program, transferring personal wealth to the heirs, combined with death benefits from life insurance.
Family Ownership: A Family Office consultant should be engaged to develop a business structure to manage family ownership as well as mediate issues and priorities within the ownership. It is recommended that the U.S. assets be assigned to the Family Office for Financial Alternatives of the ownership and management concerns.
Reward Senior Executives: Creation of an executive compensation plan based on the company’s financial performance, not stock ownership.
Toshio approved plan. The plan addressed appropriately Toshio’s conflict with his international assets and caring for his family and employees. TPBC referred a Family Office consultant and worked with Toshio’s tax advisor and personal attorney to finalize and implement the plan. The Family Office business structure was implemented separately with full participation of Toshio’s children and TPBC providing additional consulting services, supporting services and access to a world of financial products.
Evaluation and Review Schedule: Six months; then annually.
Outcome: Toshio and his family now have a clear methodology and path for securing and managing the family wealth together. This alleviates Toshio’s worry that his company will slip from family control from either a forced sale of stock or dissention among the heirs. Not only is Toshio confident his son will now succeed him; but he is also free to enjoy his family knowing they will be taken care of once he is gone.