#60 - Josh Kanter: Legacy Building, Family Owner’s Manual

27:07Yeah, I think that's definitely true. I think, you know, as you're saying, right, being able to come in and say, hey, I've seen families do this in five different ways. That's different than being, than saying, well, I don't know, or just picking one or just doing, you know, whatever it is. And again, I'll go back to those hats, right? It's really hard for families to switch hats. There's a great story in one of Jay Hughes's books about a family that actually printed hats with the title of what they were doing when they communicated. And it may be made up for the book, I'm not sure. But the dad sits down with the son and puts on his boss hat.

27:46And he says, son, I'm sorry to tell you that we have to let you go. You're fired. And then he switches hats and put on his father hat. And he says, son. Mom and I heard you've been let go. What can we do to help? And I love that story because it really like just so simply embodies this idea of you, we all communicate differently, wearing the different hats that we wear, and we all wear different hats and multiple hats. And so if I'm communicating to my sister as my co-shareholder, that's different than if I'm communicating to my sister as my sister. And so, and if you don't have those experts, and if you don't know how to do those things, and you haven't had those reps, as you said, you're not getting, you won't even recognize the question because it's not, it's not part of our normal experience to say, how do I communicate with my sister as my sister versus how do I communicate with her as my fellow shareholder?

28:46Like those are, those are really different, which all to your point goes back to the deliberateness. You've got to be deliberate. Do you have any approaches you'd like to share for educating future generations about financial literacy? So when I work with families, I try to first of all, understand, engage where everybody really is. I mean, I think it's really important that the kind of consultants and advisors who do this kind of work are out there really matching. This should be a very hand in glove kind of fit, right? I don't think there's a one size fits all. I don't think there's a, oh, good, go do this financial literacy program on the internet and, and you're going to be good to go, right?

29:25People learn in different ways. So you've got to understand, do you have audible learners? Do you have visual learners? Do you have, you know, whatever the different kinds of learning? And there's different level of interest too. Yes, exactly. And there's different need to know, right? Not to say this is on a need to know basis, but again, I, I, I sort of pick on my sister a lot. My sister is an artist and I love her to death and she's a brilliant woman and whatever, but she's got a very different background than me as a lawyer and my brother as a venture capitalist. But my sister also went out because she's an artist.

29:57She ended up sitting on all kinds of art boards and ultimately was the board chair of a particular organization in Chicago. And she ended up on the investment committee and all over the place. Anyway, Anyway, one day she comes back and I'm like, you know, Janice, your branch of the family is not represented on the family's investment committee. You really should be. Why don't you sit on the family's investment committee? And I'll tell you, Alex, she uses an entirely different vocabulary than the rest of us, but she knows what she's talking about. And she makes perfectly valid points. And she, by getting that financial literacy in another context, she didn't have to be an MBA.

30:38She didn't have to be an economics major. She didn't have to be a venture capitalist. She is an artist who can communicate, again, using her own words, some of which are made up, but, you know, able to come to the investment committee and provide a really valuable perspective. So I think anyway, first is just that understand where people are, what do they need? What do they need in order to be contributing to that process? And then what are the tools that we can use to get there? And that, I think, becomes a really interesting part of the work that I've tried to do is to help families understand what are the tools that are out there.

31:15Again, maybe it's going to be XYZ firm has a financial literacy course online. Maybe it's a tool that you're using internally, all these different things, but helping families navigate that education. So in your work with wealthy families, are there any common pitfalls you've observed when you look at it across generations from one to two to three and beyond? And how can families break some of these negative cycles? I think that common problems, I'll say, or common tension, some of which we've obviously already talked about is the G1 wealth creator who wants their kids to suffer the same challenges that they did.

32:03I think that's just a fallacy. Again, I'll say it's in part a fallacy because the world just doesn't look like what it looked like when G1... When I have families that we'll talk to about mom and dad did this to buy their first home. Well, guess what? As we all know, buying a home these days, not the same thing as it was when we were kids and when we all bought our first homes, right? So you got to adjust for what that world looks like. Money messages is like a really big issue, I think. And again, this goes back to the deliberateness. It goes back to families having the right outside advisors, or at least do the reading to understand this stuff and to know how to think about it.

32:43I worked with a family that one of the kids said, dad doesn't approve of us having sports cars. And the kid was like a huge lover of sports cars. And the dad finally is like, where'd you get that? He's like, well, you've never driven a sports car. And the dad said, well, I've never driven a sports car because the company that we built that created this wealth for us has a manufacturing facility, which is where I worked every day, that's full of blue collar workers and I'm not going to drive a fancy sports car to work where these guys are going to, you know, see it and, and it's going to look like I'm above them or whatever.

33:19Right. And, but they'd never understood that the message that the kids were receiving was dad doesn't believe in sports cars. The message dad was sending was, this is the value that I'm bringing to my workers into my factory or whatever. Right. And so I think that the whole notion of money messages and what do we want? Are we clear? Are we communicating about what we really are intending to say? Do we have messages that we want to ditch? I'm sure you, just as I do, know families that will still say they're, I guess it's now more grandparents, but the grandparents went through the depression. And so they have certain views about food and leftovers and taking things home from a restaurant and whatever.

34:06And those are circumstances that we all live through and we build these traits and attributes. And if we don't communicate about them, what they mean, we also can't ditch them. And sometimes they just need to be ditched. Back to communicate, communicate, communicate. I wanted to talk about this notion of a family owner's manual. So when you go buy a product at the store, it comes with a manual. Why do you think a family owner's manual generally doesn't exist? So we started building an owner's manual for our family right after my dad died. And the impetus for that was recognizing, again, as I said earlier, most families don't have a me and most families don't get 18 months of notice that you're going to lose this patriarch or this repository of information.

34:53And frankly, I mean, I hate to say this, but think about all the families in L.A. who lost a house. Right. And all of a sudden they're out of a house overnight, right? It's not like you had 18 months of notice that you were going to lose. It doesn't have to be a person. It can be all your stuff and all the stories and all the pictures and all this other stuff. So when my dad died and I realized even with my training and even with that 18 months, there was so much stuff I still didn't know. I mentioned earlier, like I didn't understand why we had 750 entities. And so we started to build this owner's manual that was designed to say, I want everybody in the family to know what do we do?

35:28How do we do it? Who do we do it with? Why do we do it that way? And some of your listeners are going to immediately say, well, that's the old in case of emergency file or the red file or the red glass file or whatever you want to call it. And I'm going to say, no, no, no. This is exponentially further. To your point, everything comes with an owner's manual. And there's the old joke that you get an owner's manual with a toaster and not with a kid. And so I always said, well, you don't get one with a family wealth either. And so if you start to pick up these pieces and need to understand how they work.

35:58And for me, by the way, also when my parents died, my brother and sister and I are equal owners of the Cantor family enterprise, whatever that thing is. And so I don't want to be a gatekeeper of information. I'm not above them. They're equal. And so I don't want to be a gatekeeper of information, even if I'm the one who knows the most. And so the owner's manual was this idea of how do you pick up a family enterprise and make it work? And sometimes to your point about, you know, you get an owner's manual with everything. I analogize to like you can pick up, you know, we all could pick up a digital point shoot camera and take a picture and it's going to be fine.

36:35Right. It's probably going to be a pretty good picture. But the more you dig in the owner's manual, the more you understand depth of field and aperture and this and that and the other. right, the better your outcome is going to be. And why is that any different with a family of wealth, especially when you're talking about as we started this conversation around legacy and perpetuation? Well, how are you going to best serve the legacy of this family if you don't understand these details? And again, even to the discussion we were having about financial literacy, not everybody needs to know everything, or at least at that same level of detail.

37:10but I want it to be accessible to them if they do want it. So the owner's manual for us, which fast forwarding to a few years ago became a platform called Leaf Planner, but how do you share again, all these details about what do we do? How do we do it? Where do we do it? Why do we do it that way? Whatever somebody could possibly need to know was kind of encapsulated in this owner's manual. So that was the idea of the owner's manual. And I think every family needs one, Because to your point, everything else you buy on the planet, it may come with a really crappy diagram done in another country that you can't figure out what they were trying to say.

37:46But everything comes with an owner's manual except families and kids, I guess. But that's family. Yeah. And I assume the content goes beyond just vital information. And I think of it as you want a succession of this data, this information through time. and a lot of that is just stored in someone's head. It's not written anywhere. And so you need something that can put it all on paper and something that you can pass on that people can reference. Yeah, and I think exactly as you're describing, I think of it as kind of a giant mind map over time, as you said, of how do all these things fit together and what, again, I'll go back to my comment earlier about context.

38:29And so if you look at an owner's manual, either our original owner's manual or now what Leaf Planner does, you might start and I might say, well, who's this guy, Alex? And it's going to say, well, Alex touches these 17 things. And this is the role he plays when he touches them. And by the way, the reason I know Alex is X, Y, and Z. And we've been really good friends for 25 years. and I would trust him with my life and whatever that context is that somebody would need to know. And of the 17 things that Alex touches, I'm going to look at this one. Maybe it's going to be a trust and maybe I've asked you to be trustee of a particular trust and that trust banks at Northern Trust and that bank owns, I'm sorry, that trust owns my house and my house has a mortgage from Bank of America and it has utility accounts and my dog lives in the house and my dog goes to this vet.

39:23And you're just kind of going into, again, sort of this ever expanding level of how do things change. And by the way, Alex and I, hey, we had a falling out five years ago. So when Alex comes and says, I want to take you out of this deal, or I want to do the next deal with you, take that with a grain of salt, do a little due diligence. So again, it's context, it's relationships, it's how do these pieces fit together? It's why did they fit together at that time? Go back to my example of the 750 entities and saying in the 60s and 70s, when marginal rates were still, I think, at like 94%, part of the idea was you could income split across hundreds of trusts.

40:02And so if you had$100 ,000 of income and you put$1 ,000 in each trust, you were pushing them into those lower tax brackets. Well, that didn't matter later when tax rates on trusts all of a sudden got reversed, right? And now trusts go immediately to like the highest rates at super low levels of income. So if you look at that through today's lens, it doesn't make any sense. If you look at it through a lens of 50 years ago, makes all the sense in the world. And so documenting that context, documenting just the emotional intelligence, I'm not sitting, I don't know if there's any video to this, but I'm not sitting in front of a painting that had any particular importance to our family.

40:39But if I was doing this from my office upstairs, you'd see a painting behind me. And the story in the owner's manual would tell you that that painting was in my dad's office. And now I look at it every day in reverse through Zoom, but I look at it every day, right? And think about my dad and talk about my dad. That's really meaningful to me. But I need my kids to know that. I need them to know why that painting is so important to me. It's also worth a fortune. So how do I tell them where to go if they're going to sell it? But again, I'll say that context, that emotional intelligence is not something, if you look at the normal emergency file that people used to keep or still do, and it's great, by the way, I mean, at a bare minimum, everybody should have an emergency file, but it's going to have, here's my trust, here's my will, here's my balance sheet, here's my key advisors, something, right?

41:26It's a great start, but it doesn't pull at these threads of why, why, why, why, why, why. The example that you just shared about your father's painting is, I think, a very good example because without that story and the history, after you pass, that history also passes. But if you just – it's as simple as sharing that with the next generation, then it continues because then it's like this is my grandfather's and the great-grandfather's and it continues down the line. And that's part of the legacy. It's a bunch of things like that that effectively build the legacy through time. Right. And it's interesting because, you know, if we go back to even the comments about as much as you and I have now talked about being deliberate about this, it's hard for me to imagine that you get any more deliberate about this than I am.

42:15Right. I mean, I'm really deliberate. I work on this every day and I'm paid by my family to work on this every day. And we did a family meeting last summer, which in fairness was like the first one we've done since COVID that included the next generation. and the number of things that the the grandkids were asking about my dad our dad that they didn't know shocked me i was like i've been working at this and throwing stuff at you guys for years and it was just amazing so again it's just like this isn't a one and done even for families that do i i'll say a really good job of it and even if you've gone out and hired richard to work with you're right.

42:55It's, it's this, it's a constant, deliberate, ongoing, never ending piece of work to keep this going and to share those stories. And I suppose a big part of the process is knowing the questions to ask, right? Meaning, meaning that you talked about history of the painting and so on. You need some mechanism to ask the right questions. So you can start filling in the questions, filling in the answers to those questions and building your family owner's manual. Yeah. I think, look, there's a classic, you don't know what you don't know problem. I mean, it goes back to your comment about only having one rep with kids, right?

43:36G1 to G2 is one rep with those kids. And I think this is the same problem in the world that you and I live in of advisors and lawyers and accountants and investment managers and all this stuff, we're all pretty good about seeing a problem and saying, okay, let me go figure out how to attack that problem. I'd say we're typically less good at saying, what am I not even thinking of? Right? And so that you don't know what you don't know piece comes in. And so one of the things we've tried to do with LeafPlanner, for example, as clients come on, it takes you through an entire process as you're describing.

44:13It may be our team, it may be the application itself, but regardless of how you do it, it's exactly what you were just saying. It's how do I even know to tell the story of why that's important? How do I know how to make sure that my kids or my family are aware of all the different relationships that I have and where those are key relationships? I've got a friend from law school who's a really important number two guy at the bank that we primarily bank with in Chicago. And he's in my owner's manual. Nobody in my family knows him. We don't bank with him. Nobody's met him. My wife knows him. That's it.

44:51So nobody in the family is going to know, like, he's a really important guy at this bank. If you have a crisis, and in my owner's manual is a note that says, do not call this person if you balance a check. Like, we have bankers to do that, right? But they used to be our art lender. Well, what if they called the loan one day and I wasn't here and nobody would know that they could pick up the phone and call this guy and say, hey, we need some help. so again it's kind of how do you how do you even know to ask those questions how do you know to document all this so what we've tried to do is bring all kinds of experts together to say how would you think about this question and what would you tell people that they don't typically know so that you know yes you and i could each go out and hire a dozen advisors in different industries and capacities and and subject matter expertise but how do you bring that all together and you said something interesting too because you said alex you made a comment about everything being lost in what's in somebody's head.

45:44I don't think you didn't mean it in a limiting fashion, but I'll take it in a limiting fashion. Because that's also a problem is that people think about what happens when the matriarch or the patriarch is gone, or whatever it is. So but if you start to think about, hey, I've got documents in box, I've got documents in Dropbox, I've got stuff in Carta, I've got stuff on this portal, or that portal, I've got a property manager who understands what's going on with this particular property. I've got a CFO who understands this. It's not just about what happens when I get hit by a bus. That's bad. There's a lot of things that people won't know that's in my head, but it's how do you bring together what's in the CFO's head, what's in the advisor's head, what's in the lawyer's head.

46:26How many families do we both know who have a lawyer who's been their lawyer since they were whatever? The lawyer is probably 80 and retiring, and that's the person who knows all this stuff. So how do you bring all of that together into this owner's manual idea so it's not just about that one person getting hit and losing the knowledge that's in their head? And for me personally, the part of an owner's manual that I find most useful is the troubleshooting section. Because typically what happens is you buy something, you might glimpse through the owner's manual and figure out how to use it. And then you put it away until something goes wrong.

47:00And then you go straight to troubleshooting. Okay, how do I fix this? And so that is, I think, a lot of what you're describing. Yeah, for sure. I mean, again, it's funny. We should think about how to construct a troubleshooting section. But it is, it's, you know, again, it goes with complexity, but families may have different, you know, we've got our primary insurance person is different than our fine arts insurance person. So if I'm just, if I all of a sudden said, I got a notice that our fine arts coverage was discontinued or needs to be reshopped or whatever it is, how do I, to your point, go to the troubleshooting section and say, who's the, instead of having it, like, I don't want to call three people until I find the right one.

47:46I want to know who's that person to call. So yes, I think there's a, there's definitely that troubleshooting aspect. There's the educational aspect for the person who's willing to read the owner's manual, or again, going back to your question about financial literacy, we see the owner's manual as a real educational tool. It's a succession tool. It's an educational tool. It's an engagement tool. It's an empowerment tool. You know, how do you look these things up on your own? How do you use it for that education? But then to your troubleshooting, it's okay, now I'm in crisis. And I just heard this great line last week at a meeting, maybe it's a really famous line I've never heard before, don't make decisions at dusk, because that's when you think you can see everything, but you can't.

48:29And I've always heard the one that's like more psychological, like don't make major decisions within 90 days or something like that of a trauma, because you're not in a good mode to make. But if there's a death in the family or incapacitation or anything else, well, guess what? Nobody's sitting around saying, oh, get back to me in 90 days. Right? It's I got to make decisions, I gotta make them now. And so if you can turn to that troubleshooting guide and say, oh, now I'm in trouble, right? I need answers and quickly. And I want to make smart decisions because a lot of these are irreversible decisions or have major consequences.

49:05What if I sell the wrong investment to pay an estate tax? What if I, whatever. I know one of the issues that often comes up when we talk about consolidating information and putting it all in one place is the confidentiality and the security factor in putting everything in one place and keeping it simple. So how do you manage that and how do you balance that with the risk side of it? So when I used to do our old owner's manual, which in fairness, you know, for 20 years was a Word document that had like, it was a cool Word document, I will say. It did not look like a normal Word document. But it was, you know, we would turn into a password protected PDF and I would share that with the family.

49:47So I'm making my own security decision. Now, also 20 years ago or over the last 20 years, that's gotten to be a much more significant decision than it was 20 years ago, right? When password protecting a PDF seemed like that was pretty secure. with leaf planner what we've done is a few different things i mean one from just a pure cyber security standpoint we're super excited about the things we've done and i won't bore your listeners with it but i'm really excited i think we're at the like cutting edge of breaking up data and moving it around in different places and encryption and obviously things like multi-factor authentication and iso compliance and sock compliance all that kind of stuff what i think is interesting in the way we designed this though and was kind of even true in my Word document was we want people to basically be able to design their own security journey, if you will, or privacy journey.

50:36So the way LeafPlanner works, for example, is if I'm putting a trust document into LeafPlanner, you could put that directly in LeafPlanner. I could say, hey, that document is in Box. And I could integrate or not integrate with Box if I want to. I could say that document, we had a client who was not going to move from paper files. But by being able to put into LeafPlanner, the will is in the file cabinet behind my desk at home in Lake Forest, in the file cabinet under W, then everybody knew where to go. And that's okay. And so you can split up data. We're not designed to be a password manager. So in my LeafPlan, I happen to use LastPass, is my master password to LastPass.

51:26So I'm not making this from a security journey standpoint, but LastPass is built to be a password manager, like 1Password, LastPass, Dashlane, right? All these systems that are out there. So when I tell people to construct an owner's manual, it's not to say, and don't use the best thing for whatever purpose you're doing, but how does my family know that I use LastPass? Right? They're only going to know that if I tell them that. And so again, it's you're designing a bit of your own journey from the privacy standpoint or the security standpoint. And still we're encouraging people to use the best thing that's out there for your circumstance or what you're already doing.

52:07I use Box, for example, as I've now said, I think probably a couple of times. I've got 225 ,000 documents in Box. If you told me to move those, I'm going to tell you, get out of my office. Our conversation's over. So the whole idea of the owner's manual is helping people know where to go. whether that's a person, a storage system, a password manager, it doesn't matter. It's just how do you, again, how's the owner's manual tell you where to go? Call 1-800. Yeah, and you can make all that very secure. Well, Josh, this has been great. I appreciate you sharing all your insights with us. I enjoyed the conversation.

52:46I learned a lot and I hope our listeners did as well. I hope so. Well, thank you so much for having me. It was a true pleasure and I appreciate it again. Thanks for listening. We hope you enjoyed this episode. Please visit our website at insightfulinvestor.org to access past shows and learn more about our podcast. If you have questions, feel free to email us at info at insightfulinvestor.org. And if you enjoyed the discussion, please subscribe to this podcast to ensure you don't miss future episodes. And don't forget to forward today's conversation to others you think would enjoy listening. This podcast is provided for informational purposes only and should not be relied upon as legal, business, investment, or tax advice.

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