He was a medical school dropout who switched to fashion, working as a window dresser at a Milanese department store before launching his eponymous fashion line that defined “power dressing” for men and women. By the time of his death in September at 91, Giorgio Armani had amassed a US$9.6-billion fortune comprising his businesses, a global real estate empire and a 213-foot superyacht. Upon the unsealing of his will, it became clear that Armani’s reputation for tight control would endure well beyond his passing. The document laid out exactly how his privately owned businesses, properties and other assets would be divvied up and sold according to specific timeframe, and who would have access to his homes, furniture and art.
Armani held 99.9 per cent of the conglomerate Armani Group; the other 0.01 per cent was controlled by his foundation. The conglomerate owns the operating business, Giorgio Armani S.p.A, which in turn owns an array of global fashion and lifestyle brands spanning clothing, accessories, home furnishing, hotels, florists, confectionary and nightclubs. His will directs the heirs—including business partner Pantaleo Dell’Orco, who gets control of the fashion empire and the largest share of capital and voting rights, along with the foundation; his niece Silvana, who will share creative authority with Dell’Orco; his sister, Rossana, niece Roberta and nephew Andrea, who each receive a non-voting share—to sell a 15 per cent stake in Armani Group within 18 months of his death and then, within five years, to sell between 30 and 54.9 per cent to the same buyer or take the firm public.
Some may applaud Armani’s iron-fisted approach, which mandates a gradual transition of responsibilities. But one of Canada’s leading estate litigators, Ian M. Hull, who has represented clients at every level of court and authored five books on estate law issues, is not one of them. “It’s dangerous to rule from the grave,” he says.
Direct, don’t dictate
“I always ask my clients, ‘Who is going to shepherd the process, as opposed to dictating the process?’ The key is pre-planning. I think the Rogers’ family [whose patriarch, Canadian telecom pioneer Ted Rogers, passed away in 2008] are a great example because they created a controlled corporation that helped resolve the family dispute over who would lead the company. Yes, they still had to go to court to enforce it, but it was directional instead of what Armani has attempted to do. If someone thinks that post-death planning through documents is the way, they’ve missed two-thirds of the process. Communication is key, whether it’s the multi-millionaire or billionaire or the small business owner with a grocery store,” he says.
When Hull started practising in 1990, it was uncommon to see families discuss their wishes. “Today, 20 per cent of my practice is creating protection for the estate plan,” he says. “As a lawyer, my role is to point out where things can go wrong. Good lawyers have seen a lot of events unfold. They can identify six or eight potential problems and find solutions for some of them.”
Align your advisors
Hull says there are several common pitfalls to which business entrepreneurs fall prey. “A huge percentage of them with assets from $5 million to $50 million have not even done the basics, like a primary and secondary will and a power of attorney,” he explains. “They are entrepreneurs and flying high and they feel time is not their friend. They just don’t make the time to do it. Some of it is ego—‘I’m 40. Who dies at 40?’—and some of it is cultural. I have a client who has 20 luxury cars and no will. He spent the time to research each car purchase, but wouldn’t spend the time with an advisor.”
Tax considerations often drive decision-making, which can be a mistake, he adds. In Canada, the death of a business owner triggers a deemed disposition of assets, including business assets. If the business has grown in value, that could lead to significant capital gains taxes owing, which might mean the business must be liquidated at a fire sale price. Hull recommends having an allied team, including the financial advisor, accountant and a lawyer, work in sync to address potential problems.
Family offices can play an important role in bringing key parties into alignment. “I’m not even talking about heavy engagement,” Hull says. “Get them together on an email. Nobody is going to solve every problem, but we can isolate them. My dad used to say we wear the wrong collar for some of these problems.”
Communicate, communicate, communicate
Communication is often overlooked, but it’s the linchpin to a successful inheritance process. And it takes courage, says Hull. He conducts annual family meetings with clients, which cover both granular discussions of cashflows and what he calls “the eyeball effect,” where the head or heads of the family say what they would like to have happen after they die. “I’ve been in contentious family situations where at some point a child will say, ‘This is what my dad would have wanted,’ and I’ll tell them, ‘If you had just said this earlier, we could have avoided a lot of time in court.’”
One major challenge occurs when there is a closely held corporation and some family members work in it and others do not, which is a major red flag. “You may have a kid who’s never been involved who suddenly finds themselves tasked with running a widget factory, or a kid who is dependent or unmotivated versus the other kid who got off the couch,” Hull says.
“As soon as the glue of mother or father is gone, it’s guaranteed that frictions will arise, because the couch kid has legal rights even when there is a trust in place to isolate them from the enterprise. Some people say, ‘My kids will have to deal with it and that’s life,’ but it’s strange to leave such an unnecessary legacy.”
Rita Silvan, CIM®, is an investing, personal finance and speech writer based in Toronto. She is the former editor-in-chief of ELLE Canada and Golden Girl Finance magazines. She is a regular columnist for Canadian Moneysaver Magazine, and her work has appeared in The Globe and Mail, Financial Post, RBC’s Inspired Investor, CFA Intitute’s Enterprising Investor, Benefits and Pensions Monitor, and AIMA Journal, among others. Her clients include Royal Bank of Canada, Penderfund Capital Management, ETF Capital Management, Manulife Financial and Tangerine Bank. She has appeared on BNN Bloomberg, CBC Newsworld, and BreakfastTV.
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