1. SEPTEMBER 2015
TOUGH
GOING
At this point in its recovery,
the global economy
should be galloping ahead.
Instead, the expansion
is more of a muddy
slog through problems
ranging from slumping
equity markets, to heavy
sovereign debt, to defaults
in public-sector bonds.
Here are some of the ways
we are positioning client
assets.
CHANGING
CONSUMPTION p. 6
EUROPEAN SURPRISE p. 2
LESSONS FROM
PUERTO RICO p. 4
STICKING WITH ASIA’S
EMERGING MARKETS p. 9
PRE-NUP OR NOT? p. 10
PHOTO: CHERYL ANN QUIGLEY / SHUTTERSTOCK.COM
INVESTMENT OUTLOOK FOR PRIVATE CLIENTS

2. 2 T H E A D V I S O R Y S E P T E M B E R 2 0 1 5
GLOBALEQUITYSTRATEGY
PERCENT OF STOXX®
EUROPE 600 INDEX COMPANIES
THAT BEAT QUARTERLY EARNINGS ESTIMATES (1/1/2009- 6/30/2015)
ar and financial turmoil—
the bane of Europe’s
economic well-being last
century—are currently
veiling a rebound in
regional growth and
unanticipated vigor among European companies.
Europe’s economy has picked up steam even
with Ukraine battling Russian-backed insurgents
and Greece narrowly dodging an exit from the
eurozone. Eurozone growth will probably speed up
to 1.5% this year from 0.8% in 2014, according to
the International Monetary Fund (IMF).
The momentum helped push up the proportion
of European companies beating estimates for
second-quarter earnings to 65%, the highest
level since J.P. Morgan began tracking this
data in 2009. Companies with the biggest
earnings surprises range across sectors from
health care, to telecoms, to industrials. Among
the standouts in our Global Leaders strategy
are multinationals with diversified sources of
revenues that we found appealing during even the darkest days
of Europe’s recession. These include Unilever, Atlas Copco and
Novo Nordisk.
STEADY TAILWINDS
The forces behind Europe’s revival show no sign of reversing
anytime soon:
Declining euro. European exports rose as the currency fell
19% against the U.S. dollar during the 12 months through
July 31. Shipments of goods to the rest of the world by the 19
countries in the eurozone increased 3% during the year through
May 31, according to the European Union.
Falling oil prices. The decline in the price of oil by about
25% this year until Aug. 25 has prompted a pickup in consumer
spending. Greater consumption has sped growth in the
eurozone’s four largest economies—Germany, France, Italy and
Spain. During the second quarter of 2015, Spain’s gross domestic
product expanded 1% on a quarterly basis.
Central bank stimulus. The European Central Bank in
March, aiming to push down borrowing costs, began monthly
purchases of bonds totaling 60 billion euros ($68 billion). The
so-called quantitative easing has curbed the threat of deflation,
75%
65%
55%
45%
35%
20122009 201320112010 2014 2015
W
Exceeding
Expectations
Faster economic growth
helped increase to
65% the proportion of
Stoxx®
Europe 600 Index
companies that beat
estimates for second-
quarter earnings per
share. That is the highest
level since quarterly data
collection began in 2009.
SOURCE: J.P. MORGAN
Europe’s Slow Climb
Greece’s debt crisis has dominated the headlines in Europe this year but has not halted regional
growth or vitality among European companies showing unexpected earnings strength.

3. T H E A D V I S O R Y S E P T E M B E R 2 0 1 5 3
BY PRIYANKA AGNIHOTRI,CFA
Equity Research Analyst
with prices in July rising 0.2%. Falling bond yields prompted
investors to buy equities, pushing up the STOXX®
Europe 600
Index. A mid-August sell-off pared the Index’s gain to 4% for the
year as of Aug. 25.
Greek stabilization. Agreement last month between Greece
and its creditors on terms for a new bailout should, at a minimum,
buy time for the region’s expansion before any renewed flaring
in the country’s debt crisis. An exit by Greece from the currency
pricing power. Firms that generate big returns on
invested capital are especially attractive.
When jitters over Greek’s debt crisis pushed down
stock prices in July, we purchased for our Global
Leaders strategy more shares of Priceline, which
provides online travel reservations. While advertised
heavily in the U.S. by former Star Trek luminary
William Shatner, Priceline derives about 65% of its
revenue from Europe. Its Booking.com is the region’s
No. 1 online travel agency.
Priceline in the second quarter of 2015 reported
a 26% surge in gross bookings over the previous
12 months. The company has generated an annual
return on invested capital (ROIC) exceeding 30%
during the past five years, demonstrating that a
company with a solid business model can flourish
even in a grim economy. (Accounting lesson: ROIC
is net income minus dividends divided by total
capital.)
Among consumer stocks, Next, a clothing and
footwear retailer based in the U.K., will likely
gain from rising household consumption. Credit
Suisse will likely benefit from rising interest rates
in the U.S. and, eventually, in Europe. In addition,
the investment bank’s recently appointed CEO
is expected to push forward with a restructuring
plan. We also expect that earnings will rise at Atlas
Copco, a Sweden-based manufacturer of industrial
tools and equipment, and other companies tied to
Europe’s recovering industrial sector.
We see any temporary setback in the stock prices
of Europe’s most promising companies as a potential
buying opportunity. We have confidence in firms
with a dominant market position, pricing power and
a record of making the most from invested capital.
More broadly, when challenges to Europe’s economic
growth have flared up, we have taken heart from the
region’s longstanding record of resilience.
BY MICK DILLON, CFA
Portfolio Manager, Global Leaders Strategy
GREECE’S ECONOMY, SIMILAR IN SIZE TO
LOUISIANA’S, IS TOO SMALL TO ROCK
THE ENTIRE CONTINENT OF EUROPE.”
probably would not derail Europe’s recovery. Regional banks have
had time to insulate themselves from a departure by Greece. Also,
the country’s economy is too small to rock the entire region: Its
GDP is similar in size to Louisiana’s.
To be sure, Europe’s expansion is far from the resurgence that
usually follows a recession, and the region cannot count on strong
demand from abroad. The IMF in July downgraded its forecast for
global growth this year to 3.3% from 3.5% in April. Also, several
structural weaknesses impair Europe’s economy, such as inflexible
labor markets, high unemployment and heavy levels of sovereign
debt. Excessive debt-to-GDP ratios weigh on several countries,
including the region’s cornerstone economies of Italy and France.
The ratio for the 19 countries in the eurozone rose to 93% at the
end of the first quarter from 92% at the end of 2014, according to
the European Union.
QUICKENING GROWTH
Still, GDP growth in the eurozone will probably quicken to 1.7%
in 2016, according to the IMF. Meanwhile, we see opportunities
in European companies that lead their industries and wield strong

4. 4 T H E A D V I S O R Y S E P T E M B E R 2 0 1 5
Rude Awakening
As recently as 2012 Puerto Rico was able to sell to
investors public-sector bonds despite its bleak fiscal
outlook and shrinking economy. The commonwealth’s
default last month on a portion of $72 billion in
troubled debt spotlights not just an ill-advised
investment, but a pitfall in the municipal bond market.
BY STEPHEN SHUTZ, CFA
Tax-Exempt Portfolio Manager
FIXEDINCOME
onsider this scenario: An economy
is shrinking, government debt
is ballooning and emigration
is eroding the workforce. Yet
creditors shrug off signs of decline
and cling to public-sector bonds
yielding as much as 15%—until the government
abruptly drops the pretense of fiscal solidity and
labels the debt unpayable.
That in brief is the story of Puerto Rico’s rude
awakening for investors. The June announcement
by Governor Alejandro Garcia Padilla that the
commonwealth could not repay $72 billion in debt
left some of the world’s most established hedge
funds and mutual funds holding near-worthless
paper. Bonds sold by Puerto Rico’s Public Finance
Corp. plunged in August to 9 cents on the dollar.
Investors had snapped up Puerto Rican debt
because of high yields and exemption from federal,
state and local taxes in the U.S. Many hedge funds
and municipal bond mutual funds persisted with purchases even
as credit-rating firms downgraded the bonds far below investment
grade.
The investors’ losses spotlight a pitfall in the $3.6 trillion
municipal bond market and the imperative for bottom-up research
when selecting public-sector debt. While the budget outlook for
U.S. cities and states has dramatically improved since the Great
Recession, pockets of fiscal dysfunction persist. Some bonds,
because of their structure, make investors especially vulnerable to
the whims of state and local officials.
NOT APPROPRIATE
For example, so-called appropriation bonds such as some sold
by Puerto Rico are repaid only if government officials approve
payments as part of annual budgetary planning. The prospectus
for appropriation bonds issued by the Public Finance Corp. states
that lawmakers do not have a legal obligation to appropriate money
to pay creditors, a structure much riskier than revenue-backed
bonds that are safe from the whims of lawmakers.
C
MUNI BOND PRICE DECLINE (1/1/2015-8/13/2015)Troubled Debt
The prices of many
municipal bonds have
slumped this year,
with Puerto Rico’s
appropriation bonds hit
especially hard by the
government’s decision
not to make payments
on a portion of
public-sector debt.
SOURCE: BLOOMBERG
0
-5
-10
-15
-20
-25
Yield in 1/2014: 9.4%
Yield in 8/2015: 12.0%
Yield in 1/2014: 3.1%
Yield in 8/2015: 5.0%
Yield in 1/2014: 3.4%
Yield in 8/2015: 4.7%
Yield in 1/2014: 2.1%
Yield in 8/2015: 2.3%
Year-to-DatePriceChangeinPercent
Puerto Rico 2035
Illinois Metro 2050
Barclays Municipal
Bond Index
NJ Transportation
2035
-20.7% -8.8% -8.0% -1.6%

5. T H E A D V I S O R Y S E P T E M B E R 2 0 1 5 5
Such debt is also common on the U.S. mainland. Just days after
Puerto Rico defaulted, Illinois failed to appropriate money to pay
off bonds issued by Chicago’s Metropolitan Pier and Exposition
Authority. Standard & Poor’s cut the rating on the debt to near-
junk from AAA, the highest rating.
New Jersey is one of the largest issuers of appropriation debt.
The Garden State has sold roughly $30 billion in such debt to fund
projects ranging from education to transportation. Even without a
downgrade, the debt has sunk 8% this year compared with a price
decline of 1.6% for the broad municipal bond market. (Please see
chart on page 4.) The New Jersey debt is trading at levels close to junk
bonds because of heightened investor concern about political risk.
TOO RISKY
Puerto Rico highlights how some investors have taken on excessive
risk by chasing yield, given record-low interest rates. The Federal
Reserve, since pushing down the main interest rate to zero in 2008,
has repeatedly acknowledged that a “reach for yield” may threaten
financial stability. Fed Vice Chairman Stanley Fischer said in June
that the central bank is carefully monitoring whether investors
“take on risks they cannot measure or manage.”
In Puerto Rico, investors turned a blind eye to fundamental
risks well beyond their vulnerability to fiscal retrenchment. The
island’s economy has shrunk for nearly a decade and will probably
contract by more than 1% during fiscal year 2015, according to
a June report commissioned by Puerto Rico and co-written by
Anne Krueger, a former first deputy managing director of the
International Monetary Fund.
Only 40% of the adult population is employed or looking for
work, compared with 63% on the U.S. mainland. Moreover,
emigration has reduced the population to about 3.5 million from
about 3.8 million in 2006, inhibiting demand and economic
growth, according to the Krueger report.
The island’s fiscal health has also slid steadily. Public-sector
debt has expanded every year since 2000, hitting 100% of gross
national product at the end of fiscal year 2014. Meanwhile, tax
revenues have declined to about 12% of GNP from more than 15%
before 2006, the Krueger report said.
Investors also disregarded how Puerto Rico’s status
as a commonwealth would make debt restructuring
especially challenging. The island is neither a state
nor a sovereign nation, so the process for trimming
its liabilities is not clear. Puerto Rico’s leaders will
have to negotiate with creditors without protection
under Chapter 9 of the U.S. Bankruptcy Code.
WISHFUL THINKING
Some investors in Puerto Rico’s bonds are hoping
for a bailout from Washington. But with Congress
facing its own fiscal challenges and a national
election scheduled for November 2016, betting on a
lawmaker rescue does not appear to be an especially
promising investment.
The hazards of appropriation bonds underscore
the value of a bottom-up approach to building a
municipal bond portfolio. The securities should
have diversified and specific streams of revenue
and solid legal protections that give creditors senior
status in the event of default. Bonds issued by cities
and states spanning a broad geographical range
further reduce risk. Following such an approach,
we do not hold appropriation bonds sold by Puerto
Rico and Chicago.
Among our holdings in sectors backed by clear
flows of revenues, we maintain an overweight in
health care and transportation and remain focused
on credit stability, valuations and opportunities for
price gains. We believe that bonds tied to revenues
from toll roads and airports should outperform with
the economy strengthening and oil prices low.
Even with the turbulence in Puerto Rico and
Chicago, the fundamentals of municipal credit in
general are improving. An investor, though, needs
to make sure the revenue that backs a bond is not
vulnerable to a cutoff by fickle lawmakers.
EL MORRO CASTLE IN SAN JUAN, PUERTO RICO

6. Economic recoveries
usually feature a surge in
consumption as employment
and wages rebound. Current
U.S. consumption data
might instead suggest that
many consumers are on the
sidelines. But rather than
clutching their pocketbooks,
consumers are reaching for
their smartphones and using
digital technology to find
bargains online and to share
goods, potentially influencing
the data.
he U.S. economy is in its sixth year of expansion,
the housing market is strengthening, initial
claims for unemployment insurance have hit a
41-year low, and yet there is one group that seems
noticeably absent from the party: the consumer.
Consumer spending accounts for about
70% of economic activity, so any weakness drags down growth,
employment, wage gains and stock prices—the biggest engines of
prosperity. During the year through July, retail sales increased only
2.4% even though the job market strengthened and aggregate
personal income rose 4.1%. Economists say consumers are
holding back because of cyclical problems like slow wage growth,
a lack of available credit and a focus by households on paying
down debt and boosting savings. They also cite the collapse of
U.S. home prices last decade for jolting households into a mindset
of frugality.
But we think far-reaching shifts in consumer behavior driven
by digital technology are partly responsible for the slow growth
in standard measures for consumption. Well-informed digital
consumersexpectalotmoreforalotlessand,through Amazon.com,
for example, can find bargains with quick delivery in an increasing
array of goods. Consumers are also prompting the sharing, rather
than buying, of myriad products and services—from vacation homes
and bicycles to parking spaces and cars. The boom in companies that
are harnessing these behavioral changes underscores how growth
and profits will probably spring increasingly from consumption done
with mobile devices.
UBER DISRUPTION
The success of car-sharing services like Uber underscores how
digital technology will disrupt traditional industries along with the
standard measures for consumption. Each shared auto used by
such services could displace nine traditional vehicles, according
to a Barclays Capital report dated July 9, 2015. Auto sharing in
the U.S. could push down demand for vehicles by 40%, reducing
revenues for auto makers by about $200 billion.
T
SHADOW CONSUMPTION
U.S.EQUITYSTRATEGY
6 T H E A D V I S O R Y S E P T E M B E R 2 0 1 5

7. T H E A D V I S O R Y S E P T E M B E R 2 0 1 5 7
BY PAUL CHEW, CFA
Head of Investments
While digital technology makes sharing much easier for consumers, two financial busts in
the past 20 years have made it more attractive. Since the burst of the bubbles in dot-com
stocks and U.S. home prices, consumers have questioned the satisfaction from purchasing
material goods. They increasingly prefer to pay for access rather than ownership, for renting
rather than buying. (Please see more on this trend on page 8.)
Changing consumer behavior is a main theme for our analysis of individual companies and
has already created stark winners and losers.
GUESTS WHO PAY
HomeAway is the largest company in the vacation rental industry, featuring an inventory of
more than 1.1 million homes worldwide. With nearly 100 million travelers visiting its online
marketplace every month, HomeAway is capitalizing on the willingness of consumers to shun
name-brand hotels in favor of accommodations more tailored to their needs.
HomeAway seeks to beat hotels by offering more space and a lower price. Increasing
consumer trust in online services like HomeAway is competing with the trust traditionally
placed in brand-name hotels. The company, with a market capitalization of $3 billion, builds
confidence among customers with guarantees and website reviews.
Digital technology influences not just where consumers spend their disposable income,
but how they shop. Smartphones enable consumers to efficiently compare the features of a
product, read reviews from users and find the lowest price.
Intensified pricing pressure means that producers of many types of goods have lost pricing
power. The explosion in free consumer reviews of products (think TripAdvisor) is allowing
smaller producers to unseat big brands in many categories of goods.
U.S. HOMEOWNERSHIP
(1/1/1965-6/30/2015)
No Longer
Homebound
The rate of U.S.
homeownership has
fallen to a level not seen
since the 1960s even
though the housing
market has recovered
from the meltdown in
home prices last decade.
Many Americans are
renting rather than
buying their homes.
SOURCE: U.S. CENSUS BUREAU
70%
68%
66%
64%
62%
60%
1980 1995197519701965 1985 20001990 2005 20152010
RateofOwnership

8. U.S.EQUITYSTRATEGY
E-commerce is especially threatening to retailers,
where digital sales totaled $300 billion last year with
annual growth of about 15%. In one measure of the
challenge to traditional stores and clothing makers,
online sale of used clothes offers a $34 billion market
opportunity, according to Barclays.
WINNING PARADIGM
Our equity research team believes that future
winners will leverage digital technology to offer
transparency on pricing and rival-crushing
bargains. We currently own several companies
across our portfolios that align with this paradigm,
including Costco, TripAdvisor and Priceline.
Amazon enables consumers to find bargains
across a vast assortment of products and
expect quick, doorstep delivery. The company
has pressured several categories of companies to step up
their efforts in e-commerce and is currently challenging
media companies with sales of digital content. Amazon is well
positioned to leverage its efficiencies in pricing and service with
forays into apparel and food, which were once considered beyond
its reach.
TreeHouse Foods, the largest manufacturer of foods carrying
the brand names of supermarket chains, is a small-cap stock that
is flourishing as consumers increasingly prefer small, niche brands
over large producers with long-established labels. TreeHouse, now
at $3.2 billion in market capitalization, is also leveraging greater
consumer sensitivity over a product’s price and ingredients.
Consumers have gained, paying about 25% less for foods with a
private label than for traditional brands.
Companies like TreeHouse and HomeAway could flourish as
digital consumers flex their newfound power to shape the price
and features of what they buy.
8 T H E A D V I S O R Y S E P T E M B E R 2 0 1 5
Smile,
Click, Share
For “Digital Natives,” tying
one’s identity to things
like a house or a car is
so 20th century. Instead
of ownership, they seek
access to services and
goods that provide fresh
experiences to be captured
on a smartphone and
shared: travel, socializing,
sports, adventure. They
build meaning and a sense
of place not on a home’s
foundation, but in the
digital cloud.
–Richard Gamper,
Strategic Planning
Analyst, Brown Advisory
SOURCE: ACCENTURE
RISEOFTHESMARTPHONES
HOMES: RENT OR BUY?
SHARE, SHARE, SHARE
A larger proportion of people between the ages of 25 and
34 are renting rather than buying homes.
Radio required more than 30 years to reach a consumer
adoption rate of 50%, while mobile phones took 15 years
and social media hit the same level in just 3.5 years.
Smartphone usage
in the U.S. population
has increased
dramatically over the
past five years.
2005
52%
RENT
2013
60%
RENT
SOCIAL MEDIA
MOBILE PHONE
RADIO
3.5YEARS
15YEARS
30YEARSSOURCE: KLEINER PERKINS
CAULFIELD AND BYERS.
SOURCE: ORGANIZATION FOR ECONOMIC CO-OPERATION AND DEVELOPMENT
64%
2014
18%
2009

9. T H E A D V I S O R Y S E P T E M B E R 2 0 1 5 9
ASSETALLOCATION
BY TAYLOR GRAFF, CFA
Asset Allocation Analyst
tock prices on the Shanghai exchange
more than doubled in the 12 months
ending in mid-June. Fueling that
surge was not so much improving
fundamentals but rather outright
speculation stoked by government
purchases of equities, a mandatory increase in
margin lending from brokerages, new rules easing
investment from Hong Kong into mainland stocks
and government media including the newspaper
People’s Daily extolling equity investment as a way
to achieve national prosperity. A rally driven by hype
instead of earnings growth eventually succumbs to
gravity. That’s what happened in July and August,
with the Shanghai Composite Index as of Aug. 25
plunging 44% from its mid-June high.
Behind the change in investor sentiment lies
deteriorating economics in China. President Xi
Jinping speaks of bringing about prosperity with
a vision that he calls the “Chinese Dream,” and
annual growth in gross domestic product averaging
nearly 10% from Jan. 1, 1979, until Dec. 31, 2014,
suggests that his goal is not just fantasy. But recent
turbulence in the world’s second-largest economy
indicates that Xi’s dream may be a bit deferred.
Chinese exports in July fell 8.3% compared with
the previous year, while imports did not perform
much better, declining 8.1%. Then, in mid-August,
the People’s Bank of China relaxed controls on the
yuan—which has been pegged to the dollar—and
allowed a 3% decline in a matter of days. Many
economists view the devaluation as an attempt to
spur exports and revive growth.
LONG-TERM WINNERS
Still, we believe that attractive opportunities for
fundamental, bottom-up investing endure in China
S
and Asia’s other emerging markets, where valuations are more
attractive than for equities in the developed world like the U.S.
The economies of India and the ASEAN-5 (Indonesia, Malaysia,
the Philippines, Thailand and Vietnam) entered the second half of
2015 with robust growth. They should benefit from an appreciating
U.S. dollar and loose domestic monetary policy.
We are using third-party managers such as Somerset and
Macquarie in an effort to position client portfolios to benefit
from the rising middle class across the region. We mitigate risk
by ensuring that the managers buy shares of Chinese companies
outside mainland exchanges, where speculation is rife.
Here are two companies in our managers’ portfolios that we
believe can weather the short-term turbulence and excel long term:
From media to fashion to tourism, South Korean companies
have ridden the rise of middle-income Chinese. Korea Kolmar,
one of the country’s top original design manufacturers of
cosmetics, generated about $390 million in revenues last year. It
researches, designs and manufactures cosmetics for clients ranging
from top Asian brands like AmorePacific to multinationals like
L’Oreal. China’s annual retail cosmetic sales increased more than
20% from Jan. 1, 2008, until Dec. 31, 2014, quickly making the
country the world’s No. 2 market at about $30 billion.
Established in 1938, China Taiping is one of the oldest
insurance companies in China, offering primarily life and property
& casualty insurance. Over the next 20 years, the proportion of
China’s population over 60 is projected to climb to 30% from
about 9% today. Beijing has mandated growth in the insurance
industry, aiming to push up insurance penetration to at least 6%
by 2020 from about 3% today. It is offering tax incentives for
purchasing private insurance and tax deferrals for annuity products
and corporate pension plans. While leveraging the policy shifts,
China Taiping has restructured its sales force and streamlined its
incentive structure.
We think that by investing in companies like these, clients
can benefit from China’s long-term growth while avoiding the
froth and macroeconomic downdrafts that currently keep investors
awake.
Dream or Opportunity?
China’s plummeting stock prices, slowing economic growth
and currency volatility have pushed many investors out of
the market. Nevertheless, we believe that a discriminating
investment strategy toward China and neighboring emerging
markets has the potential to yield meaningful long-term
gains, especially from growth in China’s middle class.

10. 1 0 T H E A D V I S O R Y S E P T E M B E R 2 0 1 5
ew terms have the potential to kill the
excitement of a wedding engagement
as quickly as “prenuptial agreement.”
Among other benefits, these
agreements can ensure an inheritance
does not go to a descendant’s
ex-spouse by clarifying the holdings of a couple
and how they would split their assets in the event
of divorce or death. But a prenuptial agreement can
also provoke stress for a young engaged couple who
envision a future of marital bliss and resent any
pressure to negotiate a contract that contemplates
their divorce.
Protecting inheritances is an especially crucial
part of multigenerational planning given the huge
Before Tying the Knot
Although the divorce rate has fallen for many years, the emotional and
financial costs from a split-up are often very high. Protecting inherited
assets from a claim by a family member’s ex-spouse can help limit those
losses. Such protection can be a cornerstone for sound estate planning.
families may consider alternatives that focus on protecting a family
legacy. A parent or grandparent can set up many of these vehicles
without the consent of, or any financial disclosure to, a descendant’s
future spouse. These approaches can last for generations and also
shield family assets from general creditors.
DIFFERENT PATHS
Two alternatives, which can be set up long before any marital
engagement, include:
Discretionary trust. This empowers an independent trustee to
manage the trust assets and make decisions regarding distributions
to descendant’s. If necessary, the trustee can distribute assets to a
descendant. But the descendants’ lack of control over the assets
ensures that ex-spouses and creditors cannot make a legitimate
claim into the future. A discretionary trust can provide a means
of multigenerational estate planning by establishing how assets
are passed on and reduce future generations’ potential estate-tax
liability.
Familylimitedpartnership(FLP).Thisisacloselyheldbusiness
similar in structure to a limited liability company. A descendant
can own an interest in an FLP but, as with a discretionary trust, a
single party can manage FLP funds and make decisions regarding
distributions from the partnership to family members. An FLP can
ensure solid protection of its funds from claims by a descendant’s
ex-spouses and creditors. FLPs also are excellent investment
vehicles, enabling families to pool investment assets and streamline
both management and oversight.
These structures avoid the possible complications and hurt
feelings that can accompany a prenuptial agreement. Young
couples in love may feel offended by pressure from family to enter
into prenuptial agreements and, in the midst of their joy, may resist
entering into an agreement that feels like a business transaction.
Also, if only one family insists on a prenuptial agreement, it risks
sending a message of mistrust. Pressure to enter into an agreement
may provoke lasting resentment. Sometimes discussions over
a prenuptial agreement become so contentious that the families
abandon the idea altogether.
STRATEGICADVISORY
F
BY CHAD LARSON
Strategic Advisor
PROTECTING INHERITANCES
IS AN ESPECIALLY CRUCIAL
PART OF ESTATE PLANNING
GIVEN THE HUGE TRANSFER
OF WEALTH TO COME.”
transfer of wealth to come. As baby boomers in
North America pass away during the next four
decades, they will give to their descendants about
$30 trillion in inheritance, according to Accenture.
While we are advocates of prenuptial agreements
and their ability to cover a broad range of issues,

11. T H E A D V I S O R Y S E P T E M B E R 2 0 1 5 1 1
PRENUPTIAL
AGREEMENT
DISCRETIONARY
TRUST
FAMILY LIMITED
PARTNERSHIP
LEGAL STRUCTURE Contract
Fiduciary relationship
of managing assets
on behalf of another
Business entity
WHO CAN
EXECUTE/
ESTABLISH ONE?
Engaged couple
Anyone
(e.g., parents,
grandparents, etc.)
Anyone
(e.g., parents,
grandparents, etc.)
ESTABLISH BEFORE
ENGAGEMENT
No Yes Yes
GENERAL CREDITOR
PROTECTION
No Yes Yes
REQUIRE FINANCIAL
DISCLOSURE
Yes No No
DURATION Marriage
Potentially for
generations
Potentially for
generations
OTHER POTENTIAL
BENEFITS
Can establish marital
rights and obligations
on numerous issues
Can provide
multigenerational
estate planning,
including reduction of
estate taxes
Can prove an
excellent investment
vehicle for family
assets
Still, even after creating the above estate-planning vehicles to
protect inheritances, some families may want their children and
grandchildren to enter into prenuptial agreements. The agreements
have the advantage of detailing how assets would be split in a
divorce, whether inherited assets would be subject to division and
the support obligations each spouse has to the other.
STRESS REDUCTION
We have identified some ways that can limit the potential stress
from drawing up a prenuptial agreement:
First, provide as much forewarning as possible. If a family plans
to ask all children and grandchildren to sign an agreement, the
family should raise the topic well before any potential spouses have
entered the picture to show that the agreement is family practice
and not disapproval of any individual or his or her fiancée. For the
people entering into the family, the more time that they have to
adjust to the idea of a prenuptial agreement and understand the
family practice, the less likely they will feel under pressure.
Second, families can ask that a child’s or grandchild’s prenuptial
agreement focus only on inherited assets while characterizing those
assets as a legacy to preserve for future generations. At the same
Shielding
Assets
While offering
meaningful advantages
for estate planning,
prenuptial agreements
are not the only way
to protect inherited
assets against claims
by former spouses.
Two alternatives fulfill
the same role, while
also offering additional
benefits.
time, the engaged couple can have total discretion
over how to handle the assets that they accumulate
during the marriage.
Finally, families can reduce the chances for lasting
resentment by making the discussion over the
prenuptial agreement more like a negotiation instead
of an imposition.
Ideally, every engaged couple will plot their own
path to “happily ever after.” Prenuptial agreements—
or alternatives like a discretionary trust or FLP—may
not ensure marital bliss. But they can be essential to
protecting a legacy.

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