It is no surprise to read a press release about how a lottery winner has totally squandered their winnings, or how a professional athlete has managed to go bankrupt only years after signing a colossal contract. Unfortunately, the same is oftentimes true of affluent families.
The Chinese have a saying, “Fu bu guo san dai,” or “It is very difficult for wealth to survive three generations.” What very few people talk about is that the breakdown in generational wealth has more to do with the qualitative components of family dynamics and less to do with the quantitative aspects of tax and investment planning.
According to the annual survey of high-net worth and ultra-high-net-worth Americans 2015 U.S. Trust Insights on Wealth and Worth*;
“Family represents the greatest source of enjoyment in life and is the motivator for financial success and security. While more than six in ten wealthy parents say it is important to leave an inheritance to the next generation, only one in five agree strongly that their children will be prepared to handle the wealth they receive.”
Generally, the estate and succession planning discussion is approached from a perspective of how to minimize tax, rather than what is best for the family to flourish. It is all too common to see entrepreneurs who built great companies, but have neglected to engage the infrastructure necessary to manage the wealth they had created. Without intentionality, it is often their health or family that suffers. Unfortunately, traditional private banking does not lead the charge on these topics.
Artists and sports stars oftentimes find it difficult to manage the new wealth that is bestowed upon them. Most of them reach their peak earning capacity early in life and they are ill-equipped to deal with their new wealth. Immediately after signing their latest contract, they are oftentimes descended upon by a horde of people who want to use and take advantage of them. This is where the family office can step in and create a “safe place” for individuals and families.
It is no different for the heirs of affluent families. As mentioned before, traditional estate planning is usually focused on the “how” and not the “why.” Furthermore, it can be shrouded in secrecy until the sudden and unexpected death of a wealth holder. Unfortunately, the heirs are ill-prepared to handle the fortune in the same way that wealth is suddenly bestowed upon an athlete or a lotto winner. The crux of the issue goes back to the importance of the family patriarch and matriarch involving the children in the family affairs and leading by example. Intentionality around healthy family relations with a specific focus on fortifying trust and communication are integral to not only a successful transfer of wealth, but also a family legacy that is purposeful and meaningful.
As noted by the aforementioned survey, “Some parents still have significant concerns about their children’s readiness for wealth. Only 16% of high-net-worth parents believe their children will achieve the same level of financial success as they have.” These statistics are alarming to say the least. Professionals have been sounding the trumpet that philanthropy is one of the best tools to teach children about wealth. Conducting a family meeting by a non-family facilitator is one of the first steps toward preparing the family for future success.
A family retreat is an ideal environment to have a non-family facilitator unearth stories and capture, celebrate, and catalog them for generations to come. We live in an unprecedented time with tools and technology that allows a Family Communication Advisor to help a family preserve their stories, photos, videos, and family documents in a secure, museum-quality digital archive. Professional writers can be utilized in interviewing family members and crafting the family story. Lifestyle photography sessions can capture the essence of the community. Videographers can be used to combine interviews, photos, and footage into timeless storyboards for the family to enjoy.
Just as a Family Communication Advisor helps to protect the family from destruction within, a Family Security Advisor is essential to protecting the family and children from real threats outside the family. In an age where acts of terrorism are more common than nation-states going to war, I thought it would be applicable to reminisce on the best-practices of family security. I am hopeful that it doesn’t evoke fear, but rather a sense of justice for the those that need to be protected from unnecessary harm.
A good Family Security Advisor can create a customized family security manual and review it regularly with the family. Training on awareness in practical environments is a major missing element by most families and prevention in family security is equal in value to preventative health.
At Living Well Family Office, we believe that the best thing you can give your children is a healthy marriage and an example of a life well lived. A picture is worth a thousand words, and how we conduct ourselves is more impactful to children than what we say. The amount of work it takes to build a successful family can be overwhelming and complex. Our family advisors at Living Well will help coach you to a more harmonious home-life through intentional family meetings, marriage retreats, establishing a family foundation, and creating a family book that helps you discover the treasures sometimes buried inside those closest to you.
*2015 U.S. TRUST INSIGHTS ON WEALTH AND WORTH® (http://www.ustrust.com/publish/content/application/pdf/GWMOL/USTp_AR3FPDKC_2016-05.pdf)