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Investment Planning |
How to Preserve Your Family's Wealth and Values
SFMOMA's exhibit "The Stein's Collect: Matisse, Picasso and the Parisian Avant-Garde" showcases the art collection of writer Gertrude Stein and her siblings. Woven into the beautiful and rare works of art is a story with universal truths. Gertrude's brother Michael expanded and then sold the family's successful San Francisco streetcar business. The family then moved to Paris, where Michael and his wife, Sarah, became art collectors and patrons of Matisse. Their only son, Allan, later had his own son, Daniel. As the third generation from the wealth-generator, Daniel spent his family's fortune betting—and losing—on horses. Although Sarah Stein wanted to keep her collection intact, toward the end of her life she started selling pieces to support her grandson's gambling habit.
The Problem
Most families cannot preserve wealth for the very long term. This universal phenomenon is epitomized in the proverb "shirtsleeves to shirtsleeves in three generations." Long-term wealth preservation for more than 100 years, or for at least four generations, is a question of human behavior, which cannot be changed by perfect financial or estate plans. A family's assets are not just stocks, bonds, and real estate, but also the intelligence and values of individual family members. A family's financial capital is a tool to support the growth of its human and intellectual capital.
The sudden receipt of money without meaning only magnifies the personal weaknesses that all of us have, no matter our station in life. A surprising fact is that 9 out of 10 inheritance plans fail.
Why can't most families avoid the curse of too much inheritance?
A Solution
Research by James E. Hughes, Jr., shows that a family can successfully preserve its wealth by deciding upon shared values, creating a system of representative government (family meetings with all family members in attendance), and actively practicing the shared values of each family member. Each successive generation must reaffirm its participation in the family's system of governance. The mission of family governance is to enhance each member's pursuit of happiness. Permitting everyone in the family to pursue his or her passion while expressing the family's shared values allows the family's total wealth—human, intellectual, and financial—to become enhanced and solidified.
Success Stories
While 90% of wealthy families will not pass on their wealth to the fourth generation, two families who beat the odds stand out.
The Rockefeller family personifies success by holding onto its family dynasty for more than 140 years. This success has been credited to tireless efforts to forge family unity, even as siblings went their own directions. Also key was the high value that the patriarch of each generation placed on regular family meetings. According to Wikipedia, "Family links are solidified through the practice of ritualized family meetings…which started with the regular 'brothers' meetings,' beginning in 1945. Family get-togethers are held…in June (the 'cousins weekend') and December of each year."
Another successful family is the Rothschild clan of Europe. Meyer A. Rothschild, the family patriarch, was the founder of the Rothschild international banking dynasty, the most successful family business in history. Meyer diversified the family's financial capital by providing loans to each of his five sons. He diversified the family's human capital by sending each son to a different European city to set up banking operations. His sons also had the opportunity to pursue their own passions in their respective cities—Frankfort, Vienna, Naples, London, and Paris—and the family's intellectual capital was enriched when the sons shared information, as they carried on their respective banking businesses. While political and historical events wiped out part of the family during WWII, today, more than 250 years later, in addition to banking, the family has diversified into wineries, publishing (the British Weekly The Economist), and mining. The family governance system has solidified this family's long-standing place in the world.
Closing Thoughts
While you may not have the wealth of the Rockefellers, knowing the secrets of how to pass along your values may assist your family and loved ones with lifetime financial security, confidence, and happiness. Only through the intersection of human capital, intellectual capital, and financial capital can a family have a chance at beating the low odds of preserving its wealth.
Love and money are only part of the puzzle. Wise nurturing is needed for happiness. Below are a few things you can do to get started along this journey.
- Create an ethical will or legacy letter to share your values and hopes with your family, friends, and community.
- Encourage the individual passions of family members, even if they diverge from the family's tradition.
- Hold regular family meetings at least once a year, with every family member in attendance. At each meeting, reaffirm the family's unique passions, goals, and values.
- Discuss finances openly and honestly. If minor children are involved, you can wait until they are emotionally ready.
These are great habits to adopt even if you don't have children or wealth to pass on to heirs. Being honest with yourself about your finances and how money helps you to enjoy your passions can lead to a fuller life and a healthier attitude toward the money you do have.
Tips Disclaimer
These tips contain information that may change over time as a result of new tax legislation. Although we make efforts to keep this information current, you should check with your tax advisor before taking action based upon any information contained in these tips.