It is said that wealth cannot last for more than three generations. That is because it introduces a complicated family dynamic, and inherited wealth can diminish the motivation, ambition, and drive of later generations. What is important is not only the desire to pass wealth on to future generations but to do so in a holistic way that passes along values needed to lead a meaningful and productive life along with the wealth and opportunity it brings.
These family-centric, value-based conversations across generations are difficult but important to have. Doing so will avoid, if not altogether eliminate, feelings of resentment or dissatisfaction, thereby minimizing the possibility that your estate plan will be challenged by litigation, eroding the hard-earned wealth and legacy you spent your life amassing. Following are some important things to think about when you are creating a family legacy.
Pass On Your History
The best legacy is not a bank ledger but stories and story-telling. The passing of the last member of any generation closes the door to discovering those valuable – indeed, priceless -- assets. If you don’t know where you have come from and where you have been, you cannot understand who you are and where you should be going. Some families manage to pass on their values to subsequent generations, and some do not. Knowing your own personal history maximizes the possibility of later generations being engaged, satisfied, and purposeful in their life goals.
Build a Methodology--and a Mission Statement--to Manage Conflict
Wealthy or not, all families risk conflict. It is critical to have a methodology in place to help families make decisions, discuss disagreement in a productive way, and resolve conflict. The principal goal of a family governance should be to encourage and perpetuate the continuation of a family’s vision with a view toward making it more likely that decisions will not be challenged and respected over time. A family – whether a family business or not – should be treated as a business, complete with a mission statement that every family member can ratify and fulfill. This becomes a guidepost for whether all generations are moving along the right course. Again, making decisions together as a family helps prevent discord and minimize the potential for costly litigation that can divert family assets. Continuous communication is key.
Consider the Psychology of Wealth
Many conflicts arise because of money. There are key issues that lie at the heart of any family struggling to pass on wealth, either through family businesses or outright, and how to prepare the next generation for handling and managing those assets:
Discuss the Reasons for Philanthropy
- Are the individuals honest about money?
- Are they motivated?
- How do you relegate power and control?
- How to transition the increasing responsibilities and complications associated with having money?
- How to empower future generations to make a meaningful contribution to society.
There is nothing more satisfying than knowing that you have amassed sufficient wealth to not only provide for your loved ones but also to help those less fortunate. Philanthropy should be tailored to one’s own identity and value system. As with a plan for leaving a legacy, a philanthropic plan should be formed much like a business plan. This can be an opportunity for family members to bond through working together toward a common goal. Families can start by collectively answering a few simple questions:
- What is the objective?
- Why are we doing this?
- What do we want to achieve?
The philanthropic plan should include a mission, objectives, and accountability mechanisms. The implementation of the mission may be not only through monetary contributions but through committed activism, volunteering, and the contribution of other efforts. This simple opportunity to participate in an activity as a family can pay dividends beyond mere monetary benefits. The family members over time will feel that hey have made an impact both individually and collectively, and feel a personal connection with each other that minimizes the risk for conflict and discord.
Start by asking yourself some important questions before you set out to create your family legacy.
- What do you want to communicate to the next generation?
- At what point are you OK with “letting go”?
- How do you want to create motiviation and strength in your children and grandchildren?
- When will it be time to reduce your involvement and pass on control of the business or management of the wealth or trust?
In short, creating a legacy is not only through your bank accounts but through values, words, deeds, and action. This is a goal worth not only your money but your time and emotional investment.