Few people like to discuss their impending passing and many, regardless of the size of their estate, refuse to make appropriate plans. A main reason for this involves the need to overcome psychological roadblocks in order to face one’s own demise and the challenging tasks of determining one’s wishes, creating appropriate vehicles, choosing the best time to move substantial assets to the next generation and discussing all of these matters with loved ones.
Estate planners know how to help clients minimize taxes and how to create trusts and other entities that preserve and, hopefully, enhance the family’s wealth. But many of them are not trained in psychology or family dynamics. Discussing the impact of their recommendations on various family members, or the family at large, may erupt into family feuds and hostilities.
Emotional issues—past resentments, hurts, disappointments, fears of not being able to control the future, guilt —all rise to the surface. On top of this we add the complexity of family dynamics. Our decisions about what we give to each of our children and grandchildren are colored by the way our parents and grandparents dealt with inheritance, and the feelings of fairness (or lack thereof) that arose from those transactions.
Doing it the right way
To get where you want to go, it helps to know where you want to go! What are the family values? Do the different generations have different values? How do the family’s financial values relate to their overall values? What kind of estate plan reinforces the best values of the older generation and the wishes of the next? Perhaps most important, can all this be discussed?
More and more families today are proactively creating goals and structures to sustain wealth and values over generations. This topic is beautifully addressed by James E. Hughes Jr. in Family: The Compact Among Generations and Family Wealth: Keeping It in the Family, and by Roy Williams and Vic Preisser in Preparing Heirs: Five Steps to a Successful Transition of Family Wealth and Values.
It’s very important to create a process of open communication that enables the family to work together to define their goals and values and create a structure to achieve them. This is more difficult than it may seem. It requires not only an investment of money and time, but also a commitment to the process. The steps often look something like this:
1. Understanding the family’s legacy. The elders recount their history, identifying critical events that shaped their values.
2. Writing a family mission statement. Much has already been written about this. It is important for all family members to participate.
3. Creating a statement of core values. It’s often most helpful for a family to begin with an overall statement of core values before facing the more difficult values pertaining to money.
4. Developing a family vision. What kind of family do we want to be in 20 years? How will we deal with some family branches living far away? How do we integrate spouses and stepchildren?
5. Writing a wealth mission and vision statement. The wealth mission statement defines the purpose of money for the individual and the family. The vision forces the family to look at their financial growth goals and structures the family’s wealth strategy, including what components of their wealth will be distributed and what held together for philanthropy and shared business ventures.
6. Creating the estate plan and governance structure. At this point, most families are ready to face the issue of estate planning. Families who are clear about their goals and initial governance structure can discuss issues of inheritance and estate planning vehicles in a rational way. I strongly encourage senior-generation members to share their thinking with the next generation—in fact, the plan should emerge from a dialogue between the generations.
7. Transition and implementation. After you have successfully completed the above, this part becomes relatively simple! A family council, family protocol/constitution and family office are useful structures.
Input from all generations
Here’s how one family created an estate plan that would reflect their family’s values. The parents began with the following questions:
• What are the family’s values concerning money? What are the “right” values?
• Will our family follow so many in going from rags to riches back to rags in three -generations?
• What can we do not only to increase the probability of financial success, but also to help each child and grandchild to follow the best values of the family?
They called a family meeting in which they shared openly their fears and hopes for the family. They said, “We know the time of our leadership is almost over. We don’t wish to control you, but we do not believe you have resolved one of the key issues of family business leadership. We don’t think you understand the purpose of money.” They asked their children and grandchildren the following questions:
• Is money important? Why?
• How does money affect your character positively?
• How does money affect your character negatively?
• If our family increases our financial wealth, does that help society? Does that help each of you individually? Does that help our family?
• Can you trust one another in working and owning assets together?
• Are your values concerning money and business in alignment with each other?
Here are some of the responses:
• A college student said, “Money is important because I’m getting a college education—and the profits from the business are paying for it.”
• “We’ve rarely enjoyed our wealth. We are seen as wealthy by the community. But most of our capital is reinvested in the business. Now we have quite a substantial business. But are we wealthy? I’m not sure. Certainly we have many assets, and on paper we look good. But we are so driven to succeed, to make more money. The pressure is great and at times the rewards feel barely worth it. I want more quality time with my children. I want to us to use our wealth wisely—to help our country and our community and to support education.”
• “What is the purpose of money? If it’s just to grow, it could become like a cancer, which would kill us. Is it to just enjoy—say, by taking a trip? Perhaps we need a foundation—one that champions our highest values.”
• “Perhaps money has no purpose. After all, it is just a means to an end. What is the end?”
Each generation took a moment to begin looking at their values. In generational group discussions, they came up with the following:
• The first generation said: “Our values are building character through hard work, business success and community development.”
• The second generation said: “Our values are family first, business second. We must find a way to balance our business needs with personal and family development.”
• The third generation said: “We love toys but know that life is not about owning a bigger boat. So we want to make lots of money, we want to play with lots of money and, Grandpa, we do want you to be proud of us.”
At the last meeting the parents said: “We are committed to turning over all our assets this year if you as a group can come up with a plan that maximizes your individual and collective hopes and dreams. We are looking forward to your proposal.
“What will make us proud? Perhaps this is one of the key questions. What makes each of us proud of ourselves and each other in this family? Are we as individuals and a family acting in ways that are in alignment with our highest values? Is our wealth promoting this? As a family are we finding ways to enrich and support each person’s unique strengths and contributions?”
I believe families must find ways to use their financial resources in ways that support their values. Money, like love, can be used positive or negatively. It can be used to control, coerce or manipulate, or it can be used to enrich not only the person but also the community and nation. Carefully articulating the family’s values, and building an estate plan that reflects them, can help the family sustain not only its financial wealth but also its social, spiritual and intellectual capital.
Marc A. Silverman, Ph.D., president of Strategic Initiatives Inc., is a family business consultant specializing in family wealth preservation (www.sii-inc.net).