Time to Read: 8 Minutes

Once you’ve built wealth, the focus often turns to asset protection and tax reduction. We’ve developed an expanded point of view, based on our work with families that have been successful leveraging their wealth to create personal fulfillment and stronger family bonds. They key is that they are intentional in building communication strategies and implementing wealth-planning techniques that serve their defining values through multiple generations.

These families are each unique, but they share some core principals of communication to best position individual family members for success. We have broken these principles of action into six categories for clarification and distinction: Connect, Cultivate, Communicate, Conditions, Care and Conserve.

In addition, we have added Collaborate to express the impact that professional advisors, like BWM Financial, can have in developing and maintaining the scaffolding of family connection to position each generation for success.

Connect: Families that have been successful in working through the unique challenges that wealth creates ensure that they intentionally connect with one another.

They set a specific time aside for family meetings on a defined schedule. These meetings have a specific purpose, with a set agenda, so each family member understands the importance of the topics to be covered. The tone of meeting is that of a family gathering – but setting an agenda ensures that everyone recognizes that the meeting will address potentially weighty matters that may be difficult to discuss.

It should also be clear to each attendee that the meeting is a safe space to ask questions and speak openly. Part of creating this protected environment is establishing rules for conversation and discussion. At a minimum, it should be made clear that no one is to speak over the presenter or any other family member and that all conversations and comments are confidential.

There may also be requirements to provide feedback. This can be especially important if certain family members are reticent to speak or if others tend to hold court too long. It can also help to engage younger generations who might not feel comfortable providing feedback without a specified venue or timeframe.

It’s important to minimize the invitation list for these meetings, especially initially. Indirectly-related people can be vital parts of our lives, but it is usually best to restrict initial meetings to family members. A smaller audience improves the chances that family members will provide honest feedback.

These meetings may be difficult to structure at first. Utilizing an objective advisor to help coordinate the process, set the agenda and perhaps host the initial gathering can help get over the practical and emotional hurdles that may arise. At BWM, we have experience in hosting these family conclaves and have created multiple agendas to drive successful discussions.

Cultivate: Families that prioritize the context and support necessary to cultivate the growth and maturity of each successive generation see better outcomes

Senior generations provide the compelling context of how they and, perhaps, the generations before them have been successful in creating and protecting the family’s wealth. They set aside specific time in those family meetings and in other venues to discuss the behaviors that led to their achievements. They discuss the lessons they have learned and the mistakes that they made. And in sharing this honest history, they humanize the narrative.

This process makes clear that there were struggles and difficulties in attaining such success. We can focus on the principals that acted as the polestar helping to navigate the previous generations through troubled times. The message is often that those before did not achieve because of super-human intellect or entrepreneurial brilliance. They achieved because of the adherence to foundational principals and their core beliefs.

Successful families also know that today’s environment is different. Society is evolving quickly. If we fail to acknowledge that, we risk losing the younger generation to a belief that these lessons are antiquated and inapplicable to their lives. But successful families know that core principals apply today in the same way they did 20 years ago and a century ago.

Those core principles should be further expressed in a Family Mission Statement. There are several great resources to help structure the process for drafting these documents. But it begins with identifying the family’s core values. List as many things as you can all think of that could be considered a core principle. They can be general and may include things like honesty, compassion, integrity, discipline and service, to name a few. Or they can be very specific such as protecting a certain stretch of land or providing opportunities for a specific community. Together, the family can then agree which of these values qualify as the timeless, navigational markers they wish to memorialize in the mission statement.

We have outlines and drafts for Family Mission statements and other family governance documents at BWM that help our clients think through these concepts and, as importantly, ensure that our clients do not have to begin from scratch.

Communicate: Families that have been successful in preserving affluence for generations communicate openly about the wealth and their plans for that wealth.

It can be initially uncomfortable for anyone to discuss finances with a young adult family member. There is often a fear that they will be disincentivized to become successful themselves if they have transparency regarding the family’s wealth. That is why this conversation occurs in concert with a discussion regarding the expectation the family has for each of its individual members to live up to the core principles discussed earlier.

By defining the family’s values in their mission statement, the senior generation is poised to express how those values are expected to manifest in each family member’s actions. This should include a good discussion of what level of personal development and productivity is expected in each phase of life. Everyone can participate in describing the kinds of activities that cohere to the mission statement.

These activities usually include education which can be both formally and informally structured. It also often includes certain expectations of employment or other indicators of becoming a productive member of society. There could be a focus on entrepreneurialism or maybe on providing support to various philanthropic causes. While adherence to the family values is expected, we should also be careful to provide for individuality. If there are various examples of family members who achieved success by taking different paths, this would be a great time to discuss them.

With the expectations set, the family is positioned to discuss the components of its wealth and the plan for the future. This conversation is obviously different for each family, depends on age and maturity, and it can be very specific or more general. But it is imperative that the overall structure is understood by everyone. The purpose of this phase is to stop the guessing and speculating that inevitably happens prior to these discussions.

Depending on each member’s financial acumen, the senior generation should explain the various assets, financial structures and estate planning techniques that are in place. The discussion should explain the purpose of each and the intentions and concerns that may have influenced their creation. It’s important to focus on the flexible nature of these plans and allow ample time for conversation. Particularly in a first discussion, and if the ground has been prepared for everyone to speak freely, there may be a lot of questions.

Having an objective advisor handle some of these descriptions can alleviate the duty for the senior generation allowing them to provide their input regarding the intentions during this discussion rather than doing all the educating.

Conditions: Most families place some conditions on accessing wealth in the next generation.

While some families do make essentially outright distributions to family members, this has become far less common because of the desire to protect the family member from themselves and to protect the family wealth from others. The technical aspects of any protection strategies can be reviewed at a different time, but the general conditions should be made very clear to everyone.

Each family chooses to handle this differently. There is usually a concern that too much access creates will create individuals who are incapable of becoming productive members of society. On the other hand, there is a concern that adding too many restrictions will frustrate growth or impose unnecessary hardships. But a decision must be made regarding the acceptable uses of the family’s wealth.

As mentioned before, education is usually an important component of what families value, and providing financial support for education is one of the most common conditions for the use of wealth. This may also include restricting access to wealth until a certain amount of educational achievement is attained.

Many families also focus on issues like incentivizing entrepreneurial risk, home purchases and other specific investment concepts. Providing wealth for these purposes can be done through outright distributions, from loans that are to be repaid or some combination of both. Specific experiences such as travel or others that create family unity may be favored.

Families frequently value the use of funds to bring family members back together. It is not unusual to have a family vacation home alongside a substantial account set aside to pay for upkeep and travel expenses for regular gatherings. This can be the venue for a family retreat where these regular meetings occur.

Of course, some behaviors can be disincentivized. There may be a restriction whenever signs of gambling, addiction or other vice exists.

Care: Successful families with significant wealth almost all have a structured philanthropic process that encourages family member involvement.

Meaningful funds are set aside by these families for charitable purposes. This is often in the form of a family foundation, but other techniques are available as well. Coordinating the family’s philanthropic decision-making process brings the involved family members together and builds relationships.

Within these structures, family members collectively decide on which causes they intend to support and the timeframe for that aid. In addition, they must discuss the most effective way of providing that support, such as giving to a charity’s general fund, supporting a specific initiative, providing an endowment, etc.

This can be especially impactful for younger family members and can provide an insightful financial education. Working with the private foundation gives younger individuals, with the mentoring of others, the opportunity to work with a budget and be selective regarding the various causes they choose to support. These family members learn the process for making difficult decisions with limited resources. They also learn to be effective with the funds by performing due diligence before making any major contributions. They learn to investigate a charity’s history, its use of donated money in the past as well as the impact it has had for the specific cause.

They receive an administrative education too, which can be every bit as valuable. These family members are exposed to the basics of bookkeeping and accounting. They also have to interact with attorneys, CPAs and other professional advisors to maintain appropriate documentation and accomplish the required tax reporting.

Conserve: Finally, these successful families put the technical structures in place to conserve and protect family wealth. When protecting assets for generations, there are concerns about maintaining growth, avoiding creditors and reducing taxes where possible.

Wealth-planning techniques, such as business entities and trusts, are often used and provide individual family members their “share” of the wealth without dividing up the underlying assets and investments. They provide a level of family governance over the investment decision making process.

These structures also protect the wealth from claims against individual family members and keep the assets from becoming marital (or community) property subject to division upon divorce.

Further, many of these strategies provide a tremendous tax savings when transitioning wealth from one generation to the next. Without planning, a senior family member’s estate would owe 40% (under current law) of all assets above the estate tax exemption to the IRS upon death. Many of these wealth-planning strategies have the effect of removing assets from the decedent’s taxable estate. The goal of others is to reduce the value of what remains in the estate to reduce the corresponding estate tax bill.

There are benefits to almost all families in coordinating the management of the family wealth with a generational time-horizon in mind, regardless of the specific concerns the family may have for the moment. The strategies can be complex, and creating a comprehensive plan that balances achieving goals with protection and tax savings can benefit from an objective advisor who can carry the instructional weight while the senior generation provides context to the family.

Collaborate: Professional advisors have the experience and the objectivity to help families with each of these principles of action.

At BWM, we help facilitate the approaches described in this paper through our BWM Family Dynamics Blueprint. Our blueprint takes families through a process of collaboration that fosters the open communication and value definition that is so crucial, positioning the families we work with to be successful in protecting and growing wealth for generations.

Maintaining family wealth while creating accomplished and fulfilled family members can be a difficult task. But if those families are willing to communicate openly and define specific processes for expressing their ongoing values, they can position each generation for success. Families that do this well over generations focus on the connection they want to create and maintain, provide direction for each generation and allow for individual independence while working within the family’s overarching ethos.

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Investment advice offered through Stratos Wealth Partners, Ltd., a Registered Investment Advisor DBA Brown Wealth Management.  The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. Stratos Wealth Partners and its affiliates do not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.