Using Wealth to Strengthen Families

 

Why traditional financial and estate planning alone doesn’t work

Traditional financial and estate planning has focused on the acquisition, protection, optimization and transfer of financial assets.  It strives to divide those assets and maximize the value transferred to children, grandchildren and charitable beneficiaries.  Sadly, it gives very little consideration to the non-financial and non-tax aspects of wealth preservation and transfer planning.  The recipients of family wealth are often ill-prepared to manage the newly acquired assets, and the wealth that took a life time to create can quickly dissipate and disappear.

Even more tragically, dividing money and assets too often ends up dividing the family. In the recent congressional debate over the need for estate and inheritance taxes, it was recorded that the estate-planning industry has done more to destroy the American family than taxes ever will.  Just as in family businesses, family conflict and unprepared successor leadership are more potent wealth redistribution factors than any other equalizers, including taxes and business and market forces.

The way that money is handled – even the way it is thought about in the planning process – makes enemies out of parents and children and pits one child against another in classic sibling rivalry.  This damage is often exacerbated by decades old misunderstandings, festering childhood resentments, and institutionalized conflicts and disagreements about business, investments, charitable contributions, money and possessions.  The traditional method of planning also brings into focus one of the major fears of affluent individuals– having their wealth ruin their children.  

Research shows that the normal approach to estate planning used by lawyers, accountants, financial planners and other advisors has accomplished little to address these risks. However, if this issue is thoughtfully raised as part of the planning process, affluent families come to realize that their children and grandchildren need to develop their ability to lead and become capable stewards of their family’s wealth, to manage, understand and build additional wealth and value through both entrepreneurial and philanthropic enterprises. If they don’t assume these responsibilities, the family’s financial future will be shaky at best.

Estate planning without an ongoing system of adjustments and family preparation is like a ship's crew that declares its voyage a success as soon as it leaves port.  While we can set our children and grandchildren up for life, with financial assets that theoretically provide them with financial security and remove all money worries from their lives, we may not be able to give them the experience of building something of their own.  In our desire to provide our families with financial security, we often deny them the experience of the hardship and hunger and the sheer fulfillment and satisfaction that comes with building a successful enterprise.  As a result of not having to provide for themselves, we never give them the intense satisfaction of taking responsibility for their own education, for accumulating their own home down payments or for learning the discipline necessary to save and invest.  We deny them the experience of self-esteem and self-respect that comes from making it on one's own.  Family financial wealth becomes an obstacle and a burden, rather than an aid and support to the family's continued enjoyment and fulfillment. Ideally, it should be the intention of every first-generation wealth creator to honor and nourish that same opportunity of discovery, trial and error and development for every family member. The objective is to discover and then nurture each person's unique gifts and abilities (their niche, so to speak) so that the person will not only survive, but also thrive. In the absence of this examination and preparation, we inevitably accelerate the very dysfunction that causes that dissipation of family wealth.

A new way of planning that acknowledges a family’s “Real Wealth”

Before now, there have been no clearly defined systems that integrate and optimize the dynamic nature of all of the family assets – not just the financial assets. A family’s “real wealth” includes its intellectual, relational, personal, social and financial capital.  Each of these components must be addressed and coordinated with the others.

Instead of focusing exclusively on succession planning for a family business, the focus is on transition planning for the “business of the family.” To achieve this new, family centered future, the family takes a series of practical steps to make themselves psychologically smart. Becoming psychologically smart may include disciplines from organizational communication (the application of the language of commitment and ontological design), system dynamics and behavioral finance (the application of cognitive and behavioral psychology to financial decisions). This approach acknowledges that families operate essentially as complex business and social systems, and require an ongoing investment of time and expertise to manage them.

The result of paying attention to all aspects of the business of the family is profound. The underlying objective of this new form of planning is to maximize the health, happiness, and well-being of each family member.  The experience begins with acknowledging the family’s history and recognizing and owning each member’s current relationships with each other, airing withheld communications, and honestly recognizing leadership and management abilities.  The family identifies its default future (that which will obtain unless something unexpected occurs) and determines whether that probable future is acceptable.  

After clearing the canvas of the current default future, the family then begins to paint a new desired future. The process facilitates the family’s understanding of the role that each type of wealth plays in the enrichment of the family, from the perspective of each family member’s health, happiness and well-being.

Affluent families are organizations, in which psychological and social obstacles to sound decision-making are the source of failed wealth management and transition plans. Behaviorally sound families deliberately structure their cultures and communications to recognize and clear these obstacles.