How to Plan for the Intentional Use of Wealth

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Asset Management, Trends, Wealth Management  |  January 24, 2019  |  
Mike Sanders

For many families, the true value of money is in the shared value it can create for society by leveraging their gifts to leave the world a better place.

Families of wealth can successfully maximize their financial capital across multiple generations along with the critical human and intellectual capital that will define the family, its values, and its legacy in perpetuity. The enduring principles followed by families securing their financial and emotional legacies are as valid today as they were centuries ago.

Yet, history also shows that, according to the Family Firm Institute of Brookline, Massachusetts, just one out of ten families achieve their legacy vision of asset preservation with intergenerational harmony.

Fighting the Tide of History

Sadly, for many of the nine out of ten families who fail to solidify their legacies, both their financial capital and human capital is depleted within just two generations. In most cases, it’s not due to a lack of financial planning with attention to the transfer of wealth; rather it is their inability to coalesce family members across multiple generations around a central, clearly defined vision. The resulting loss of wealth and the devastation of the core family, while tragic, pale in comparison to the lost opportunity for creating enduring, shared economic value for future generations and for society as a whole.

The record of failed generational transfers of wealth and the causes are well-documented and have been studied exhaustively by academia alongside the cases of successful multi-generational transfers. It is accepted doctrine that families that adhere to certain, essential principles, are more likely to succeed in creating a long-lasting legacy. However, the disconnect stems from the fact that these time-tested principles have yet to permeate the traditional practices of wealth managers and financial planners who tend to focus strictly on the financial aspects of wealth transfer.

Families hoping to affect a transition of values and tradition from one generation to the next must have the same structure of leadership and communications required of a business enterprise that wants to build a trust culture from top-down and bottom-up. In top performing companies, leadership creates a transparent atmosphere of trust and shared purpose by giving all employees equal access to the lines of communication while making them feel safe in expressing themselves. Successful families can do no less.

Planning for the Intentional Use of Wealth

That is why it is critical for families with legacy ambitions to have a well-conceived plan anchored by a strong vision of what they want to have happen. A strong vision incorporates the family’s values, its mission or purpose, its unique abilities, traditions and the principles that will guide future decisions.

Essentially, it requires planning well beyond the numbers to capture the true intent of a legacy and its meaning for every member of the family. Much of the upfront planning focuses on clarifying and solidifying the vision by answering some penetrating questions:

  • What values, beliefs and attitudes do you hold regarding family, health, security and service to others? Why are they important to you?
  • What would you want to be able to say about your family? What would you expect other people to say about your family?
  • What are your vivid and compelling wants, and why are they important to you?
  • What have you and your family done to create a shared, values-based vision of life?
  • How can you use your wealth to create the most shared economic value for your family, the children of your children, and your community?

More critically, the vision must be communicated and revisited often as it becomes the beacon that draws family members and generations together.  It forms the preamble of a family constitution that governs family decisions in matters of finance, administration, communication, life style, community; philanthropy, education, investments, as well as the family business.

The key to creating an enduring family constitution is the process in which all family members have a role and individual aspirations are set aside but respected. And, similar to our country’s constitution, it is ratified by affected family units and leaders within each generation. Only then, will it be fully embraced as the source of governance through transitions and the emergence of future generations.

Preparing the Family for the Intentional Use of Wealth

In a study conducted by researchers, Roy Williams and Vic Pressier, 3,200 families who suffered a failed wealth transfer were asked what they thought was the primary factor that contributed to their loss of wealth. More than 60 percent of the 3,200 respondents pointed to a lack of communication and trust and 25 percent blamed unprepared heirs for their failures. Only 3 percent faulted poor financial planning or investments. For these unfortunate families, hindsight is definitely 20/20. While it’s often possible to use hindsight to change an outcome, for transitioning families, there is rarely a second chance.

Establishing trust through clear and honest communication doesn’t happen overnight; it requires a structured approach, shared leadership, and accountability to the process – a fairly daunting endeavor for any family. Families that are intent on steering a course for success will make strict adherence to this principle their top priority, going to the extent of hiring a trained facilitator to help cement it into the family structure.

The principles for successfully maximizing the transfer of assets are well-defined and expertly applied by many wealth managers; however, the guiding principles for preparing family members and future generations for the emotional transfer of values and beliefs are often neglected. Family legacy planning focused on strategies is critical to ensure the intentional use of wealth and the perpetuation of a purposeful legacy.

Venturi Wealth Management: Austin Wealth Manager

 Venturi’s core mission is to help organize, plan, and manage all aspects of wealth for families and entrepreneurs with substantial assets and complex business and personal financial lives—so you can focus on doing the things that matter most to you. We manage more than $1 billion in assets, a significant portion in house, often eliminating additional layers of management fees. Founded in Austin, Texas, Venturi incorporates the city’s entrepreneurial energy into everything we do for our clients.

Partnering with the right people to help manage your financial livelihood is not a small step. The issues are complex. You may want to use an advisory firm to guide you through the process.

For more information, please contact Russ Norwood, CEO and founding partner at (512) 220-2040, or russ@venturiwealth.com; or Mike Sanders, President, at (512)220-2044 or msanders@venturiwealth.com

 

 


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