Why the family mission matters

Wealth owners today have their work cut out for them, as they look at ways to navigate the complexities of intergenerational wealth transition. They have to think about how to develop robust family governance systems, fulfil philanthropic aspirations and also put in place the appropriate wealth structures that are instrumental in preserving the family legacy.

Some of the common considerations that keep these wealth owners up at night include passing on their wealth in a seamless manner, finding purpose with their wealth, keeping harmony within the family, and ensuring that the future  generations benefit from their wealth in a clear and structured way without falling into the entitlement trap.

Today, wealth transfer can be achieved in numerous ways. The simplest method is by way of a will. This is all well and good if everyone in the family gets along and assets are simple enough with no unexpected complications. In reality, we have seen how families air long-held hostilities out in public as they battle over their inheritance and estate after the wealth owners are gone. However, a will alone may not be the best option for every family, particularly if one has assets in multiple jurisdictions. This could result in additional costs and undue delay in the distribution process, notwithstanding a lengthy legal battle if the will was further challenged.

Some families may contemplate setting up trusts as well, a private legal arrangement where the ownership of assets belonging to an individual is transferred to a trustee to look after and used to benefit a group of people. Unlike a will, assets settled into trust can provide greater protection against legal action, while also mitigating any complex private international law issues that can arise when dealing with assets in multiple jurisdictions. However, there have been cases where even trust structures failed to preserve family unity.

Navigating the delicate dynamics of intergenerational wealth transfers

Research shows that 70% of intergenerational wealth transfers are bound for failure; interestingly, none of which could be blamed on poor legal preparation, inadequate financial advice or improper tax preparation. Rather, they are largely caused by a breakdown of communication and trust within the family. In order for family wealth to survive beyond three generations, all generations need to be educated and communicate with each other about the various dimensions of the family’s wealth.

Traditionally, the focus of wealth owners is on material wealth or assets that have monetary value. However, not enough time is spent discussing the intangible assets such as family values and the family’s vision for the future. It is important to identify the family’s mission as well as a strategy to achieve it, as this acts like a compass that will guide the family on the right path.

Many families struggle with how and when to have conversations about money and wealth. One of the best ways is for the older generations to share the history about how the family wealth was created. These important conversations provide guidance and focus on the issues that are core to the family members. The key takeaway is that every family member – from each generation – wants to feel included, understood, respected and valued in the
process.

Family governance, in essence, is the way families organize themselves and how they interact with each other, engaging in family-related, financially-related and ownership-related discussions.

Every family’s governance system will vary –shaped by unique circumstances and dynamics, and each family needs to work at creating its tailor-made family governance model. Their model will define the roles and responsibilities of family members, and how they relate to their wealth and business.

It is especially important to put down in writing the family governance rules, protocols, procedures and agreements, as it would not be as effective to simply rely on informal understanding. This written document is commonly known as a family constitution, family charter, or such.

In fact, the final document itself will be just as critical as the trust-building process, i.e. the collaborative exploration, through which the family constitution was put together. The process of getting everyone together, going through interviews, starting discussions about ‘taboo issues’, debating options, redrafting difficult points and learning to understand other family members’ points of view can be invaluable.

Philanthropy aids wealth transfer with a common cause

One of the most powerful and meaningful ways to engage family members is through philanthropy. Typically, families support causes they are passionate about by giving their time, leadership and financial support. For instance, finding a cause that resonates with younger family members such as climate change or saving endangered animals.

Having a conversation with them about what they believe, how they would like to help and how they can make an impact provides a platform for all generations to connect and pass on the shared family values.

This is especially important for those family members who may not be interested in the business side of things or commercially inclined. It would be interesting for the younger family members to be given freedom to direct a portion of the family’s giving and, in the process, learn accountability, important presentation and decision-making skills, and the value of money, governance and stewardship in a non-threatening yet combative environment.

Most wealth owners are looking to establish a more structured way of managing their wealth as they prepare to pass down their family businesses and wealth to the next generation. This involves carefully identifying the causes they would like to support and passing on a legacy that reflects the values close to their hearts. With a structured approach, wealth owners are more likely to be able to create a sustainable impact by using their wealth for social and environmental good, making the world a better place for future generations.