The Importance of Clarifying Values in a Family Wealth Plan

This piece by Dr. James Grubman and Dr. Dennis Jaffe, is one of the many thought-provoking guest essays originally featured in my new book, ‘Family Wealth Management – 7 Imperatives for Successful Investing in the New World Order’, available on Amazon (http://amzn.com/0470824298).Families successful in creating wealth rarely pause to step back and think about what the wealth means or can accomplish for them as a family, now and in the future. There is a golden opportunity to look inward at these questions when the family revises its wealth planning, whether proactively upgrading its wealth management services or in having to react under time pressure to a stressful change in generational leadership. Too often, families begin with technical questions about tax planning, portfolio management, estate planning, and the like. Yet, the best planning occurs when the family anchors itself in knowing the purpose and goals for their wealth.These are questions less about managing a portfolio’s value than about cultivating and preserving the family’s values. These questions cannot be answered by one person alone, but require engagement and dialogue within the family where members likely hold different values and experiences.There are two main reasons why a family must ensure that its wealth management is integrated with its values. The first is that families of wealth must learn how to work together in the sharing of assets. Most successful families originally come from modest financial circumstances, arising from working- or middle-class lives to make the journey to wealth. Their values, skills, and culture stem from the much less affluent world from which they emerged. Financial resources were typically scarce, with most decisions based on the needs of individuals or nuclear families.In new circumstances where resources are abundant and blended across generations or family branches, the family as a whole must learn new decision-making skills and strategies. This requires a process for open sharing of differences that can lead to resolution of problems, rather than bitterness or estrangement. The adult children must be included in this dialogue, as they have their own perspectives on wealth, what wealth can do, and the direction of their futures. Working together on sharing assets amicably and effectively means the family must know its culture and its values. Otherwise, risk to the family grows over time from excessive conflict or unresolved differences.The second reason is that affluent families must learn how to raise the next generation responsibly with wealth. Wise parenting and grandparenting with wealth requires adapting the family’s middle-class orientation to add new strategies where solid values are taught and demonstrated. These are crucial for raising responsible, strong, and purposeful children and grandchildren.Research has demonstrated that families must do the following:

• Communicate effectively about money and wealth, rather than stay silent or leave things to chance.
• Actively prepare the next generation with skills and knowledge for living with affluence.
• Develop clear agreements, policies, and procedures for working together to pass on assets and control across generations.

Most successful families, for example, hold regular family meetings where information can be discussed and pending issues figured out collaboratively. Family leaders relate the story of how the wealth was built, including the risks that were taken and how those risks were managed. In turn, they learn from their children who have become adults with their own families.The elder generation listens to the next generation’s life goals and plans, with a willingness to discuss how the family wealth can make a difference in the lives of everyone. The family also develops consistent, transparent policies so decisions about financial support, gifting, or the family business remain equitable over time. Effective,clear communication within the family; effective preparation of heirs as good stewards of wealth; and effective processes for governing the family justly are the core processes. Taking the time to develop these processes ensures the successful transfer of wealth, whether through inheritance, lifetime transfers, or both.Few families who come to wealth have been prepared for these tasks. They often don’t know these new strategies are even necessary. Truly successful wealth management is best when grounded in the family’s very nature—its story, its culture, its values. Those families who make the effort to know themselves can develop a wealth plan that is thoughtful, integrated, fair, and deeply satisfying. By investing in this process seriously, they plan well and develop responsible communication and decision making.Values-based wealth planning then leads to the most wonderful payoff: family members who can manage the power of wealth and use it effectively for themselves and for society.