For many business owners, the idea of wealth preservation means providing for a comfortable lifestyle during their retirement and passing a legacy to the next generation.
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However, what about business owners who have amassed significant wealth to potentially sustain multiple generations? Is the path to traditional financial independence vastly different from the path to dynastic wealth? Truth be told, they are not as different as you might think.
As you are preparing to pass wealth to the next generation, be aware that oftentimes when individuals acquire wealth they did not personally have a hand in creating, they can experience a range of emotions, whether it be a lack of appreciation, obligation to preserve funds, etc. Preparing individuals in the family for these complex feelings they may inherit along with their wealth is vital to the preservation of wealth. Involving all family members from an early age is the best preparation you can provide as you focus on transferring wealth down through multiple generations.
A fantastic tool to involve family members and help individuals learn about long-term wealth preservation is the legacy of philanthropy. Family foundations unite the generations under a common vision, and allow the family to pass on its values to the next generation.
This is also an excellent way to reach the youngest members of the family. Providing children with a small sum of money and allowing them to figure out a way to help someone with those funds is a vehicle for instilling the philanthropic value at the start. As younger individuals demonstrate progress in their understanding and judgment, they can be given more responsibility within the foundation. You will also begin to notice strengths and weaknesses of each individual involved in the process. As these are identified, the roles and responsibilities of individuals can be adjusted to help develop their unique intellectual wealth, which will foster greater human wealth.
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Mentor and Keep Communication Open
Families may find it beneficial to begin a mentoring program between generations. As younger generations work with a mentor, they will learn how to make decisions and effectively communicate, all while being allowed to make mistakes and learn in a controlled environment.
The establishment and maintenance of a mentoring program will vary depending on the number and ages of family members as time progresses. As a general rule, you want to match a younger individual with someone who is not too far removed from the tasks the younger member will be facing. In addition to providing more relevant assistance, as they have been in their shoes in the not too distant past, their proximity in age will allow for more open communication.
All family members must be allowed to express themselves in a safe environment and feel their unique contributions will make a difference to the family. Not everyone is meant to be involved in the family business in the traditional sense, and if people feel this is the only way to contribute to the family, you will have a lot of unhappy individuals wasting their talents that could be used to contribute to the family in other ways. Open communication is essential to maintaining a strong family unit through the generations. Many wealthy families often hire a consultant to facilitate these discussions.
Another important tool for preserving wealth through multiple generations is a family constitution. Just as you have a strategic plan to help your business reach its goals, a successful family also needs clearly-defined steps for building and sustaining its wealth.
Begin with your family mission and values. This will serve to unite all family members toward a common goal. You will also need to outline a system for joint decision making. You should define how family members are going to share information, discuss issues, make decisions, and resolve conflicts. Consider establishing a formal entity to deal with any conflicts that might arise. You could utilize a board of directors that votes on behalf of family members, a partnership with voting and non-voting shares, or an operating agreement. It is important to remember that your family constitution is designed to provide a fair process for making joint decisions as a family.
Preserving wealth through several generations requires a focus beyond just the dollars. Strong individuals within a solid structure will help you toward your goal of dynastic wealth.
Tiffany VanHook is a managing advisor at BKD Wealth Advisors, a wealth management firm with $2 billion in AUM. VanHook is based in Indianapolis, IN.