When I taught Family Business at University we covered an enormous amount of material related to the business as well as the family dynamic.  From newly formed businesses to NextGen to those already into the 6th and 7th generation.  We identified the usual suspect topics; governance, strategic planning, financial stewardship, exit planning, grooming the next generation, using boards and so on. 

One of the topics we didn’t cover as well as we might have had to do with the impact wealth and responsibility can have on successive generations ill prepared to shoulder it. 

I came across an article authored by Steve Legler that will serve as this week’s blog and wanted to share it with you.  Steve has been writing on topics of interest to family businesses for 5 years.  I hope you will find it as thought provoking as I did and if you are in the middle of these types of conversations with your advisors, then ask them about it.  See what they say.  You’ll be glad you did and if you have any questions, give us a call.

Steve's Title: Who Messes Up What, Or What Ruins Whom?

This week’s post is one that I’ve been looking forward to writing for a few weeks now, ever since I had lunch with a colleague and relayed this story to her.

It was her reaction that made me realize how simple and yet how powerful it really is.

Considering that I’ve been writing this weekly blog for over five years now, I can’t believe that I haven’t written about this yet.

Credit Where It’s Due

Before telling the story, I should note that I would love to give credit to the person who told the story when I first heard it, but I really have no clue who it was.

It would not surprise me to learn that it was during one of the weekly teleconferences of the Purposeful Planning Institute, because those calls have inspired many of these blogs.

In any event, it’s one of those stories that has probably been played out in various versions hundreds of times, all over the world.

So my version isn’t a true, “verbatim” recounting, but more like a parable.

I Worked Hard for All of This

A successful businessman is meeting with one of his trusted advisors, as he begins to think about how he’s going to deal with the considerable wealth he has built up.

He mentions how hard he’s had to work for what he now has, and then adds,

“And I don’t want my kids to screw it all up”.

This part of the story likely sounds pretty familiar to many professionals who work with clients who’ve built up large amounts of wealth.

It’s not unnatural for anyone to be concerned that the fruits of their labor might be squandered.

The Other Side of the Coin

Later in the discussion, likely in response to a question posed by the wise advisor, the man has a bit of an awakening, and says,

“But I don’t want all my wealth to screw up my kids, either”.

If you’ve read even a few of my blogs, you already know that this was the true “A-Ha” moment of the story for me.

The Bad News First

The bad news is that so many professionals who work for such wealthy clients are really only specialists in solving the first part of the problem.

Finding ways to create bulletproof structures to preserve wealth is nothing new for many specialists who pride themselves on how they can minimize taxes, and restrict how the wealth will be used by its intended beneficiaries.

Unfortunately, too many clients are too short-sighted to see that this will also produce many unwanted side effects for their family down the road.

Now the Good News  

The good news is that there are now more and more people who understand that only worrying about preparing the assets for the heirs leads to sub-optimal results.

And not only that but people are now also realizing that this is not a question of either worrying about preserving the wealth OR preserving the family and their relationships, it’s actually possible to do both.

It’s Not Either/Or, It’s Both/And

In fact, by concentrating on the second part, and making sure that the offspring will be prepared to receive the wealth, you will increase the chances that the family will be able to maintain and even grow the wealth in future generations.

“Plans that are about us, but don’t include us, are not for us”.

That is a verbatim quote, from a different context, but it fits perfectly here too.

FOR the Family, BY the Family

It starts with someone recognizing the importance of this. That could be a member of the family, or it could be a wise advisor.

Long-term planning at its best is truly long-term, i.e. inter-generational.

If that wealth is to serve multiple generations of a family, the sooner the members of the following generations get involved, the more likely they will be successful.

Efficient or Effective?

You could simply worry about the preservation of the wealth, and create rigid structures that are tax efficient and ensure that some wealth will be available for future generations.  That would certainly be more efficient.

But if you want your plan to be effective, get the Younger generation involved as early as you can. You won’t regret it, and neither will they.

 

Steve Leger