By FPA Members Elaine King, CFP®, CDFA™ and Philip Herzberg, CFP®, MSF
Last Updated: March 5, 2012
Charles W. Collier, author of Wealth in Families, reveals that the hardest, most rewarding part of the planning process is asking essential questions about what people want to preserve — besides financial wealth — and how they can enhance each family member’s growth.1 By navigating the challenging issues and responsibilities associated with wealth, you can implement an effective family governance structure to cultivate cohesive decision-making, as well as to enhance the likelihood of sustaining your core values, wealth, and well-being over generations.
Keeping in perspective that 60 percent of wealth transfer failures result from a breakdown of communication and trust in the family2, you should adopt and adhere to a family governance system, with the focus of fostering harmony, financial literacy, and stewardship competencies in the young owners who will succeed leadership roles.
With the guidance of a CERTIFIED FINANCIAL PLANNER™ professional who has expertise in integrating the quantitative and qualitative aspects of family wealth, you can capably prepare your family to manage finances and enterprise dynamics by applying the following processes and insights.
Devise governance to build a values-based vision of legacy and to fortify unity.
- Does your family have a need to establish a governance system to address common issues and inevitable conflicts (i.e. which child will receive which inheritance or whether to purchase a new residence)? Be cognizant that you can develop a governance structure to ensure an opportunity for members to make those decisions pertaining to significant shared assets jointly (i.e. pooling investment funds and contributing from the family foundation).
- By allocating your attention to a leadership and government structure, you can optimally preserve your principal wealth-generating assets, or human and intellectual capital. In essence, you manifest an environment that values and enhances each family member’s ability to pursue their individual life calling.3
Remember to create and customize governance rules to reflect articulated goals and specific circumstances (i.e. selecting who can adeptly supervise the family business). Subsequent to holding an initial assembly and forming a family council, you may recruit a committee to compose your family mission statement — a combined and unified expression of what your family is about and the principles you choose to govern your family life.4 Ascertain that your mission statement delineates and encompasses all family entities and activities, including investments, philanthropic endeavors, and business operations.
Utilize governance policies to foster long-term engagement of family members.
- Improve the quality of interactions and conversations by formulating a constitution — a series of policies that collectively guides you in reaching decisions about business leadership transition and the estate plan of the senior generation. Encourage constructive discussions on prominent topics to obtain council endorsement of business policies, including employment standards for the next generation, the succession process, and career development provisions for family employees. Consider the acumen and support of an experienced psychologist or transition specialist when outside facilitation is required to help your family members talk productively and stay connected with each other.
- Be wary that governance policies defining member roles can be especially beneficial in reducing uncertainties about what practices are permitted. Plan a responsible policy in advance to weather unforeseen circumstances, such as the death of your family’s patriarch or sale of a business.
Prior to putting in place policies, communicate your perspectives and unique viewpoints at family meetings, the most likely forum for prolonged and in-depth communication between generations.5 By sharing information about financial wealth, you can assist in reconciling possible differences of opinions, as well as enable the next generation to feel comfortable about participating in the family business.
Mentor your heirs with financial education and philanthropy to be competent stewards of their inheritance.
- Can your wealth be a resource that consistently flourishes over generations while having a positive impact on those who use it? Highlight the meaning of philanthropy as a cohesive learning tool for the operation of diverse family enterprises, such as endowments. In addition, you can develop the fulfilling practice of philanthropy to teach financial literacy and impart lasting principles, such as giving back to improve the community.
- How are you going to financially educate children and grandchildren to make informed decisions around money matters, philanthropy, and their legal affairs? Grow the intellectual capital of your younger generations and mentor them by teaching vital financial skills, such as understanding credit card statements and tracking online savings accounts.
Seek the collaborative advice of qualified financial, legal, and tax professionals to help you coordinate multifaceted planning with family governance. By educating your family on the essentials of the governance process, you can clearly prioritize needs in order to strategize the most appropriate and flexible structure embraced by members of current and future generations.
You and your family do stand for something.1 After all, what will your legacy be and what will you be leaving to your family and future generations?
FPA member Elaine King, CFP®, CDFA™, is Chairman of FPA of Miami-Dade and Author of Family & Money Matters, La Familia y El Dinero Hecho Facil. FPA member Philip Herzberg, CFP®, MSF, is President-Elect of FPA of Miami-Dade and Director of Media Relations & Public Awareness for FPA of Florida/Miami-Dade.
1 Collier, Charles W., Wealth in Families, 2006.
2 Williams, Roy & Preisser, Vic. Preparing Heirs: Five Steps to a Successful Transition of Family Wealth and Values, 2010.
3 Hughes, James E., Jr., Family Wealth – Keeping It in the Family: How Family Members and Their Advisers Preserve Human, Intellectual, and Financial Assets for Generations, 2004.
4 Covey, Steven R., The 7 Habits of Highly Effective People, 2004.
5 Hausner, Lee, Ph.D., Children of Paradise: Successful Parenting for Prosperous Families, 2005.