The answer to the question “whose money is this?” It is essential for a successful money transition before it is too late that relationships remain intact and the next generation in control of their wealth.
According to the Family Business Institute, 30% of family business transitions are successful, meaning that 70% of those businesses—including money transfers—fail.
To investigate why 70% of family businesses falter, we surveyed 3,250 households. We found that the transition to the next generation occurs more smoothly when the following three conditions are present in a family:
- The heirs are well groomed;
- Relationships between family members are based on trust and sociability; And
- Families define their values and are proactive in planning their wealth.
In the first two installments of this series of articles, we have looked at preparing heirs and discussed how to build family relationships based on trust. In this final installment, we’ll tackle defined values and the importance of proactive planning and try to summarize how building each of these three factors into your clients’ family asset-transfer process can answer the question, “it Whose money is it?”
Define your values, and actively plan your money transfers
A brother and sister were expected to run the foundation of the family together. His mother was sure that this would be a great way for them to learn to work together for a noble cause. However, they were terrified of the prospect. The brother was deeply religious, worked in a labor-intensive industry, did not want to accept money he had not earned and had very different views on how it should be given. The sister declared herself an atheist, devoted her life to non-profit causes, had no trouble asking for money and had almost opposing views on how it should be given.
Once siblings were able to articulate their personal values, they began to understand each other more deeply. This allowed them to come up with a strategy to give a meaningful cause that they could both support. Once clear about family values, they were also able to adjust how family resources would be used in their daily lives – for example, in relation to education, health care and living expenses What can they expect to pay? Having a clear understanding of their values gave them the necessary scaffolding to align them on the actions they wanted to take in their personal lives. This mutual understanding set a new model for the generations to come.
In the other family we worked in, the youngest son was called a black sheep. At the age of 27, he spent his time hanging out with his friends and playing video games. His ties with his siblings and parents were becoming increasingly distant, and his desire to connect with the outside world was waning. The family was concerned that he was drifting away endlessly and was not in line with the family’s value of contribution to society.
Finally, when he is asked at a family meeting why he is not coming to the family functions, he announces that he is ill and tells everyone what to do. He was disappointed that everyone in the family had a direction, and had not been “launched” into the role of contributing to society, which was an important value in the family.
He said that every time he suggested an idea, he was killed, or someone had a better one, so he stopped trying. He was overwhelmed by the thought of finding his “passion” and didn’t seem to find anything that deserved a substantial search.
One of the coaches asked him, “If you had a free kidney to try something, without any promise of it being successful, what would it be?”
He said he had always been interested in commercial real estate, but felt that no one would take him seriously. So his brother-in-law, who ran a construction company, invited him to work with him for a week and see if there was anything there. A year later, the son continues to build his potential in real estate and prepares an investment proposal with his father.
Both the families lacked family values and mission statement, which guide every decision of the family.
It is ideal for everyone in the family to co-design family values and mission statement. Naming family values is a powerful way to put expectations into measurable, observable standards. Telling the stories that shaped your values, inviting them to tell your values and then finding alignment between them creates a scaffolding that supports family identity. Even though family members grew up in the same household, they can all experience different perspectives about important moments in family history.
Dinner-time conversations, even when children are young, shape family values. Talk about how family resources are applied in meaningful ways. Invite a conversation about what the next generation cares about. Once you define your family values, it becomes easier to actively plan for the future.
The family we worked with went on a trip to Africa. While there, the 8-year-old learned that there were elephants in need of care. He began selling bakes at his grammar school to save elephants, and his efforts continued for many years.
In another family, which suddenly ran into wealth, a 6-year-old was asked, “If you could do something good for the planet, what would it be?”
She said she wanted to save the sea turtles and create a place where they could recover. The family is exploring sea turtle sanctuaries.
Defining their family values lets everyone know who they are, where they come from and what they are trying to achieve. Understanding family values enables future generations to more easily develop things that are meaningful to them.
The family value of “contribution to society” goes far beyond what Mom and Dad donate to the zoo. It becomes a way for them to feel good about themselves and relate to the larger group in ways that are meaningful to them. While they may not need to earn an income to support their lifestyle, they do need purpose and direction to see that they are contributing and that they matter.
Whose money is this anyway?
The sooner you invite the next generation to discuss this question and incorporate their ideas, the more runway you’ll have for learning to manage the family estate.
The “ready heirs” are those who understand their role of being the good beneficiary. They navigate their relationships well, have a strong sense of purpose and see how they can contribute to family resources.
At the heart of the question is trust. Do you trust them to manage the family property well? Do they trust you to transfer it well? The answer to those questions lies in your ability to start a conversation while you still can. This may require adding more skills to the Trust and Communication toolbox and possibly bringing in a third party to assure you that the conversation will go well.
In trust-based relationships, people are able to speak truth to power, feel safe to express themselves honestly and have the skills to co-design a future that works for them.
To achieve that outcome you will need to define, articulate and align actions with family values, roles and responsibilities so that you can simultaneously set an actionable course in support of your use and purpose of your family resources. Proactive planning requires listening to the voices of the next generation, while decision-makers are still on the daisy’s right. This means that the next generation has a say in how the family wealth will affect them and how they can contribute to the inheritance.
You will have an inheritance; Whether you consciously shape it or not is up to you. Ensuring your wealth is a force for good in your family and the world is a team sport. Start training your family now.
