The Art Of Family Wealth Preservation

Theodora Lee Joseph, CFA

3 mins

The Art Of Family Wealth Preservation

Picture this: up to 70% of affluent families see their fortunes disappear by the second generation, and a staggering 90% watch it vanish by the third. The cause isn’t only dollars and cents: it's about the lack of something equally valuable – family communication.

Case in point: The Rothschild family, whose wealth originated from banking and finance in the 18th century, serves as an exemplary case of successful wealth preservation through effective communication and strategic planning. They established a well-structured family governance system, including family meetings and councils, to discuss wealth management, investments, and philanthropy. Their commitment to maintaining a unified family vision and purpose across generations has allowed them to sustain their financial legacy and philanthropic endeavors over centuries.

So, if you're determined to ensure your family's legacy and wealth endure, it's time to dive into the world of meaningful conversations.

The wealth discussion dilemma

Discussing wealth within the family can feel like navigating a labyrinth blindfolded. It's a touchy subject that often leads to lengthy, convoluted discussions. However, the earlier you initiate these conversations, the greater your chances of success. Effective communication lays the groundwork for preparing all family members for the future, reducing potential conflicts, and ensuring a smooth wealth transfer.

Approaching family wealth conversations

1. Crafting a clear mission statement

To begin these conversations, start by crafting a clear mission statement that outlines your family's wealth's purpose. Define the legacy you want to leave behind and the impact you aspire to have on society.

For example, if your family's wealth was built on a successful tech business, your mission statement could be something like, "empowering the next generation of tech innovators through education and mentorship".

Most importantly, involve all family members in shaping this mission. When everyone has a say, it creates a sense of ownership and aligns everyone with the family's purpose. If you're yet to inherit, discuss the idea of a family mission statement with your parents and extended family to ensure everyone is on the same page.

2. Transparency as your secret weapon

Being open is your secret weapon. Ensure that every family member understands the structure of your family wealth and its various sources. Everyone should know their role in managing this wealth. When there's clarity about decision-makers and processes, it paves the way for improved communication and collaboration.

3. Scheduled family meetings for productive conversations

Regular family meetings dedicated to wealth discussions are a strategic move. Scheduled meetings allow everyone to prepare in advance, making conversations smoother and more productive. Keep these meetings consistent and adaptable to changes in market trends or estate plans.

4. Investing in learning opportunities

Invest in learning opportunities for all family members. This could involve mentorship, coaching, or external training to prepare each member for their role in the family's succession plan. Tailor these opportunities to individual interests and needs.

For example, if your family wealth includes a philanthropic foundation, provide training on grant-making processes and involve younger family members in selecting charitable causes.

5. Seeking external guidance

Consider bringing in an independent party to assist in defining and monitoring your family's mission. They can play a crucial role in mediating disputes and offering an impartial perspective.

Challenges in family wealth conversations

When discussing wealth within the family, you're bound to encounter challenges. Family members may have diverse aspirations, wealth plans might be outdated, and disagreements over estate distribution can be common. With money comes power, and that can cause tensions between family members. Additionally, money can be used to influence and pressure family members to make decisions that may not be in their best interest. This can lead to feelings of resentment and jealousy, which can further complicate the financial discussions.

But here's the good news: most challenges can be tackled successfully with careful planning, open communication, and the right guidance. Wealth conversations may be tricky, but they are essential to safeguarding your family's financial legacy for generations to come.



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Disclaimer: These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided. The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment advisor.

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