Perhaps the most famous—or infamous—comparison for preserving family wealth is presented by the Vanderbilts and the Rockefellers. While Cornelius Vanderbilt amassed a fortune in the mid- to late nineteenth century through astute investment in shipping and railroads, the family wealth was largely dissipated within 90 years of his passing. On the other hand, John D. Rockefeller, who became the nation’s first billionaire after founding Standard Oil in 1870, passed to his heirs an immense financial legacy. Further, despite the founder giving away more than $500 million to charity during his own lifetime, Rockefeller personal wealth today is estimated at over $10 billion, and the family also donates millions annually to philanthropic efforts including climate studies, nutrition, and global health.
The difference in the outcomes is due to intergenerational communication—or the lack of it. Though Cornelius Vanderbilt, on his deathbed, famously instructed his oldest son to “keep the money together,” he failed to put in place an effective plan for his heirs to follow. Rockefeller, however, spent years assembling a strategic plan that included a comprehensive approach to risk management, legal governance, and, above all, careful communication to his heirs and their heirs about goals, priorities, and, perhaps most important, the values and social responsibilities that should guide their decisions.
Clearly, then, for families establishing or seeking to maintain a multigenerational financial legacy, simply having wealth isn’t enough. To preserve it and pass the legacy down to future generations requires purposeful planning and effective communication. There are some basic principles—and pitfalls to be avoided—for those who intend to create or sustain a legacy that can last for decades or more.
“The kids know they don’t have to work.”
Speaking of pitfalls, this is a very common problem. As children grow up in a privileged environment, they often go through a stage—typically in the teen years—when they lack motivation to apply themselves, believing that “the family money” will always be there to fall back on. Smart family stewards, however, put in place benchmarks and incentives in the trust and other estate planning documents. For example: 25% of the child’s inheritance is granted upon graduation from college; additional access comes with reaching the age of 30 and holding steady employment for a specified number of years; bonuses become available for attending and participating meaningfully in family business meetings. However the details are stipulated in the estate’s governance documents and practices, by incentivizing younger family members to transition successfully into adult responsibilities, the family is also creating a pool of capable leadership for preserving the family’s wealth into the future.
Create a values education plan.
Especially for wealthy multigenerational families, it is important to create continuity around core values and mission. Because the understanding of these values needs to span two and often three generations, such a plan needs to be tailored to the sensibilities of each generation, and it needs to be revisited and updated, probably at least annually. Attention to “telling the story” to each generation insures that family leadership continues to grow out of a shared set of priorities, even as its style and expression changes over time—as it must, in order to remain relevant.
Creating shared values around philanthropic concerns, for example, can begin in childhood with learning empathy for others. Comforting an ill sibling or friend with the gift of a treasured stuffed animal indicates feelings of generosity toward those in need. That impulse is the beginning of the philanthropic mindset, and it can be learned, even by young children, if parents and other caregivers stay alert to possibilities. Involving adolescent and college-age children in family conversations about support for charitable causes can help the value of philanthropy and social responsibility take further root. Some families, for example have regular meetings at which various causes are considered. Children who have a particular cause they care about can present information at the meeting, informing other family members about why they believe the cause deserves family support. These decisions are then made by consensus, making the children who will be future leaders integral to the process and giving them “ownership.”
As family stewards age, it is typically important to engage in purposeful communication around family philanthropic goals and efforts. Those with higher levels of resources may even want to arrange a meeting with a trusted financial advisor or consultant to discuss estate planning, trusts, donor-advised funds (DAFs), and other matters. Clear communication with adult children about the importance placed on philanthropy by aging parents provides the foundation for the understanding of the next generation of family leaders and their commitment to a philanthropic legacy. Often, it will be important for the parents to tell their story to their children in order to convey why charitable causes are so important. For example, a father who had to struggle to gain an education may feel a deep commitment to providing scholarships for academically gifted but financially challenged students. As he tells of his own struggles and his determination to help alleviate the struggles of others, his children gain a deeper empathy, not only for their father, but also for those he desires to help. In this way, his values become their values, insuring that the torch is passed on.
Get outside help when you need it.
In cases where a family has a single CEO-type figure providing critical leadership, succession planning can create intra-family tension. One smart solution is to incorporate outside consultants in the transition process, in effect creating an impartial “search committee” to assist the family with identifying the best candidate. In fact, this process can be codified in the trust documents, ensuring that all family members’ expectations about the process are based on the same assumptions. Family members who aspire to greater leadership roles can submit résumés, participate in interviews, and fulfill other requirements as set by the consultants. The chief advantage of this approach is its objectivity; the family is more likely to believe that the succession process was fair and unbiased, rather than rooted in family politics.
As a professional, fiduciary financial advisors, Optima Asset Management can assist family stewards with asking the tough questions and even having the awkward conversations when necessary. To learn more, please visit our website and read our article, “Preparing the Next Generation for Wealth: Having Intentional Family Communication.”
