At the Alchemia Group we are helping our clients think & act differently in regards to their wealth and its impact on thier family - because we know it is more than just numbers and plans, it's the Balance of Art & Science with Pragmatism and Vision.

Keys to a successful Family Wealth Plan

I recently spoke to a small group of families about Multigenerational wealth. We covered a wide range of topics from welcoming new in-laws (with more than a prenup!) to what makes for a good advisory relationship. We finished up with quite a bit of discussion around the key components of an effective Family Wealth Plan. We landed on these six:

1. The Plan promotes important family ideals and principles. The plan should be specific about what the family believes in and wants to see supported by its financial wealth. For example, if a focus on health is important then the plan should provide for financial assets for family members to maintain a certain standard of health.

2. The plan should create opportunities for the personal growth of family members. Rather than only planned or scheduled distributions, the best wealth plans allow for discretionary distributions to support family members’ growth. In one scenario these are ‘applied for’ by the family member who is to provide:

  • A description of the opportunity and why they want to take advantage of it.
  • A description of the overall cost and how the cash needs to be dispersed.
  • A commitment by the family member to ‘report back’ on three topics.
    1. What surprised you about the experience
    2. What disappointed you about the experience
    3. What piece of advice would you give someone about to do the same thing

Alternatively, the distributions can be for a business venture but subject to a business plan and a level of outside financing. The key is that the opportunity to grow is supported and open to all eligible members who meet the required criteria.

3. The plan is equal parts preservation and deployment. The best plans foster the idea of healthy stewardship of family assets for the coming generations while deploying capital for the personal growth of members and for contributing back to the community in a way that is consistent with the family’s principals. This is the concept of a family’s Social Capital. As my friend Tony Rose points out in the soon to be published Five Eyes on the Fence: Protecting the Five Core Capitals of Your Business Social Capital is simply the relationships we maintain. The family’s relationship with the larger community is its Social Capital. This is found in its business relationships, the employees of any businesses connected to the family and its charitable/philanthropic activities. The best Family Wealth Plans provide for the support of robust Family Social Capital.

4. The plan is realistic. Too often nice ideas are found in plans but without any consideration about how they will actually play out. This was the case with actor James Gandolfini when he left his house in Italy to his two minor children. He wanted them to maintain and enjoy the house as he had but left no provision as to how. This left a trustee and two guardians with impossible decisions! ‘Keeping it Real’ is a role your advisor should help play. In many cases, scenario planning and some simple Life Insurance funding can help make sure a family dream is realized.

5. The plan has built in ‘Ongoing Relevance Practices’. A Family Wealth Plan is composed of a set of agreements, relationships, legal documents and property arrangements all dependent on changing personal and environmental circumstances. The plan needs to have regular review procedures to assure the plan is still relevant to the family and to the world at large. Again, this should be an advisor driven component of the plan.

6. The plan is flexible and organic. Given the fast pace of change and the uncertainty of the future, it should be very clear how the plan may be changed. Plans done 100 years ago are examples of what can happen if a plan is too rigid. Too many of these plans reflect a belief that the world of 1914 would be the world of 2014. With some forethought it is relatively simple to keep the plan flexible.



Keys to a successful Family Wealth Plan