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.

What’s in Your Family Wealth Plan?

Is your family wealth plan centered on the ‘numbers’? In my experience successful Family Wealth Plans are built around seven key ideas:

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 is inclusive.

I have seen plans that do not, for a variety of reasons, provide for all the children. This is sometimes done because the parents believe that one child is so successful that he or she does not need additional assets or assistance. From a numbers perspective, this may be true, but from a personal perspective, it is not true. Leaving a family member out of a plan communicates that the family member is not part of something that involves the rest of the family. Before completely excluding someone for any reason, be sure to think long and hard about the emotional aspects.

3. The plan should create opportunities for the personal growth of family members.

Rather than allowing for planned or scheduled distributions only, the best wealth plans allow for discretionary distributions to support the family members’ personal growth. In one scenario, these distributions are “applied for” by the family member, who submits:

  1. A description of the opportunity and why she or he wants to take advantage of it.
  2. A description of the overall cost and how the cash needs to be dispersed.
  3. A commitment by the family member to report back on three topics:
    • What surprised you about the experience?
    • What disappointed you about the experience?
    • 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 the submission of 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.

4. 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 consistent with the family’s principals. In this way, the best family wealth plans provide for the support of robust family social capital. This is found in the family’s business relationships, the employees of any businesses connected to the family, and the family’s charitable/philanthropic activities.

5.The plan is realistic.

Too often, nice ideas in plans are absent 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 he left no provision as to how to maintain it. This left a trustee and two guardians with impossible decisions!

Often, wealth-holders fail to consider realism. For example, leaving a vacation home in the family for generations is a nice idea, but families tend to grow exponentially. Today, three households might share the home, but what will happen in three generations when twelve or more families are eligible to use the home?

Without forethought, a shared vacation property has another problem as well. One family member inevitably tells the other members: “I never use the house, and you use it all the time, so you should buy me out.”

The other family members might be unable (or unwilling) to do this, causing friction among siblings and cousins.

A colleague of mine created a simple solution to both of these issue. He established a trust that will take over ownership of his beach house once both he and his wife pass away. The trust is funded with a life insurance policy in an amount equal to the fair market value of the house. This constitutes the operating fund for the house. The trust states that his children and grandchildren can enjoy the house until the last grandchild dies, but no one has any economic interest in the house. When the last grandchild passes away, the house and any other assets in the trust must be donated to a specific charity.

The trust has very detailed provisions on trustees, decision making, replacement property, etcetera, so the family is left to enjoy a wonderful retreat without any chance of money becoming an issue.

“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.

6. 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. These review procedures should be tied to specific time periods or what I call “triggering events,” which are things like births, marriages, and divorces.

7. The plan is flexible and organic.

Given the fast pace of change and the uncertainty of the future, a plan should have a very clear explanation of how it can be changed. Plans drawn up 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.

Excerpted from the soon to be published “The Middle Way: Using Balance to Create Successful Generational Family Wealth Transition Plans” by Timothy J. Belber JD



What’s in Your Family Wealth Plan?