Research suggests that the odds of sustaining wealth across generations are as low as 30%1. Surprising to some, this research shows that less than 3% of these failures stem from poor estate planning and poor investment returns. This implies that there are other circumstances that have a far greater impact on the ultimate success of wealth transfer.
Through collaboration with experts over the years, internal research, and our work with more than 700 of the country's wealthiest families, we have identified 25 non-financial best practices that we believe enhance a family's ability to sustain family wealth across generations. These best practices can be summarized as follows:
Since our founding in 1989, we at GenSpring have worked with our families to sustain family wealth. In writing this paper, we hope to bring greater awareness and understanding of these 25 best practices, and substantiate how we determined that these activities help families sustain wealth across generations. Each section of the paper highlights a subset of best practices and gives a broader explanation of their importance. As you will see, many of these best practices are interrelated and build off of one another. We encourage families to discuss and determine which best practices are more or less applicable to them, given the current situation of the family and its members. Though we do not believe that a family must implement every best practice to sustain their wealth, we do believe that most have relevance and would provide benefit at one point or another in a family's journey. It is our experience that these practices, in total, are the major differentiators of families that have successfully sustained their wealth across generations.
Family cohesiveness is a term that refers to a family's common bonds and desire to work and play together. It is important that family members continually build and strengthen familial bonds so that their money and legal structures are not the only things that keep them close. "The Pritzker Case" is a fitting example of what happens when a family is united by its financial success alone. Believing that the riches are enough to sustain them as a family, and distracted by their dazzling financial success, they are blind to the cracks in the family until a crisis erupts" (Martel, 2006). The Pritzker Family is well known for their successful $15 billion empire, including Hyatt Hotels and Caribbean Cruise Lines. Unfortunately, the family is also notorious for family disagreements which have resulted in major law suits and the splintering of four generations of family members.
Over the years, we have observed that family cohesiveness is strongest in families that communicate their Family History and Culture and pass it down through the generations. One of the most experienced "It is our experience that these practices, in total, are the major differentiators of families that have successfully sustained their wealth across generations"and respected experts in the field of Family Wealth, James E. Hughes (2004), states that, "Families who recognize with ritual the important passages in their member's lives seem to fare better at overcoming the shirtsleeves proverb". Charles Collier, the well-regarded author of Wealth in Families, agrees and says that one of the best practices of successful families is that "they tell and retell the family's most important stories" (2002). Though we have observed this best practice pursued in a variety of ways, we have often advised families to entrust the initial responsibility for formally documenting and communicating their family's history and culture to the third generation (i.e. the "grandkids"), who often begin by "interviewing" preceding generations. This process is highly effective and the benefits can be—and often are—overwhelming.
An implication to a family's ability to preserve their history and culture is the need for good communication. Research shows that 60% of wealth transfer failures are caused by the breakdown of communication and trust within the family unit (Williams & Preisser, 2003). As in well run businesses, Teamwork and Communication are learned skills and key characteristics of highly functioning families. We have seen how improvements in teamwork and communication skills help resolve lingering conflict and prevent future conflict among family members. The fact is that open, honest, and healthy communication between family members creates trust, and trust prevents family conflict. We have also observed that family cohesiveness is greatly improved in families that openly and explicitly discuss their Shared Values. "To successfully preserve its wealth, a family must form a social compact among its members reflecting its shared values, and each successive generation must reaffirm and readopt that social compact" (Hughes, 2004). This social compact is the foundation for the development of a Family Mission Statement. "A family mission statement is a combined, unified expression from all family members of what your family is all about and the principles you choose to govern your family life" (Hughes, 2004). A family mission statement conveys a family's purpose and provides family members with representation in and ownership of the family's direction. In our experience, simply having family members sit down to discuss their shared values and mission results in improved family cohesiveness. Furthermore, families that not only take the time to create a values-based family mission statement but also judiciously employ it continually realize benefits throughout their interactions and in the process of making family decisions.
Finally, the emotional and physical health and happiness of each individual family member needs to be nurtured in order for the family to remain a cohesive group. To ensure Family Member Well-being, a priority must be to "stress each family member's individual pursuit of happiness" (Collier, 2002). As Hughes (2004) says, "the assets of a family are its individual members." It is our view and experience that families that place more importance on the family's money than on the well-being of family members will inevitably fracture.
1 Source: Preparing Heirs, Roy Williams and Vic Pressier, 2003. A wealth transfer failure is defined as "the involuntary removal of assets from the control of the beneficiary."