The best way to introduce the concept of heritage planning is to ask you to do a simple mental exercise.
If you could look 50 years into the future and witness a gathering of your entire family, what would you like to see going on? What kinds of conversations would you like to hear? What would you want your family to feel?
Now think about the financial and estate planning you have done to date and ask yourself this question:
How far will that planning get me towards the picture of my family that I’ve just envisioned?
Hopefully the planning you’ve done so far will pass your money into the future. But does it accomplish the other parts of what you’d like to see in your family, two or three generations from now? The overwhelming odds are that your existing planning will not get you all the way to the vision you have for your family’s future.
Why is this so?
Financial planning grows your money for your use. Estate planning passes your money to your heirs.
These two elements are largely successful at those tasks, but they are miserable failures at keeping families together in the process. That is not what financial and estate plans are designed to do. Can you think of families you know who have been fractured by inheritance fights? Can you think of individuals you know who have been harmed by money?
The fact is that about 9 out of 10 families will lose the family assets across three generations. Worse, the family unity the parents desired is often destroyed along with the money. This has been true for thousands of years, in cultures all across the world, in times of prosperity and in times of depression.
That’s pretty long odds. Which begs the question: if 90% of families fail to keep the family and the family assets together for more than three generations…
What do the other 10% of families do differently?
The success of the other 10% isn’t because they have more wealth, are more intelligent, have better advisers, or created better financial or estate plans. It’s because those successful families engage in elements of what has become known as heritage (or legacy) planning. Heritage planning acknowledges that there are two distinct kinds of inheritances. There is the financial inheritance. And there is the emotional inheritance, which consists of family history, shared experiences, life lessons, traditions, values, and family stories. The emotional inheritance is the things that make us who we are, and defines us as individuals and as families.
Financial planning and estate planning are designed to pass along the financial inheritance. I have talked on this forum before about reasons why these things are important, about being intentional in your plans. But financial and estate planning alone, as has been demonstrated, is probably not enough to get your family all the way to the vision you had in your mind earlier.
We believe that heritage planning is the third element that supports and underpins the other two. Heritage planning – the intentional passing of the emotional inheritance – can help strengthen the bonds of your family and provide unity and common purpose outside of the family’s material wealth, which makes family fights about the material wealth much less likely, and much less devastating.
Our friends at The Heritage Institute recently published a white paper titled “Sustaining Family Wealth & Unity Across Generations”. The content of this paper is developed around twelve elements practiced by the 10% of families which are successful in transferring both assets and values from one generation to the next.
- Foster strong and effective communication, and build trust between generations
- Develop, maintain, and regularly re-visit the family’s vision for the present and the future
- Meet regularly
- Promote a balanced definition of the meaning of “wealth”
- Keep the family business separate from the business of being a family
- Identify the “roles” necessary for the family to be successful
- Inspire individual family members to participate for their own individual reasons
- Train and mentor each generation
- Facilitate the genuine transfer of leadership from generation to generation
- Require true collaboration between the family’s professional advisors
- Create mechanisms for ongoing family governance
- Do it now
We’ll have more to say on this topic in future posts.
If you would like a free copy of this white paper, which expands on each of the twelve elements and discusses how they can be customized to your family’s unique circumstances, please contact The ACU Foundation. My email address is chris.sargent (at) acu.edu. Our toll-free phone number is 1-800-979-1906.
Disclaimer: All information on this blog is for educational purposes only. Employees of The ACU Foundation, and the writer of this blog specifically, are not attorneys and are not your adviser. Call us or come see us if you have any questions about this. See here for a more comprehensive (and more boring) version of this disclaimer.