There are a little more than 100,000 families in the United States that have a net worth in excess of $25 million. A majority of these families have built this wealth through the ownership, growth and sale of mid-market businesses. Unfortunately research indicates that for 98% of these families, their great grandchildren will not see any of this wealth – it will be gone. This is primarily attributed to poor communication, a lack of trust among family members and unprepared heirs.
According to Divestopedia, a resource for entrepreneurs who want to sell their business for the best price and terms,here are four ways you can begin to thwart these issues and preserve your family wealth:
1. Host Family Gatherings: If you have three or four generations in your family and don’t already invite them to spend vacation time together, this is a great first step in building family identity and creating lasting memories.
2. Family Philanthropy: One of the easiest ways to implement a family giving program is to provide each of your family members with their own donor advised fund (DAF). In simple terms, you make a donation to the DAF (and receive the benefit of the tax deduction), but your family gets to decide which organizations will receive donations. This is both simple and convenient.
3. Creating a Family Bank: Although this may sound formal and fancy, implementing a family bank structure can be quite simple to start. Ideally, everyone in the family will come to recognize that your wealth can be utilized to support and reward positive behaviour. The family bank would commonly fund education expenses, business ventures or opportunities to support family member goals.
The main distinction between gifting and family banking is accountability. Generally there is some type of application process and a review process. It is recommended to involve outside advisors in the decision making process
4. Investment Committee: By forming an investment committee, knowledge can be shared and transferred between generations in a supportive environment. More importantly, family members with deep knowledge within a specific arena can apply their skills to benefit the entire family. To form an investment committee requires two things – a pool of money or assets to be managed, and a group of people willing to take on the responsibility. The matriarch and/or patriarch do not participate on the initial investment committee. Instead, one member of each branch of the family is asked to participate. The family CFO/financial advisor and/or outside Chief Investment Officer/money manager should facilitate the meetings and design the agenda until a family member wants to take over.