Statistically speaking, the greatest challenge that a successful wealth creator faces is ensuring that their wealth endures and has a lasting and positive impact on successive members and generations of their family.
Because as wealth passes down a family tree, the risk of entitlement mentality, financial mismanagement, wealth dissolution and loss can grow exponentially.
According to research, 90% of all newly created wealth is lost to the family of the original wealth creator within three generations.
However, a significant number of high-profile families of famous wealth creators have successfully bucked this trend and navigated the challenges – by adopting a deliberate, structured and far-reaching approach to legacy planning and wealth management – involving putting wealth management and family governance structures and strategies into place in their lifetimes that align their “Estate Planning” (preparing the wealth for the beneficiaries) with “Legacy Planning” (preparing the beneficiaries for the wealth). Effectively, “passing on the values that created the wealth, as well as the value of the wealth itself.”
This article explores real-world examples of how successful families from around the world have tackled common legacy planning issues, such as ensuring fairness, managing differing capabilities, and sustaining wealth for future generations.
Challenges in Multi-Generational Wealth Planning
- Dilution of Wealth: As wealth passes from generation to generation, if it doesn’t grow as the family expands, it is diluted, reducing the potential impact on each subsequent generation.
- Value Misalignment: Not all family members understand or share the original wealth creator’s vision, work ethic, and values.
- Differing Capabilities: Some family members may lack the skills or personality to manage wealth responsibly or effectively.
- Fairness vs Equality: Equal distribution may not always be fair or aligned with the wealth creator’s values, particularly when some heirs have greater needs or abilities than others.
- Conflict Management: Differing values, drives, and perspectives can create tension and even legal disputes within families.
Solutions Adopted by Successful Families
- Family Mission Statements and Constitutions
Successful families often create a family mission statement or constitution to articulate shared values and goals. This serves as a guiding document for decision-making, ensuring that wealth is aligned with the family’s overarching purpose.
- The Rockefeller Family: The Rockefellers developed a mission around philanthropy and stewardship. A formal family constitution outlines the roles, responsibilities, and expectations for family members, ensuring alignment with their values across generations.
Practical Takeaway: A family mission statement clarifies the “why” behind wealth, creating a sense of shared responsibility and purpose.
- Governance Structures: Councils and Foundations
Establishing governance bodies, such as family councils or foundations, allows for collective decision-making and ensures representation from all branches of the family.
- The Walton Family: The family behind Walmart uses a family council and formal governance system to manage their wealth and philanthropic efforts. Decision-making is guided by clear policies and professional advisors.
- The Cadbury Family: Known for their chocolate empire, the Cadbury family set up a family foundation to oversee their philanthropic activities. This allowed them to pool resources and focus on their shared values of social impact and ethical business practices.
Practical Takeaway: Family councils and foundations create a structured forum for discussions, reducing the likelihood of disputes while fostering collaboration.
- Trusts Tailored to Individual Needs
Trusts are powerful tools that allow wealth creators to address individual circumstances, such as differing abilities or values among heirs.
- Discretionary Trusts: These enable trustees to allocate funds based on criteria like financial need, health, or demonstrated responsibility. For example, one well-known European family uses discretionary trusts to support heirs with special needs, while allowing others to receive benefits tied to entrepreneurial ventures.
- Incentive Trusts: These reward specific behaviours, such as completing education, contributing to family businesses, or engaging in philanthropy. One famous US family required heirs to work outside the family business for five years before becoming eligible for trust benefits.
Practical Takeaway: Trusts provide flexibility and ensure wealth is used responsibly, tailored to the unique circumstances of each heir.
- Education and Leadership Development
Educating heirs about financial literacy and family values is a cornerstone of successful legacy planning.
- The Oppenheimer Family: The former owners of De Beers established a family office that prioritises educating younger generations about wealth management. Heirs are required to participate in financial literacy and leadership programmes.
- The Rothschild Family: Known for their banking dynasty, the Rothschilds encourage heirs to gain professional experience outside the family business before taking on leadership roles.
Practical Takeaway: Investing in education and leadership development ensures that heirs are prepared to manage wealth and uphold family values.
- Differentiated Allocations and Tailored Opportunities
Rather than distributing wealth equally, successful families often provide tailored opportunities to heirs based on their needs and capabilities.
- The Mars Family: The Mars family (of confectionery fame) differentiates between family members who actively contribute to the business and those who do not. Active members are offered leadership roles, while others benefit through dividends and passive ownership.
- The Chanel Family: The Wertheimer family, owners of Chanel, prioritised capable leadership within the family. They empowered those with the right skills while keeping ownership concentrated to maintain control and value.
Practical Takeaway: Differentiated provisions ensure that the most capable family members lead, while others are still supported in meaningful ways.
- Philanthropic Initiatives
Family foundations encourage heirs to work together on philanthropic initiatives, aligning values and strengthening family bonds.
- The Gates Family: Bill and Melinda Gates involve their children in the Gates Foundation, fostering a shared commitment to global health and education. This not only reinforces family values but also ensures wealth is used to benefit society.
- The Pérez Family: The Pérez family, known for their real estate fortune, established a foundation focused on arts and culture. Family members are required to serve on the foundation’s board, ensuring active involvement.
Practical Takeaway: Philanthropy unites families around a common purpose, helping sustain shared values across generations.
Lessons from Failures
- The Vanderbilt Family: Despite amassing one of the largest fortunes in history, the Vanderbilt family lost most of their wealth within three generations. The lack of governance, financial discipline, and shared values led to excessive spending and mismanagement.
- The Gucci Family: Internal rivalries and mismanagement nearly destroyed the Gucci brand. A lack of clear governance and professional management resulted in infighting and financial losses.
- The Woolworth Family: Frank Woolworth did a brilliant job of estate planning but failed to prepare his beneficiaries for the power and responsibility his wealth endowed upon them. Lacking the values, wisdom, and work ethic that created the wealth, subsequent generations developed an entitlement mentality and unsustainable lifestyles, resulting in tragedy and bankruptcy within three generations.
The Hereditas Legacy Planning Process
At Hereditas, we understand that wealth creators face unique challenges in preserving their legacy. That’s why we’ve developed the Hereditas Legacy Planning Process—a structured, values-driven approach to help families prepare both their wealth and their heirs for a successful future.
Our process integrates estate planning with legacy planning, focusing not only on preparing the wealth for the beneficiaries but also on preparing the beneficiaries for the wealth. Through tailored tools, coaching, and strategies, we help families:
- Create meaningful family mission statements and governance structures.
- Develop flexible and impactful trusts.
- Educate heirs on financial literacy and family values.
- Build leadership skills and prepare future generations to manage wealth responsibly.
- Foster collaboration and shared purpose through philanthropic initiatives.
By combining proven strategies with bespoke guidance, the Hereditas Legacy Planning Process ensures that your wealth endures, empowering your family to thrive across generations. Contact us today to begin safeguarding your legacy for the future.
Key Takeaways for Wealth Creators
- Define a Shared Mission: Establish a family mission statement to guide wealth-related decisions.
- Prioritise Governance: Create family councils, foundations, and constitutions to formalise decision-making.
- Use Tailored Trusts: Incorporate discretionary and incentive trusts to address individual circumstances.
- Invest in Education: Develop heirs’ financial literacy and leadership skills.
- Focus on Opportunity, Not Equality: Provide equal opportunities while tailoring distributions to reflect needs and contributions.
- Embrace Philanthropy: Use foundations to align family members around shared values.
By learning from these real-world examples and incorporating innovative tools like the Hereditas Legacy Planning Process, wealth creators can design plans that sustain their wealth and values for generations to come. If you’re a wealth creator yourself (or a professional legal or financial services provider to wealth creators), Click on the Contact Me tab to find out more…
