Consider A Family Leadership Team
A family leadership team might sound entirely too formal. Sometimes when I present this idea to people, they respond with something like—“we’re a family, not a company.” I do understand this sentiment. Yet, I believe it’s wise to consider establishing a formal family leadership team. Before I present why I think you should consider this, let me briefly describe how these teams work.
- A family leadership team usually meets twice a year. These are formal meetings where complex topics are discussed and accounts and financial performance of investments are reviewed. Family business matters are also covered. Usually, about half of what gets talked about has to do with money. The other half has to do with family relationships and upcoming events and issues.
- The family leadership team documents decisions that have been made and why they made them. They also coordinate with professional advisors who can help them implement their decisions.
- One of the first tasks of this team is to define the mission for the money (see more below). Thereafter, most of their decisions and discussions flow from their understanding of the mission. This allows team members to ask this question: is the decision we are about to make in line with our mission?
Why should your family consider this? Most families talk about money in an ad hoc fashion, not intentionally. It’s a topic they tend to bring up when they get together, like at holidays, birthday parties, graduations and the like. Sometimes they might be just hanging out together. This approach might work for a lot of families, but it usually doesn’t work the kinds of families I described above. Why:
- Transparency: It is often striking to me how little adult children know about their parent’s financial situation. Sometimes this is intentional because the parents never really talked about their wealth. In some situations, a trusted adult child knows pretty much everything about family wealth while their siblings might know very little. A formal family leadership team fixes this problem because everyone on the team knows how much money the family has, how it’s invested, where it’s custodied and who does and does not have access to it. Transparency often reduces conflicts between people because no one feels left out, as if they can’t be trusted.
- Complexity: Most affluent families with multi-generational wealth contend with a high degree of complexity of several types. In some instances, each adult child has their own set of advisors: CPA, financial advisor and estate attorney. These advisors usually don’t coordinate with each other, which can lead to conflicting advice. The structure of family wealth is also often complex, including real estate, business interests, investments and cash. Because there is so much complexity, it’s usually not possible to have fruitful conversations that address everything which might impact family wealth unless there is a set time and forum for having these types of discussions.
- Collective Wisdom: When families only discuss topics in an ad hoc fashion, without a formal time and place, it’s very likely that not everyone will be together at the same time. This might mean that certain perspectives that could really help could get left out. A family leadership team with a defined meeting cadence fixes this problem. It allows for the collective wisdom of the family to come to bear on important topics and decisions.
My final point about this topic has to do with how you select who gets to be on the team and how it operates. In most instances, I recommend that first generation patriarch and matriarchs automatically get added to this team unless their health precludes it. Second generation adult children usually are added too, as long as there is not a compelling reason not to add them. In some instances, more mature grandchildren also get added.
Most of the time, I recommend this agenda for meeting structure:
- Financial review of accounts and overall financial health.
- Discussion of important topics that might impact the family, which may or may not be related to money.
- Decisions that need to be made, if any. I have no recommendation about standard procedures for how these decisions are made. Some families rely on majority rules. Others give deference to generation one. Others require agreement between members of generation two. The most important thing is that you have a process for decision-making that works for your family.
- Defining who must do what. This is about ensuring that decisions get fully implemented, usually in concert with professional advisors.
Define The Mission For The Money
If you really want to reduce infighting and conflicts regarding family wealth, I recommend that you define the mission for your money. I’m a big believer that money needs a mission and if you don’t give it one, it just might define one for you—possibly one you don’t want. Here are some ideas for how to create your mission.
The first question to ask yourself is this: what do we want money to do for our family? That’s a complicated question and it usually requires reflection, storytelling and exploratory time together with other family members. One way to address this question is to answer another one: why did mom and dad work so hard and take so much risk in the first place? What were they trying to achieve?
I believe it’s important to recognize that a mission has to be bigger than just “I want my kids to get money.” While that’s probably true, it’s not nearly big enough or broad enough to be a compelling guide to a family leadership team. For many families I’ve served, preserving family wealth is often a top goal.
Another consideration is who gets to define the mission. I believe first-generation wealth creators should absolutely have a strong voice in this. It’s also a good idea to engage in a family values exercise. When you answer the question—what do we, as a family, tend to value—you are well on your way to defining the mission. Here are just a handful of values I’ve seen families talk about:
- Education. Many families want to pay for the education of their heirs.
- Home Ownership. Family wealth can be used to support down-payments on homes for members of the younger generations or to temporarily pay the mortgage of family members who might be struggling financially.
- Entrepreneurship. Some families want their wealth to support the entrepreneurial spirit and endeavors of their younger members.
- Health And Special Needs. Some families have members with special needs that insurance won’t cover. Others provide help for family members who fall ill.
- Charities. Many families have charitable intent and often have specific non-profits that they’ve supported for years.
I think it’s important to define the mission long before generation one experiences declining health and mental acuity. I also believe it’s a mistake for generation one not to make their wishes clear or to not give their heirs time to adjust to their decisions. One of the biggest mistakes that could lead to completely family disunity is not expressing your wishes before the reading of your will. When adult children only learn of their parent’s intent after they are no longer living, those children have no opportunity to ask questions or to understand their parent’s reasoning. This can produce deep-seated and long-lasting resentment between siblings.
Consider An Outside Counselor To Help Facilitate The Leadership Team
I have found it to be very beneficial, in these situations, to have a trusted third-party counselor to facilitate the efforts of the family leadership team. Why should your family consider this?
- An outsider is often not encumbered by the dynamics from childhood that are often still in play between siblings. This allows them to be a bit more objective and to express things in such a way that may not be as off-putting as, say, the oldest sibling.
- An effective counselor knows how to help family members negotiate and talk about sensitive matters that can be difficult to explore. These counselors know when to be silent, when to ask questions and when to push for decisions that must be made.
- Selecting a third-party demonstrates health and maturity from the family. It’s a way of saying “these things are too important for us to go it alone.” This is an inherent recognition that we all have blind-spots.
Who might you choose for this role? My recommendation would be that you carefully consider your financial advisor, as long as they know your family really well and have the training to be a facilitator. This also allows them to work with your professional advisor network to implement family decisions and report back to you on results. That can save a lot of time.
Identify Future Pain Points And Put A Plan In Place To Address Them
One of the best strategies I’ve seen to prevent money conflicts in multi-generational families is to make a plan for what you can see coming. Many potential family problems can be pre-solved if you are proactive. A lot of situations that lead to family conflict can be identified and resolved before they ever become a problem. Some of these include:
- The passing of generation one. This can be emotionally devastating, which can lead to old grudges resurfacing that tear at the fabric of family unity.
- Divorce. In most instances, divorces do not come as a surprise to family members. Divorces usually also entail financial considerations that can be planned for well in advance.
- Addiction and mental illness. Many families have at least one family member who struggles with mental health or addiction. The family leadership team can put guard rails and support systems in place to help these members experience their best quality of life.
- Exits from the family business. If wealth comes from a family business, what happens when one or more family members no longer want to be in that business? These sorts of issues can be identified and planned for many years in advance, if family members are proactive in addressing them.
- Financial hardship. Sometimes individual family members experience financial hardship for a variety of reasons. Many times these situations are visible long before the hardship becomes acute. A proactive response can help prevent undue stress, which can help prevent infighting or claims that one family member got more help than another.
I believe it is the responsibility of the family leadership team to anticipate these moments and to have a plan for them. A financial advisor can also be a real help in creating solutions to these types of problems. They can bring to bear their experience and insights from having solved these problems for other families.
Leverage Legal Vehicles Effectively
Legal vehicles usually include trusts, wills, powers of attorney for health and wealth and advance directives. While these vehicles are normally viewed as the domain of an estate attorney, I’d like to share some guidance based on some of my experiences.
First, I think it’s important not to force people into situations that they may not embrace. For example, I have a client who just wants to show up at family events as “sister.” She doesn’t want to be trustee on her parent’s estate because that puts her at odds with other family members whose company, quite frankly, she just wants to enjoy.
Second, I recommend that you create formal constraints that do not allow for bad financial behavior from any one person in the family. Some of the biggest conflicts I’ve seen come from accusations of misuse of family funds. Checks and balances are important for maintaining healthy relationships.
Third, I recommend that you consider a third-party as the trustee for large family trusts. This can help maintain equilibrium among family members, where no one is seen as having more influence or power than others. Once again, if your financial advisor is known and trusted by your family, they can be a great fit for this role.
Where To Go From Here
Multi-generational families that have accumulated wealth can sometimes experience conflicts that have the potential to destroy family unity. The five ideas I’ve described here can help prevent this and can even lead to greater peace of mind and harmony. If you have questions about anything I’ve said here, please reach out to me.