24th Apr 2015
Family dynamics. They have a very large impact on estate planning and business succession. For example, when the family doesn’t see themselves as a “team”, they lack a feeling of togetherness and often look out only for themselves. This can have a large impact on the family especially when Mom and Dad pass away.
Most business owners train their employees to work together as a team. They take their management staff on team building events, create a mission statement and create business plans. But business owners often take the opposite approach to their children. They want their children to become strong and independent. Effectively, removing them from the team concept. After all, we want our children to be whatever they want to be, right?
As children become older, these same business owners realize their children haven’t been trained in the family mission statement or identified the path to their future. They lack motivation, are entitled and have what we call “affluenza”. Mom and Dad find that their children are ill prepared to take over the family business.
Future generations need to understand the difference between the family goose and the family golden eggs. The goose has to keep working to continue to lay golden eggs. Often, they do not understand this unique difference and they eat the goose.
Mom and Dad spend a great deal of time preparing for their future but often do not prepare their children for all that money.
As estate planning attorneys, we follow a five step process to help families develop a healthy family governance.
Step 1-Family Education. How much money is necessary for the heirs without destroying their ambition or creating a sense of entitlement? When should children find out what the amounts are and when will they have access to financial information? What happens when a child gets married–will there be a prenup? What happens if a child refuses to participate?
Step 2-Family Communication. Communication is a must for most situations. Learning how individuals in the family communicate and working toward understanding each other can go a long way in finding ways to navigate their future.
Step 3-Shared Family Values. We hear that people want to transfer their values to their children but they are often unable to verbalize those effectively. Shared activities like team building experiences in a business environment can be very helpful in a family environment as well.
Step 4-Group Decision Making on Charity. Charitable contributions are a great place to begin team decision making. Oftentimes an exact amount is determined by the Mom and Dad and then the group makes a decision as to where the contribution should go. This always the family to make decisions without self-interest.
Step 5-Family Governance. Using a group discussion for decision making. No directives from Mom and Dad. These can begin as simply as where to go for the next vacation. These types of discussions can help lay the groundwork for bigger decisions such as what to do with the family business.
Families who begin a five-step process well before an anticipated wealth transition will find it very helpful. As families learn to build a family home team, they can also end the “shirt sleeves to shirt sleeves” paradigm and begin to build a meaningful family legacy. They become skilled in the group decision-making process and prepared to engage the next generation in making positive, intelligent decisions regarding family wealth long into the future.