With the baby boomers getting older, it is no secret that over the next few decades there will be a significant transfer of assets from one generation to the next. This money will mainly come from sales of businesses, insurance policy payouts, real estate assets, retirement plan funds, and other various financial assets. Inheritance will play a leading role in the creation of wealth.
For parents who have been successful in business or have amassed significant family holdings, the following question bears asking: How do we preserve our family wealth?
A business often represents the work and vision of an entire lifetime. It is natural to want to protect it and ensure its survival. Family wealth accumulated from generation to generation is no different.
For wealthy individuals who have significant social or community commitments and wish to share part of their wealth with the underprivileged, or for those wishing to leave their mark, what will remain of their efforts and deeds after their death? Who will carry the torch?
Others ask themselves whether their children will be less motivated to succeed as a result of the family fortune or whether they will be less driven to work or continue the family’s philanthropic or community commitments. Will they have the resolve to carry on the family’s values and ensure that these values are passed along to the next generation?
As difficult, even impossible, as it may be to predict the future, a good wealth management and transfer plan often begins with the drafting of a family mission statement. This document is also called a family code of conduct, a family constitution, or a strategic plan.
Purpose Of The Family Mission Statement
Those interested in trends in family wealth management are doubtless aware that plenty of ink is spilled over the family mission statement. At the outset, the family mission statement was primarily used by the affluent in the United States to preserve the family fortune, maintain generational harmony, and encourage philanthropy.
The family mission statement establishes a governance system within the family. The family mission statement defines the family commitments to the business (describing the family’s vision for future ownership, leadership and management, etc.) to their communities, and to their philanthropic causes.
Some families believe that by agreeing on certain important principles, this process may help avoid conflicts, even legal disputes, between family members, especially when it concerns money.
The family mission statement provides an opportunity to start a dialogue on subjects such as money and wealth, and to educate the younger generations on the meaning of wealth and the responsibilities which come with it. It is a means to ensure that children and grandchildren inherit not only the wealth, but the family values as well.
This statement also serves to help the younger generation understand and appreciate the accomplishments of their predecessors, understand what is currently at stake, and to actively engage themselves in planning for the future. Wealth offers not only opportunities but also presents challenges that must be recognized.
Often, the first step is to discuss these issues within the family. It is a good idea to question children on how they believe they can preserve the family wealth or how they intend to carry on the family’s philanthropic mission. According to them, what are the family’s values and how do they intend to honor them? This discussion provides the children with a sense of responsibility and involvement.
The next step is to engage in a family dialogue in order to identify precisely:
- The family’s priorities and values (history, family unity, trust, love, respect, harmony, education)
- The goals the family seeks to achieve
- The individual and collective needs of the family members
- The ways the family can help the community
Once the discussion is ended, everything should be put in writing.
A family mission statement generally includes:
- Values shared by family members and their beliefs
- Rules for sharing information, including financial information
- Rules for resolving disputes and conflicts between family members
- Rules for family meetings
- Statements on how family wealth is to be used and managed
- Philanthropic objectives and charitable activities
- Hopes for the future of the family wealth and the family legacy
The family mission statement may be reviewed and amended periodically.
The Family Mission Statement and Philanthopy
A family mission statement can easily be part of an overall family wealth management and transfer process. But, it is also valuable for families that have set up private foundations or endowment funds. The family mission statement can help give children and future generations direction in managing the funds: do we want to support youth, help combat poverty, or assist in a special field of medical research? The family mission statement may be the ideal document for specifying philanthropic objectives.
Philanthropy is a good way to educate children about money. For adult children, a private foundation or endowment fund may offer them an opportunity to assert their leadership skills.
Ensuring Success of the Family Mission Statement
Since the purpose of this statement is to ensure that family members honor it, each family member, old enough to do so, must participate. Each family member may even be called upon to write down his or her personal goals and financial objectives.
The various generations should be represented. Each member of the family should be involved in the process if its purpose is for all generations to follow the principles laid out in the family mission statement.
The family mission statement may be short or long, one page or many. What is essential is that it be inspirational, achievable, and visionary. It should be clear, non-ambiguous, and written in simple terms. It must be understood by all parties and be easy to remember.
It is advisable to revise the family mission statement every 3 to 5 years, or after any major family event, such as a birth, graduation, or death.
Conclusion
You do not need to be exceedingly wealthy to consider drafting a family mission statement. Any family that wishes to perpetuate its vision, define its philanthropic objectives, and preserve its family wealth could benefit from this forward-looking and creative method.