great wealth are still families. Like other families, they may interact with one another based on emotions such as love, passion, resentment, anger, jealousy, and fear. And even if most of the family members get along well, money problems can create bad feelings, ranging from spats and squabbles to intrafamily lawsuits.
The Robbie family is a case in point. Prior to his death in 1990, Joe Robbie, one‐time owner of the Miami Dolphins and the stadium in which the team played, made serious estate planning blunders. Although he had trust documents in place and everything appeared to be in order, problems arose. The trust was to receive the proceeds of his estate and provide income for his wife, Elizabeth, as long as she lived.
However, most of Robbie's estate consisted of nonliquid assets that didn't provide enough money for his widow. She therefore decided to ask for the 30 percent of her husband's $70 million estate to which she was entitled under Florida law.
In forgoing the trust income to take her percentage, she triggered millions of dollars in estate taxes. Since there was insufficient cash to pay the taxes, the team and stadium had to be sold to settle the debt of approximately $45 million. Discord arose before and during the sale, and the heirs, many of whom already were at war with one another, lost the legacy their father had created and the chance for an amicable wealth transfer. Tactical planning had failed, and the family was fractured. Had Robbie attended to the more strategic aspects of the management of his estate, things might have been very different. As the family discovered, adding dollars to an already unstable relationship can be like adding gasoline to a fire. Smoldering resentments can burst into flame and the resulting conflagration may burn the house down.
The challenge most wealthy families face is that they do not take an integrated approach to family wealth management – an approach that incorporates both a strategic outlook and exceptional tactical performance. Families like the Robbies, who concentrate too heavily on traditional wealth management, generally do not do well in preparing for long‐term wealth impact.
Conversely, other families may miss wealth‐creating opportunities because they put too much emphasis on harmony and don't question actions and decisions made by other family members who seem to be in charge. Or they simply rock along, content with today's gains and thinking little about the future. By giving scant attention to interpersonal dynamics and communication, these families may set themselves up for failure when the economy takes a turn or a family member makes a unilateral and spectacularly bad investment decision. Furthermore, the traditional providers of wealth management services such as banks, brokerage firms, registered investment advisors, insurance agents, accountants, and attorneys focus primarily on traditional wealth and estate planning and neglect to address the strategic issues that account for 97 percent of the reasons families fail to sustain wealth. What is needed for multigenerational wealth management and sustainability is the amalgamation of both strategic and tactical planning and execution. The families who have been the most successful in running the family business also put the same kind of effort into managing the business of family.
Along with the traditional wealth management responsibilities, these families continually mine the nonfinancial elements that affect the growth (or loss) of the family enterprise. These issues include:
• Family history and values: Who are we as a family? What lessons can we learn from the wealth creators or the concept of wealth creation? How did our forebears build the family fortune? What do they have to teach this generation? Do we have the same values they did, or have we developed a different moral compass? Do we as a family share multigenerational values? If so, what are they?
• Family vision and mission planning: What do we stand for as a family? Do we have shared vision or purpose for the wealth and the family into the future? What matters to us? What do we want our family legacy to be? Do we agree? If not, how do we resolve differences of opinion about what we want our legacy to look like?
• Communication planning: How do we currently communicate with one another? Does that method work or should we develop new modes of communication? How can we continue to improve communication between and across generations? Would we as a family benefit from a more consistent and formal communication process?
• Family governance: Should we manage our wealth as a unit or should we divide and manage it independently? Right now, who's handling the wealth on behalf of the family; that is, who has the greatest say in how wealth is developed and used? Is this the most effective way to carry out the family's mission and values? What are the rights and responsibilities of each family member? Are they clearly understood and communicated? How do we ensure individual family member accountability while allowing for expedited decision making?
• Leadership development and assistance: How do we prepare the next generation of leaders? What skills do we need, and how do we identify who has them? What education and training should the family provide for those who will fulfill major responsibilities in the future?
• Role clarification: What roles currently are being played by various family members? Are there gaps we need to fill? Do we need additional members to assume new roles? How do we determine which family members are best suited for which roles? Do any roles conflict with one another? Are there roles that served us well in the past but that now can be pruned as we look to the future?
• Family education: How do we develop an ongoing educational program designed to prepare and train family members to successfully manage and steward wealth on behalf of themselves and the family? Should such education be carried out by the family, by other advisors, or by a combination of experts both inside and outside the family?
• Risk: How do we balance risk and reward? How can we avoid the risks that might undermine the family mission? How do we deal with risk if it threatens our values? How does the family priority rank and manage risks based on the likelihood of specific types of occurrences and the level of impact they would have on the family?
Using a process that is clear, well‐communicated, and well‐orchestrated increases a family's opportunity for long‐term cooperation and unity, generational understanding and happiness, and financial prosperity.
This book helps readers answer the vital questions above and discover ways to integrate strategic and tactical wealth management tools in planning for successful wealth building and generational transfer.
MULTIGENERATIONAL BUSINESSES ARE STILL GOING STRONG. HOW DO THEY DO IT?
A big name and a huge fortune do not ensure the continuation of the family enterprise. The family name may remain on the business and the heirs represented on the board, but the founder's vision can be diluted if the family steps away from the leading roles. The table below names some businesses that have found a way to pass a family legacy from generation to generation. Family members are still active in the businesses, and these companies have grown, changed, and adapted with the times. It appears they have planned well on every front, both strategic and tactical.
FORTUNES LOST TOO SOON. WHAT WENT WRONG?
In addition to the Vanderbilts and the Robbies, the families in the following table also lost the family business and the money that accompanied it by the third generation – or earlier. In most cases, planning seemed to be almost nonexistent, and spending was rampant.
For example, published reports indicate that Huntington Hartford II, grandson of the founders and heir to the A & P fortune, invested heavily in businesses about which he had little understanding: art, movie production, the newspapers, and others. He also had several failed marriages that cost him millions of dollars, and his real estate holdings, including a home in London and an unsuccessful Paradise Island resort in the Bahamas, eventually drained the coffers. In general, it appears that those who lost their inheritances did so because they
