- Your legacy is more than a plan for your financial assets – it also consists of the foundations you lay for family harmony and for future generations to thrive
- Family relationships can involve a delicate balance of powerful emotions, and working with your family to manage financial assets or a family business can draw out tensions
- It’s important to communicate about your family legacy, and where possible involve your family in the development of wealth plans
We regularly advise clients who are successful wealth creators or leaders of their family business about planning for the future. They often describe this as the legacy of their life’s work. In our conversations, we talk about it being much more than an estate plan for their financial and physical assets. We discuss how it also consists of the foundations they wish to lay for future generations– for individuals to thrive, for the family to remain close and for the money to have its intended consequences or for the business to grow.
As part of this discussion it is helpful to explore how personal dynamics can affect the working relationships of family members, and offer practical suggestions on how to set solid foundations for managing this predictable challenge to your legacy.
The powerful influence of family
A family is where we form and experience our first relationships, experience love and receive emotional support as well as positive or negative feedback for our words and actions. It provides a safe environment as we grow from a child to an adult. Families have their own culture and traditions, and create their own norms for accepted behaviours.
These include thinking, feeling, judging and acting in ways the family approves of. Our assumptions about what is right and wrong and good and bad reflect the beliefs, values and traditions of the family we belong to, which we often take into adulthood. This includes our attitude to success, failure and money. It’s worth considering some key questions, including:
- What does success mean in our family? For example, is it financial success, putting in your best effort or being a scholar?
- What is our attitude to money? Is it a taboo subject? Does it define who we are, or is it a means to achieving our purpose?
When family members work together – whether as shareholders or owners of a business, in the management team of a family enterprise, on the board of a family foundation, or co-decision makers on a family investment vehicle – family dynamics can pose challenges to effective communication. This is because you have two relationships with each family member: your personal relationship and your business relationship. We have a different relationship with our father and our boss, or with our spouse and co-business partners – when working with family members it’s more difficult to separate these dual relationships.
At the same time, families are continuously changing. There are births, marriages, deaths and divorces, altering the family dynamic and shifting the roles of each family member. As a result, how the family communicates has to evolve to keep pace.
At the heart of it all, family members will need to manage their shared financial assets. Yet it is never just about the money – beneath the surface you have each person’s hopes, dreams, fears and rivalries. As such, in order to help build consensus it’s important to give your family a voice in helping you plan for the roles and responsibilities of family members in managing your financial assets.
Family members are sometimes given roles based on birth order, personality or talent, which can become entrenched well into adulthood. They might end up being labelled as ‘the clever one’, ‘the spendthrift one’ or ‘the responsible one’. As adults, it can become harder for ‘the spendthrift one’ to demonstrate that they are now financially responsible and can be trusted, while the parent turns to ‘the responsible one’ yet again for any leadership position. As teenagers, this might be amusing – as 35-year-old partners on the board of their family investment company, it can be problematic.
Families of all shapes and sizes have their own hierarchies and power structures with different levels of authority. Typically, this is organised around a hierarchy of generations according to age status – this happens commonly between parents and children, and can also occur between siblings based on their birth order. For example, a younger sibling will usually be able to take orders from an older sibling in a work setting, but the reverse can be extremely stressful for both – even if the younger sibling is more competent. This can cause conflict.
A father might say that he gives his 38-year-old son authority and responsibility for his personal financial decisions, but his son may view the situation differently. He could think that his father is actually controlling what he does by setting strict rules on the use of the wealth that he had no say in creating. The son might feel that he is not respected or trusted as an independent adult. As wealth creator, the father may feel that his son is in a position of privilege and needs to stick to the rules for his own good and to protect his legacy.
What can you do?
So in what ways could these dynamics and emotions manifest themselves and how could they affect your wealth plans? And what can you do about it? We explore two common challenges you might face when thinking about family dynamics.
1. Different attitudes, different wealth plans
Most people absorb messages about money from key family members throughout their formative years through to adulthood. The family might have certain sayings such as “neither a borrower nor a lender be” or “waste not, want not”. In some cultures, philanthropy and supporting the wider community is a core virtue, while in others – especially societies where there are no safety nets – supporting family members in need may be a key priority.
When you talk about your wealth plans with your partner, you may find you have completely different views. This isn’t because you’re incompatible, but because you’ve been brought up to view wealth in a certain way that’s deeply ingrained.
Things to consider
It’s good to talk and explore what messages about money you received from your family growing up. Examine how it affects your own financial decision making and attitudes – what do you like about it and what do you not like about it?
Talk with your partner about what messages you’d would like to pass on to your children as part of your legacy planning. In addition, think about which parts of your own family’s cultural heritage and attitudes you may wish to change or keep that will suit your family going forward
Identify your shared values and act as a role model for the values and behaviours you’d like to teach your children. For example, you can confuse them if you tell them to live frugally and then travel on a private jet for family holidays several times a year.
2. Fair or equal?
Families may take different approaches when passing on their wealth to their children. Some may consider dividing it equally, while others judge fairness by another yardstick, such as need or family size. Everyone in the family can have different needs and this will influence their perspective on what is fair.
Fairness doesn’t necessarily have to mean equal. Imagine you have four children and your eldest son has one child, while his siblings have three or more children. You decide to pay the school fees of all grandchildren. Could your eldest son feel that his siblings are getting more from you due to their larger families? Or if you have a child who is a high earner and another who is a music teacher, would you top up the income of the child who is a musician so that they have a similar lifestyle to their sibling? Could the higher-earning sibling feel that they are being penalised for their success? In the family’s operating business, would you pay all family members the same salary or a salary commensurate with their role and title?
Every child wants their parents to love them and be proud of them. If there are differences in the way that money is shared, we tend to psychologically conflate the provision of money with love. In other words, money can inadvertently and unintentionally become a means for keeping count of success, love, approval and fairness.
Things to consider
Absolute equality can be very difficult to achieve because there are many variables and possibilities. Aim to give your children financially similar opportunities (except in cases of disability, incapacity or other special circumstances).
Be as transparent as possible about financial arrangements. Discuss the concept of fairness with your children and what it means to you as a family. Talking about it in advance and creating this shared understanding prevents misunderstandings in the future. Children often don’t find out about inheritance until their parents die, which can lead to unanswered questions. This can cause feelings of resentment, or even raise the risk of lawsuits and conflict among siblings. While these discussions are understandably not easy, families who discuss their plans and involve their adult children in developing their plans usually say that it brings them even closer as a family.
From a young age, create opportunities for collaboration and not competition among siblings or cousins. For example, you can give them a sum of money as a group that they can give to a charity, but they’ll need arrive at a consensus. For those in their early twenties, you can give them a sum to invest with the help of an adviser. They’ll discuss important questions such as their goals for the investment and their attitude to risk and arrive at a consensus.
You may seek to build a shared sense of purpose and an emotional connection within the family and towards the family’s assets. This can start with articulating your shared values and how they influence the purpose of your wealth. Arrange for children to pay regular visits to the family business or take part in projects for the family’s charitable foundation.
Family Legacy Self Assessment
There is no one size fits all strategy as all families are unique. Successful families have found it helpful to consider the following practices and adapt them to their family where relevant. Download and use this checklist to start the conversation.
To complete: please put a tick in the ‘Agree’ box if you agree with the statement, a cross if you disagree and an/a if not applicable. If you disagree with the statement and you want to address it now, please put a tick into the ‘Current Needs’ box. If you Disagree with the statement, and it is something you will want to address in the future, please put a tick in the ‘Future need’ box.
Your legacy consists not just of your financial arrangements, but the foundation you lay for the next generation. Family dynamics are a predictable challenge that could cause conflict in the future, so creating a plan that involves and prepares your family will help to protect and enhance your legacy.
We hope you found this information useful, and if you have questions or if you would like to explore any of these topics in greater detail please contact your Wealth Advisor who will be pleased to assist.
Disclaimer: The information within this document is being provided for informational and educational purposes only. It is not intended to provide specific advice or recommendations for any individual. You should carefully consider your needs and objectives before making any decisions. For specific guidance on how this information should be applied to your situation, you should consult the appropriate financial professional.