3 Ways to Build Purpose Around Family Wealth
By Cayucos Wealth
Published On January 5, 2024
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Estate Planning
by Susan Hirshman, Charles Schwab, October 25, 2023
For family wealth to endure, it’s critical to work from a shared sense of purpose. Here are three ways to help foster a deeper connection across generations.
Family wealth can open doors and create untold opportunities for generations, but only if it’s properly managed. Creating a legacy that spans generations takes deliberate planning and honest communication so heirs are ready to embrace the possibilities—and shoulder the responsibilities.
That said, discussions about wealth can be difficult ones to broach, particularly if family members have competing views about how to manage it. But families who overcome these challenges and develop a shared sense of purpose around their wealth are better positioned to protect, preserve, and even strengthen the legacy.
Here are three ways to foster an environment in which every family member feels connected to, and prepared to manage, the family’s legacy assets.
1. Build a culture of education and involvement
Starting early is best. Parents should be prepared to seize on situations in which discussions of family wealth, including how it’s managed and how it may be used, come up naturally with children or grandchildren. These moments help nurture a culture of education and engagement among members of the next generation.
There may be simple money management lessons that can be taught along the way. Perhaps a young child expresses interest in a particular toy or experience, and the parents agree to match the money the child sets aside over time for the purchase. An older son or daughter might have a simple business idea that the parents can fund, with a schedule for repayment and interest.
As your descendants get older, though, more formal and focused education on financial topics may be appropriate, along with discussion of the advantages and responsibilities that come with wealth. Bringing in outside specialists or educators may be helpful. Sharing more information about the sources, structure, and management of the family’s wealth may make sense as well. Think in terms of giving your heirs the knowledge and tools they’ll need to answer tough questions that may arise in social situations, while also preparing them for the responsibilities they’re likely to assume as stewards of the family’s legacy.
Of course, actions can speak louder than words. The older generation should be willing to reflect on the behavior they’re modeling for those following in their footsteps. Ask yourself if the values you want to instill are reflected in your own attitudes and behavior. If they are, it will go a long way toward nurturing the family wealth purpose that you seek.
2. Inspire a discussion of family values and purpose
Sometimes, simply getting a conversation about family wealth started can be one of the biggest challenges. To that end, it may be useful to develop a family wealth mission statement. Such a document—and the process of discussing and debating it—can help families establish a sense of shared purpose, rooted in the family’s heritage and its values.
A mission statement can serve as a roadmap to help everyone better understand how the family’s wealth will be managed for the benefit of current and future generations. It can smooth key financial decisions, reduce friction around the uses of family wealth, and settle some responsibilities.
To help foster open conversation, we suggest having each family member reflect on their views in four key areas:
There are likely to be differences of opinion here, but that’s to be expected and it’s one of the reasons to undertake the process in the first place. Don’t let disagreements derail the conversation though. Focus instead on where your values overlap, at least initially. Starting from a place of shared understanding will help you traverse thornier topics later. Using an experienced third party to help you navigate through these discussions may allow for a more honest and robust outcome.
3. Foster a philanthropic mindset
Knowledge of philanthropy or an understanding of how charities and charitable structures work doesn’t develop overnight. A deliberate effort to nurture the younger generation’s interest in these topics may be wise—and may make your legacy that much more impactful.
Some families may have an end-of-year tradition, for example, of each member getting to choose a charity that will be given a certain amount of money—creating a natural opportunity for discussion of philanthropy and the uses of family wealth. This kind of activity provides experience both in exploring a philanthropic cause and in vetting an organization. It may even encourage the next generation to do volunteer work or develop a passion for a cause.
Donating to charities is easy, but donating wisely and creating a fruitful, sustainable philanthropic strategy takes education and effort. Those who have a philanthropic plan in place should work to ensure that the next generation understands its structure and goals. If for example, a private foundation and/or a donor advised fund has been set up, the next generation should know why it was established and understand the investment and gifting strategies involved.
Ongoing discussions about philanthropy—or direct involvement in the family’s charitable work—can’t help but support broader efforts to build purpose around a family’s legacy. For those who may not have been involved in the creation of the wealth, this can help create a more meaningful connection to it.
*Regulatory assets under management are assets where Sowell provides continuous and regular supervisory or management services to client portfolios. Assets under administration is a measure of the total assets for which Sowell provides administrative services.