(Forbes) I know it’s a macabre question. No one can truly manage their affairs from the grave.
Yet that seems to be the unspoken hope of a certain type of successful person: someone who has made very good business decisions over the years.
Some of them have built miniature business empires.
Nearly all them play their cards close to the vest and trust few people outside their inner circle.
The clients I enjoy serving are very successful entrepreneurs, business executives, private equity and venture capital people. Many of these folks do things that other people say can’t be done. They swim upstream. They defy the odds. Herein lies their challenge.
They’ve been so successful doing things their own way that no one else seems to be able to follow the breadcrumbs. The decisions they’ve made have been shaped by certain core values and guiding principles. But their heirs, their advisors and the people who help them manage their affairs often struggle to understand the values and principles and act accordingly.
This situation only becomes more problematic over time. If I’m the fourth generation of a wealth creator, how can I know what my great-grandparents did to create the wealth? How can I know what values gave rise to the wealth and what my values should be?
Successful people who recognize that they cannot manage from the grave choose a better approach. I call it a family finance book, or "The Book," and it helps create cohesion and unity among family members and their advisors so family wealth is protected and the legacy endures. Let me explain.
What is your legacy?
The families that I enjoy serving really care about their legacies. While no two families are the same, many of my clients are charitable and want to make the world a better place. They also want to preserve their wealth for future generations.
I’m sure you’ve heard the old saying: shirtsleeves to shirtsleeves in three generations. The first generation creates the wealth. The second generation spends it, and by the time the third generation comes along, the wealth is gone. So is the legacy.
While not all the clients I serve have created multi-generational wealth, they all want to be wise with their wealth and make it last. The first-generation wealth creator sometimes does this by practicing very tight controls over the money.
They often carefully guard access to the wealth by setting up multiple accounts and revenue streams. Sometimes they -- or possibly a trusted accountant -- are the only ones who understand the big picture. They also guard access to information. It is not uncommon for children of successful parents to not know how much the family is worth.
But these types of controls are short-lived. They only last as long as the wealth creator. Many of the families that I serve are choosing a different approach. They are engaging in an open process to build a family book. This not only preserves the wealth, but it also preserves the legacy, often for multiple generations.
How do families build The Book?
A family book can contain numerous sections, depending on the complexity of the family holdings. These can include a family mission statement, history of wealth creation, guiding principles that gave rise to the wealth, a list of all assets and accounts and even a list of advisors and what they advise on.
The Book can also include a description of family values and a statement of charitable intent. It can describe charitable causes that the family supports. It can also detail the financial vehicles, like trusts and investment accounts, that provide support for these charities.
The Book can include nearly anything that the family cares about. But for that to happen, the family needs to talk, tell stories, remember the past and envision the future. This is where I spend a lot of time with my clients: helping them have these conversations so we can help them build their unique family book.
Where the wealth comes from often determines where it is going.
After working with numerous successful families to help them build their books, I’ve come to recognize certain patterns. Here is one such pattern: How the wealth was created has a great deal of influence on how the wealth is to be used later.
This goes right back to legacy. So, here is my advice to those who have not yet built a family book but want to control how their wealth is used: If you’re going to leave a legacy for loved ones, it is essential to have an organized and detailed book with a mission statement and your views and values clearly encoded. This is a far better approach than building a complex financial management system that only a few people fully understand.
The estate plan forces the issue.
Many successful people can bury themselves in work, earning incomes, forging businesses and building empires. But at some point, usually when it’s time to develop their estate plan, they have to stop and look at everything they’ve built and decide what to do with it.
This can be a very uncomfortable experience for people who do not have The Book. How can you explain the structure of your holdings to an estate attorney and expect them to understand your intent if your values and mission are not clearly documented?
I often find that successful people are really not satisfied with their estate plans. Usually, this is not because the estate attorney didn’t do a good job or follow a clear process. This is yet another important reason to build The Book.
When your values, history, mission, structure of holdings, titles, accounts and business entities are clearly mapped out, it becomes much easier to build an estate plan that you believe in. The Book provides peace of mind and helps ensure your legacy endures long after you are gone.