Updated: Jan 12
The short answer is YES.
Values. Passions. Purpose. Even though some clients still recoil a little at the mention of these self-help and spiritual industry catch-cries, they are vitally important when it comes to developing a consistent, transparent and fair Family Wealth Pathway. And here’s why.
Say you’ve done well for yourself. You are 58 years old, fit, healthy and enjoying your work. You have a beautiful home, a few sizeable investments and more than enough for a comfortable retirement. You also have 3 adult children.
Tommy the youngest is single, lives a fast paced lifestyle, which has included less than stable employment in the restaurant industry. He wants to buy his first home, and has ambitiously chosen a 3 bedroom, inner city warehouse. Tommy would like you to help him with half the purchase price of $3 million.
Jackie, your middle child is married. She works as a full-time nurse and has 2 young children. Jackie and her husband bought their first home for $1.2 million which is a modest 3 bedroom terrace. Jackie’s youngest child has a serious medical condition. To get the best treatment available they need to move to the USA for 6 months. The move and the treatment will cost $800,000. They would like some help.
Isabelle, your eldest is 27. She won a scholarship to Oxford Uni and completed an honours degree in biochemistry. She started a company at 17 providing an on-farm experience for senior high-school students. The program links subjects, particularly STEM, with tertiary courses, that can progress to careers in agriculture, primary production and the food industry. The business has been hugely successful. She wants to expand the business into Europe and needs $1.8 million as startup capital.
Who do you give money to? How do you prioritise their needs? How do you communicate your decisions to other family members?
Do you lend them money? And if so, under which terms will the money be lent?
Do they all get the same amount? How will you make things fair?
These are the types of decisions which inevitably arise in wealthy families. And if they aren’t handled well, these are the types of situations which cause resentment and disharmony between parents and siblings.
Which is why you need to plan a Family Wealth Pathway around your family VALUES and the PURPOSE for the family wealth. Simply put, It will provide clarity about what your money is for, and what it is not for.
Treating your wealth as a ‘family enterprise’ helps to ensure it is consistently, transparently and fairly managed and preserved for the next generation (and possibly generations after that). It can limit the financial leakage that occurs when money and assets are distributed indiscriminately to beneficiaries who are unprepared for the responsibility.
The starting point of everything is this essential question. Who are we and who do we want to be in the future as a family?’
Defining family values and the purpose for family money will require discussion and agreement around your priorities. It is a process to which you should dedicate a reasonable amount of time. But as a starting point as a family you should consider things like:
Will the family provide for education for all family members?
Is healthcare a priority? If so will the family provide medical insurance?
Perhaps you want to encourage each family member to ‘make it on their own’. Therefore you might consider contributing to superannuation which provides for them later in life rather than give them money when they are young.
Will you help each family member with housing? Is there a $ limit to this? If so how will you account for rises in the property market. $1million today might not buy the same kind of property that $1million will buy in 5 years time.
Will you establish a ‘family bank’, whereby family members have access to affordable finance if they meet certain criteria, but the idea is that all funds are repaid, maintaining the wealth pool for future generations.
Or is your highest value as a family dedicated to preservation of the environment rather than individual pursuits?
Perhaps politics, religion or sport are the things you will decide to support with your wealth.
As you can see, there are endless possibilities and the values will be unique to each family. However, if these aren’t discussed and agreed there is a real possibility that wealth will be destroyed either via poor decision making, putting it in the hands of people who are not financially responsible or worse, via drawn out legal disputes between family members.
We can guide you and your family through our Values and Purpose process as part of our Family Wealth Pathway. As daunting as it might sound it can be an extremely rewarding and transformative experience. Contact me if you’d like to find out more.
by Paul Barrett. CoFounder and Director of Absolute Wealth Advisers and creator of the Family Wealth Pathway.