Are you properly preparing your heirs for their inheritance? In January’s newsletter I shared of a discussion with a prospective client wishing to do estate planning for his $40M empire. He was completely focused on the need for tools, techniques and strategies, and had not considered the high probability that the family (some working in the business and some not) might not remain intact even if the assets survived the transfer. In this newsletter we will talk about using a family council to prepare your heirs
According to a study by MIT, 70% of all generational transfers of wealth are doomed to failure. Only 5% of these failures are due to ineffective estate documents or external factors. A staggering 95% are due to family issues… a breakdown in communication and trust, poor preparation of heirs and a lack of common purpose.
How can we beat these odds?
In January I discussed the importance of open communication and trust in successful wealth transition planning. I recommended that you draft a “Letter of Intent” to begin a dialog with your heirs. Forgive me for nagging – but please take the time to draft this important letter. For more information on how to prepare your heirs to receive the wealth and a Letter of Intent sample, please read “Are You Successfully Preparing Your Heirs for Wealth?”.
Another recommendation is to create a “Family Council” to prepare heirs for a successful transition. Family Councils are an excellent way to create an open dialog, establish trust, and address “head on” those issues that make up 95% of wealth transition failures.
Family Councils allow the family to discuss matters relating to their wealth, including how and when that wealth will be distributed. Ideally, this would include all heirs (including spouses) to create a multi-generational forum. One ideal outcome would be to provide heirs with a better understanding of investing and give them practical experience in administering and managing assets before they inherit larger amounts. Giving them practice and experience in handling challenges (and disagreements) and allowing them to make mistakes is an integral part of the learning process and can provide invaluable lessons, too, in accountability. Additionally, this is an opportunity to teach your heirs how to use family advisers wisely.
Here are some Dos and Don’ts of successful Family Councils…
- Be willing to commit time and energy into learning how to work as a team to preserve your wealth and harmony.
- Select a trained facilitator to productively guide you through your Family Council meetings.
- Consider the use of a Personality Profile Tool such as the DNA InterPlay Profile to better understand each member’s personal motivators and communication style.
- Allow and encourage clear and open communication. This is the time and place to discuss family issues in safety, and allow sensitive and taboo subjects to be aired. Focus on resolving conflicts using mutual support and trust.
- Actively involve all heirs, and value their input. Be open to different perspectives.
- Be very specific. Discuss desired outcomes and how you plan to achieve them, including how and when the family wealth will be distributed.
- Be patient and recognize the need to mentor the younger generation. Your heirs should be allowed hands-on experience to prepare them for the inheritance they will someday receive.
- Create a specific agenda for each Family Council meeting. (Click Here for a sample agenda.)
- Establish teams to work together on family tasks between meetings (e.g., selecting charities to include in the estate to encourage philanthropy). This enables all family members to play a role and participate.
- Allow the “Four Horsemen of the Apocalypse”… Accusation, Contempt, Defensiveness, and Stonewalling … any opportunity to participate in your meetings (Click Here for more information on the Four Horsemen).
- Share family council details, secrets, topics and conversations outside of the Council without express permission from the other members.
- Exclude heirs. If they are important enough to be your heirs, they are important enough to participate.
- Put this off. The best time to hold create your Family Council is NOW.
Here are some possible topics for your first Family Council meeting…
- Create a Family Mission Statement— This will form a unifying core for future family discussions, priorities and values, as well as guidance for your professional estate and succession planning team.
- Create a Family Vision Statement—the purpose of this exercise is to clarify goals and the steps that you will take as a family to reach them. If you included your own Vision Statement in your Letter of Intent, this is a good place to start. A Family Vision Statement provides a sense of shared purpose across generations.
- Provide education and experience—educate inactive or younger members about the family business (if there is one) and its history. Assess whether your heirs are ready to receive and manage the assets they will inherit. If they are not, establish a specific plan to teach them about wealth and responsibilities inherent with it.
If you need further assistance in setting up Family Councils or decide that you would like an objective facilitator to guide you in your Family Council meetings, please call my office. Together we can create an environment to successfully transition your wealth … for generations to come.
Written by R. J. Kelly – February 2015
Image Credit: Sunny Studio / Shutterstock