Family Fortunes

1. Family wealth requires a unique mindset and long-term perspective

"Old Money families are very different from regular families. And they are not at all what most people think they are."

Time horizon matters. Successful multigenerational families think in terms of decades or even centuries, not just years. This long-term perspective influences every decision, from investment strategies to family governance. They focus on steady, sustainable growth rather than quick gains.

Delayed gratification is key. Old Money families understand the power of compound growth and are willing to sacrifice short-term pleasures for long-term gains. They instill this mindset in younger generations, teaching them to think beyond their immediate needs and wants.

Outsider mentality. Wealthy families often cultivate an "outsider" perspective, remaining somewhat detached from mainstream culture and societal trends. This allows them to:

• Make independent decisions
• Avoid following the crowd in investments or lifestyle choices
• Maintain a unique family identity and culture

2. Family money is different from personal money and requires special structures

"Family money is very different from the cash that individuals have in the bank. Members of successful Old Money families think of themselves as stewards, not owners, of their financial capital."

Stewardship mindset. Family members view themselves as caretakers of wealth for future generations, not as owners with unlimited personal access. This shift in perspective is crucial for long-term preservation and growth.

Institutional approach. Family money requires structures and systems similar to those used by endowments or foundations:

• Formal governance structures
• Investment committees
• Clear policies for distributions and use of funds

Balancing act. Successful families find ways to support individual members while preserving the core capital. This often involves:

• Education and career support
• Seed funding for business ventures
• Emergency assistance
• Strict rules against lifestyle funding or unproductive spending

3. Business ownership is the best foundation for multigenerational wealth

"The best way to begin is simply to begin. But it's tempting to not begin at all. It's much easier to get a job. Let someone else do the thinking; you just do what you are told to do."

Entrepreneurial spirit. Building and maintaining a successful family business provides:

• A source of ongoing income and wealth creation
• Opportunities for family members to develop skills and contribute
• A shared purpose that can unite generations

Key business principles for family wealth:

• Focus on niche markets or unsexy industries with high barriers to entry
• Prioritize steady, long-term growth over rapid expansion
• Reinvest profits to compound growth over time
• Develop unique skills or knowledge that can be passed down

Succession planning. Successful family businesses have clear plans for transitioning leadership and ownership between generations. This often involves:

• Early involvement of younger family members
• Formal training and mentorship programs
• Gradual transfer of responsibilities and ownership stakes

4. Investing for family wealth focuses on beta, not alpha

"Instead of chasing alpha, successful multigenerational investors go after 'beta.'"

Beta over alpha. Rather than trying to beat the market through stock picking (alpha), family wealth focuses on:

• Asset allocation (beta)
• Long-term trends and macroeconomic shifts
• Patience and discipline in investment decisions

Key investment principles:

• Diversification across asset classes and geographies
• Focus on value and income-producing assets
• Willingness to hold investments for very long periods (decades)
• Avoiding unnecessary fees and transaction costs

Investment committee. Successful families often establish formal structures for managing investments:

• Regular meetings to review and adjust strategy
• Education of younger generations on investment principles
• Clear decision-making processes and risk management policies

5. Tax planning and trusts are crucial for preserving family fortunes

"The typical lifetime budget of the typical household shows the accumulation of wealth until age 65 . . . and then the wealth declines as it is consumed in retirement. Fair enough. Nothing wrong with that. But in our experience, as limited as it is, both families and retirees gain when old folks, as well as young folks, continue working toward common family goals, including capital formation and preservation."

Tax-efficient structures. Families must use legal tools to minimize tax burdens across generations:

• Trusts (especially dynasty or perpetual trusts)
• Family limited partnerships
• Strategic use of charitable foundations

International planning. Considering global options can provide advantages:

• Establishing residency in low-tax jurisdictions
• Utilizing offshore trusts and investment vehicles
• Diversifying across multiple legal and tax systems

Continuous adaptation. Tax laws change frequently, requiring ongoing vigilance and adjustment of strategies. Families must:

• Stay informed about legal and regulatory changes
• Work with skilled advisors to optimize structures
• Be willing to make changes as needed to preserve wealth

6. Soft structures like Family Councils are essential for family governance

"The Family Council is a group of family members who make executive decisions for the family as a whole. The Family Council determines the success or failure of your legacy over time."

Family Council. This governing body is crucial for:

• Making key decisions about family wealth and direction
• Resolving conflicts between family members
• Ensuring clear communication across generations

Key elements of family governance:

• Family constitution outlining values, goals, and decision-making processes
• Regular family meetings and clear communication channels
• Policies for inclusion of spouses and in-laws
• Conflict resolution mechanisms

Balancing act. Effective governance must balance:

• Individual autonomy with family unity
• Tradition with adaptation to changing circumstances
• Fairness across family branches with meritocracy in decision-making

7. Education and preparation of future generations is key to wealth preservation

"You give them a baseline education in personal finance and investing through courses, books, and web sites. You give them responsibility, such as a role in the family office or as a member of the investment committee. You bring them into the picture of family finances—as early as possible."

Early involvement. Successful families begin educating children about wealth from a young age:

• Age-appropriate discussions about money and responsibility
• Gradual introduction to family business and investments
• Hands-on experience managing small amounts of money

Formal education programs. Many families create structured learning opportunities:

• Family-specific curricula on finance, business, and wealth management
• Internships within family businesses or with trusted partners
• Mentoring relationships with older family members or advisors

Balancing support and self-reliance. The goal is to create capable, motivated individuals:

• Encourage education and career development
• Provide opportunities, not handouts
• Teach the responsibilities that come with wealth, not just the privileges

8. Family culture and shared values are the glue that holds wealth together

"Family money depends on family culture. And family culture depends on family members, old and young."

Defining family identity. Successful families consciously cultivate:

• Shared history and origin stories
• Core values and ethical principles
• Sense of purpose beyond wealth accumulation

Rituals and traditions. Regular practices reinforce family bonds:

• Annual family gatherings or retreats
• Rites of passage for younger generations
• Shared philanthropic activities

Adaptability. While rooted in tradition, family culture must evolve:

• Incorporate diverse perspectives as family grows
• Remain relevant to changing societal norms
• Balance individual pursuits with family unity

9. Avoid common pitfalls that destroy family fortunes

"Ninety percent of family-owned businesses do not last past three generations of ownership."

Common destroyers of family wealth:

• Lack of communication and trust between family members
• Failure to prepare the next generation
• Overreliance on a single business or investment
• Lifestyle inflation and conspicuous consumption
• Family conflicts and legal battles

Preventative measures:

• Establish clear governance and conflict resolution processes
• Prioritize education and gradual involvement of younger generations
• Diversify investments and income sources
• Maintain financial discipline across generations
• Foster open communication and address issues early

Learn from others. Study both successful and failed family legacies to:

• Identify potential pitfalls
• Adopt best practices
• Remain vigilant against complacency

Last updated: July 28, 2024