Winning in Business and Families                                           November 25, 2017

The World Needs Your Family to Continue Doing What You are Doing

On this Thanksgiving weekend, I feel we should be giving thanks for everyone who owns and operates a business. You are the people who make this country great through your hard work, dedication, sacrifice, financial and time commitments, and willingness to risk it all. Not only do you benefit your family, but also the entire economy and the families represented by the people to whom you provide employment, opportunity, and a future. Our country desperately needs you and your family to keep doing what you are doing. There is a lot to be lost if your family does not carry on the legacy you began.

Let us assume you have a family business you started and have grown to an estimated value of $35 million. Your success allows you to own a home in southern California with equity of about $3 million, and a second home in another state with $1 million of equity. You also own the real estate that houses your business. The equity in that real estate is $5 million plus four industrial buildings you hold as investment properties for another $3 million of equity. Your qualified retirement accounts hold $2.5 million of investments, and your non-qualified cash and investments represent $3.5 million. Your total net worth is $53 million.

You have a wife and four children. Your wife has never worked or been involved in the business. All four children are married. One has given you two grandchildren, one has three children, the third has five children, and the fourth has a struggling career and marriage, and financial problems. One of the children is the controller in your business, and another the Sales and Marketing VP. The other two children have separate careers.

Statistically, throughout the world and ages, 70% of a family’s wealth I just described will be lost each time it passes to the next generation, and completely gone at the end of the third generation. That suggests the probability of your business, and all the good it has been doing for your family, your community, the employees and their families, and the economy will stop unless there is a purposeful and intentional effort to sustain it within the family. The Rockefeller, Getty, Kennedy, J. P. Morgan, and thousands of families around the world created greater and greater wealth, and united their families by keeping the wealth within the family and making the family the business. Today we call these family offices.

Click on this link to get a summary of what a family office is (our firm prefers to call it the family holding company). Think of it like the family business you already own, but expanded into an entity, or entities owned by the family with a built-in succession plan that easily passes the family wealth to subsequent generations, and provides your family with all the resources every family member needs, while accumulating and creating greater wealth for multiple generations of 100 years or more. Here is a chart depicting the services a family office provides to the family. (Click on the chart to enlarge it)

There are two types of family offices. The single-family office (SFO) is suited for a very-high net worth family (normally $100 million plus). The multi-family office (MFO) is best suited for the family I describe above. Advantages of a multi-family office are it can pool its resources with other multi-family offices to take advantage of opportunities it might not be able to access solely on its own assets, and the education and experiences it can draw on from other families.

Whether a family office is right for your family will require a lot of discussion involving all family members and is best done with the assistance and involvement of a family coach. Attorneys and accountants are critical to providing their respective services to the multi-family office, but they are not the right people to have these conversations, and initiate and operate it. A family coach, who can coordinate the money issues in the family with all the people and relational issues, is the best person to help a family decide what is best for them.

Here are a few criteria to consider. (1) Does your wealth bring with it a high degree of complexity? The example I used above meets that requirement. Not only are there varying types of assets with differing levels of liquidity, but there is also significant complexity on the people/relationship side of the family. (2) Are there multiple generations? My scenario already represents three generations. It is conceivable, if dad and mom are relatively young, the great grandchildren could bring a fourth generation to the family table. More people equals more complexity. (3) Desire for privacy. While lifestyle generally reveals if a family has wealth, most families do not want the amount and composition of their wealth and the family dynamics exposed to the public. A family office can protect and respect that privacy. (4) Asset protection. Standard estate planning using only wills and trusts may not adequately protect the family wealth from lawsuits, divorces, business failures, and bad investments. A family holding company can provide a much greater degree of protection. (5) Control. This may be the most important criteria. Typical estate planning that distributes all the family wealth to the children to do with as they please will increase the probability that 70% statistic will be realized and the family wealth gone in three generations. Retaining the wealth in the family holding company under the ownership and management of the family team, aided by wise council from other professional advisors, will give the family greater wisdom, wealth, purpose and a legacy of significance.

The most important question to answer is, what do you want your family to be in thirty, forty, or fifty years from now? If there were to be a family reunion, how many people would attend, and would they know, like, and respect each other? Would they be able to share stories and examples of all the good the family wealth has created for all family members, their community, and their country? A grateful country needs your family to continue doing the good it has already done, to educate and prepare future generations to carry on entrepreneurial vision and business skills, and to have a strong family that will show other families how to succeed and be significant.

You can get more insights from Kip’s book, “You Can Have It All-Wealth, Wisdom, and Purpose. Strategies for Creating a Lasting Legacy and Strong Family at our website below.

You can review articles on investing, financial planning, business planning, and family coaching and wealth transfer at our Learning Hub                  Kip Kolson, President

Family Wealth Leadership helps families transform True Wealth into purpose so every generation can be healthier, wealthier, and wiser by coaching parents and children in how to invest, build, operate, manage, and work as a team to achieve a worthwhile and common purpose that creates a legacy of significance.

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