Successful legacy planning

Leadership, trust, and the 3 Ps of communication help with transitioning family wealth

Families of wealth can successfully maximize their financial capital across multiple generations, along with the critical human and intellectual capital that will define the family, its values, and its legacy in perpetuity. The enduring principles followed by a long history of prosperous families in securing their financial and emotional legacies are as valid today as they were centuries ago. Yet, history also shows that, according to the Family Firm Institute (FFI), just one in ten families achieve their legacy vision of asset preservation with intergenerational harmony.

A tragic record of failed legacies

Sadly, for many of the nine-out-of-ten families who fail to solidify their legacies, both their financial capital and human capital are often depleted within just two generations. In most cases, it’s not due to a lack of financial planning with attention to the transfer of wealth; instead, it is their inability to coalesce family members across multiple generations around a central, clearly defined vision.
While tragic, the resulting loss of wealth and the devastation of the core family pale in comparison to the lost opportunity for creating enduring, shared economic value for future generations and society.

 

The record of failed generational transfers of wealth and the causes are well-documented and have been studied exhaustively by academia, alongside the cases of successful multi-generational transfers. It is accepted doctrine that families who adhere to certain essential principles, or tenets, are more likely to succeed in creating a long-lasting legacy. The disconnect stems from the fact that these time-tested principles have yet to permeate the traditional practices of wealth managers and financial planners, who tend to focus strictly on the financial aspects of wealth transfer.

In an FFI survey of families of failed generational transfers, 60 percent of 3,200 respondents thought the primary factor contributing to their loss of wealth was a lack of communication and trust. Twenty-five percent blamed unprepared heirs for their failures. Only three percent faulted poor financial planning or investments. For these unfortunate families, hindsight is 20/20. However, while it may be possible to use hindsight to change an outcome, there is rarely a second chance for transitioning families.

Legacy planning requires leadership and trust

Families hoping to influence a transition of values and tradition from generation to generation must have the same structure of leadership and communications required of a business enterprise that wants to build a trust culture from top-down and bottom-up. In top-performing companies, leadership creates a transparent atmosphere of trust and shared purpose by giving all employees equal access to the lines of communication, while making them feel safe in expressing themselves. Successful families can do no less.

In their highly regarded book, Creating the High-Performance Team, authors and leadership experts Steven Buchholz and Thomas Roth, introduced the “3 Ps” of creating a safe and effective communication atmosphere:

Permission: All family members, regardless of age or relationship, are permitted to be heard.

Protection: Permission to be heard is given along with the promise that there will be no adverse consequence for speaking out.

Potency: With permission and protection comes the assurance that their voice matters.

Establishing trust through clear and honest communication doesn’t happen overnight; it requires a structured approach (as in the 3 P’s), shared leadership, and accountability to the process—a daunting endeavor for any family. Families intent on steering a course for success will make strict adherence to this principle their top priority, to the extent of hiring a trained facilitator to help cement it into the family structure.

If you and your family need some assistance with legacy planning, we invite you to contact one of the team of professionals at Alpine Bank Wealth Management for a consultation.

Products of our Wealth Management service are not FDIC insured, may lose value and are not bank guaranteed.

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