Christine Harland is director of Camden Writers. www.camdemwriters.com
Family members who are fulfilled and happy with their lives will work better as a team, says Christine Harland. Individuals should be encouraged to maximise their human and intellectual potential – and not feel as if they are threatening the family unit
"How do we grow great individuals? That is the fundamental issue."
In his thought-provoking book Wealth in Families, Charles Collier, senior philanthropic adviser at Harvard University, asks questions pertinent to all families, not only those with great wealth.
"Estate planning," he continues, "is an evolving, lifelong process... Preserving your financial wealth and enhancing the lives of family members over time, is a journey."
"We should instill a learning process," suggests Collier, "by which individuals are always trying to figure out for themselves, with their children and spouses, what it is that produces happiness."
The question is, "How do we get there?" especially where major wealth is a factor. What Collier and others are saying is that the questions involved in financial wealth preservation and management aren't primarily financial.
Jay Hughes, in Family Wealth: Keeping it in the Family, writes along the same lines.
"Each human being is called to an individual life journey, and to discover one's calling is the single most important duty of each human being."
"Successful families," he adds, "ask the fundamental questions: Who are you? What is your passion? How can I enhance your life journey and your pursuit of happiness?"
Family members who are fulfilled and happy with their lives and who have good self-esteem and compassion will work better as a team. Goals will be clearer, decisions less cluttered and petty jealousies less divisive. Additionally, families who have been able to state explicitly what they stand for and where they are going are less likely to go astray. For estate planners the question then becomes, what can we do to help bring this about?
Chuck Baldwin of Baldwin & Clarke Advisory Services in Bedford, New Hampshire, had been practising advanced estate planning for more than 40 years but still felt he wasn't giving his clients what they really needed.
Among common and persistent concerns identified by Baldwin, particularly for clients who had started with little or nothing, was loss of control over financial assets. Another concern was what they would be remembered for.
"It wasn't easy," according to Baldwin, "to capture those intangibles and move them downstream, let alone create an environment in which future generations had an effective way to add to that store of knowledge."
Overall, he often heard a sense of regret that there wasn't something larger about their lives than the financial legacy. In fact, there was – it just wasn't being communicated.
The third and most commonly discussed concern was the potentially negative impact that inherited wealth could have on the family.
Five years ago, Baldwin joined two hundred planners from around the world for a speech given by Lee Brower. Brower, a passionate proponent of a broader definition of 'family assets,' was instrumental in developing the concept of the 'family empowered bank', designed to allow families to make 'deposits' and 'withdrawals' of human, social, intellectual and financial capital over an extended period of time. As a framework within which all manner of issues can be addressed, the family bank provides the tools whereby members can make sound decisions and avoid the more common stages of wealth dissipation. Over the years, the bank would represent a rich repository of experience, philosophy, family lore and family financial assets.
For Baldwin this concept was what had been missing within the traditional estate planning field. It wasn't that concerns about character development, fulfillment and value systems didn't exist, but, in Collier's words, "the meaning given to money and the family's core values was rarely stated explicitly."
Understanding that this broader view and the tools to implement it were what had been missing, a group of about 25 firms, including Baldwin & Clarke, formed an Empowered Wealth consortium. This Empowered Wealth group is now part of the new wave of estate planning that reaches way beyond the traditional last will and testament.
"It gives whole new meaning to the word 'wealth'," according to Baldwin, "and you emerge with what we call "true wealth." It is a powerful idea. What has been lacking is an effective way of conceptualising the essence of the family's values and intrinsic worth and the means to communicate that effectively.
"If you ask someone to list their assets," Baldwin explains, "they usually mention their money and material possessions. When asked if there is anything of greater importance to them than those financial assets, they will say, 'Yes, my family, health, values and heritage'. They go on to mention their intellectual assets, their education, collective wisdom, unique abilities, alliances and relationships."
The four quadrants
Empowered Wealth organises these into four "quadrants," which comprise the financial, human, intellectual and civic assets. Four-quadrant living is all about capitalising those human and intellectual assets and giving them a life of their own, such that they benefit not only the current generation but future generations.
For a family faced with an important decision, the quadrant framework might suggest the following questions: what action is consistent with the family heritage and value systems, allowing us to capitalise on existing outside relationships (human capital); will a particular course maximise our strengths and competencies and stretch us to excel (intellectual capital); will it dovetail with civic and social commitments (social capital); and, finally, what impact will this decision have on the family's overall financial wealth (financial capital)?
Because the family bank is always growing and changing with the addition of new information and experience, it can remain relevant to successive generations at the same time that it preserves tradition. The family bank is a living rather than a static legacy.
"The family bank allows you to think and work as a team," asserts Collier, "while respecting individuality and creating independence rather than dependence."
The process starts with the creation of the family's 'true wealth philosophy document'.
"This process," explains Baldwin, "helps identify all the family assets and spells out the family's philosophy. In Collier's words, "they decide what is important before they decide what to do."
"That document, which should be revised regularly, becomes the cornerstone for planning and," says Baldwin, "it is a document that every advisor to the family should have in hand and understand. The idea is to continually bring the family together to talk."
Empowered Wealth recognises and celebrates the differences among family members. It in no way anticipates that the second or third generation is going to have someone with consummate entrepreneurial skills. Once the wealth has been created, it can be maintained and sustained and the family members can be a part of that decision-making process, whether they're teachers, artists, educators, social workers, scientists or business people. They become part of the solution rather than part of the problem. Empowerment is about allowing people to reach their full human and intellectual potential as far as possible and have the family wealth both to empower and benefit from that achievement. Inherent in the commitment to establish a family bank is the acceptance on the part of the patriarch or matriarch that while family members may espouse and honour core family values (the philosphy document) they will also follow different paths and be their own people. Rather than threaten family cohesiveness, that freedom to be an individual and follow a true calling adds tensile strength to the family as a whole.
One of the 'rules' in family meetings is that there is no right and there is no wrong. Every family member has something to bring to the table. An experience may be negative or positive: the important question is how do they deal with it, what did it do to them? The idea of the family bank is to capture these experiences, either in writing, on video or orally. This kind of communication is a lifetime project. With Empowered Wealth, financial planners work side by side with other professionals to establish the system and the process. Financial planners may be the architects for the family bank – present at the initial family meetings, involved in the process but, at the end of the day, the family has a process and a system it can build on. Fifty years from now, the tools will still be there; the bank will be an invaluable resource.
"What sets this process apart from the traditional wealth planning processes," Baldwin believes, "is the fact that individuals are encouraged to maximise their human and intellectual potential – at the same time that they are empowered, the detrimental effects of great wealth are neutralised. Wealth is transferred with a sense of accountability and stewardship."
"We don't preach to people," he explains, "we let them get there by themselves. This approach deals with a lot more than numbers," Baldwin continues. "Empowered wealth makes all the difference. Anything we have to share is part of our personal wealth," he says.
"We need to learn what it is we have to give as well as what there is to learn. Let the communication begin."