Prosperity with a Purpose

Is there a purpose for your prosperity?

In other words, what are you trying to accomplish with your wealth?

Most people want to make sure their retirement is secure. Beyond that important goal, they may want to pass wealth to future generations.

But is it really a purpose just to pass wealth to the next generation?

We often hear of stories where wealth created in one generation was squandered away by the third.

According to the book, The Millionaire Next Door, over 80% of the millionaires in America have created their own wealth and not inherited it. They are first generation millionaires.

If you are in this newly minted millionaire group, do you want your wealth to be a long-lasting legacy for many generations?

Even if you inherited wealth, do you believe you have a family obligation to build upon the good fortune of your predecessors so your heirs can have the same opportunities?

Putting aside all the legal and tax strategies needed to accomplish a legacy, a family can preserve lasting wealth by preventing an entitlement attitude. Admittedly, this can be a tall order as an entitlement attitude results from one generation not fully appreciating inherited wealth, wealth they themselves did not create. Without diligent planning, this attitude can become more pervasive with each successive generation.

There are some common threads among families who grow wealth from generation to generation. The first is an understanding and appreciation that while very few in the family may have initiated their wealth, all members have an obligation to continue building it. This requires a plan communicated throughout the family.

Think of your descendants as a garden, if you will. It is common knowledge that before a garden is planted, the soil must be prepared. In doing so, the soil is broken up and tilled because nothing can grow in hard soil. Providing a superb education and instilling the benefit of being teachable allows the soil of your children to be broken up and sets the stage for them to be productive. Also, don’t forget that a crucial ingredient for fertile soil is manure! During difficult times, it is the manure that drives our children to be better and not take the good things in life for granted.

Creating a vision statement of the family purpose of its wealth is a good idea. This type of communication preserves the family “memory” from one generation to the next. It is common for entities such as endowments to have such a statement since they are designed to be in perpetuity. However, families are designed to continue as well so it makes sense for the creators of the wealth to layout their visions.

It may be difficult to convince each successive generation to buy into the vision of sustaining the wealth. To be successful, clear and early communication of family values and ideals is required.

Of course, if just talking about family goals guaranteed success, life would be pretty easy. But life is full of unforeseen events. That is why trusts are extremely good tools to protect the financial health of future generations. There are many types of trusts and one size does not fit all so we encourage you to consult with your legal advisor. With that said, a properly drafted document can provide an incentive for your children to achieve something on their own and not be reliant exclusively on family wealth.

An example of this is the decision on the length of time funds should remain in trust for children and grandchildren. A few may be ready to take control at an early age, but most need time for maturation. One of the benefits of a later maturing trust is creditor protection for your children. Properly drafted trusts can protect assets from creditors, divorce proceedings and other court judgments.

As mentioned earlier, another benefit to having a trust is standards for beneficiary access to family funds. Some trusts will hinge access to money with benchmarks such as attending college, being gainfully employed, etc. Trusts are not cookie-cutter documents so they can be structured to meet the needs of individual families.

Remember, the requirements you put into your trust document must be administered by your designated trustee. The more onerous the requirements, the more challenging work for your trustee. For this reason and for the invaluable expertise in investments and trust law, seriously consider a corporate trustee.

Many people name a child or their children collectively as their trustee. Before doing so, ask yourself: if my son or daughter was not related to me, would I want them to manage all of my financial affairs?

Naming a corporate trustee insures prudent money management and unbiased expertise. No one wants emotion to cloud the decision making process as it relates to the execution of their wishes.

If you would like to discuss what trust would best suit your family’s needs, please feel free to contact me or another member of the Trust Company team.