Beyond Technical Planning – The Keys to Family Wealth Continuity

A surprisingly common lapse can derail even the best wealth continuity plan, according to David Lansky: an inability to communicate within the family.

Lansky, Ph.D., a principal consultant with the Family Business Consulting Group, discussed the opportunities and pitfalls of such plans with Altair clients and guests at a July presentation coinciding with the release of his book, Family Wealth Continuity.

A clinical psychologist who works with business- and wealth-owning families, Lansky said he is struck by the all-too-often occurrence of people creating elaborate structures to protect and preserve assets without considering how these plans will be received by or affect the family members they are intended to benefit. People set up these structures to protect the future yet if they don’t deal with underlying issues of poor communications or family conflict, even the most technical and comprehensive estate plan is likely to fail.

Some of his own recent experiences with clients testify to those challenges. In one instance, two of three adult siblings involved in a planned family foundation were estranged and refused to attend family meetings with each other. In another, a man aiming to establish a family office to manage his and his sister’s inheritance acknowledged that he did not have her approval for his plan to have his unemployed young son lead it because they had not spoken in more than a year since having an argument. These unaddressed emotional issues prevent the implementation of any well intended planning.

Lansky emphasized the importance of taking family dynamics and individual differences into consideration as well as not falling into the trap of thinking that the structures are more important than the people.

“Sometimes we have this fascination that if we create a succession plan, if we create an estate plan, that’s going to do all the work for us. But it’s not the case,” he said.

The main reason many families struggle with the process of continuity planning, is the lack of a foundation on which to build successful efforts. Lansky named five building blocks that should be present, as discussed in detail in his book:

1. Learning Capacity

Involving an ability to adapt to changing circumstances with thoughtfulness, insight and strategy.

2. Familyness

Reflecting a general sense of goodwill and caring among family members, who are willing and able to give one another the benefit of the doubt.

3. Safe Communication Culture

Comprising comfort with honest dialogue, an ability to accept personal responsibility in difficult issues and a variety of opportunities and forums for discussion.

4. Commitment to Personal Development

Emphasizing development of members’ individual capabilities in financial/legal literacy, emotional intelligence, and health and happiness.

5. Effective Leadership of Change

Handling change well or even seeking it out in many areas of family life, from who controls the assets to what communication protocols the family should observe.

Lansky’s book cites examples of families of wealth and some of the obstacles and frustrations they had to work through.

It all begins with good communication.

“If the family is poorly engaged, unprepared or unsupportive, then the structure, no matter how technically correct, is unlikely to accomplish the goal of keeping family and assets together,” Lansky writes.

Key Quotes on Family Wealth Continuity from David Lansky

If you don’t pay attention to the family dynamics, the (wealth continuity plan) structure is not going to be useful.

If you’re going to pass on wealth to your children, the best thing you can do is talk about it. But not necessarily about the money. Talk about the values, about what’s important to you as a family, about what you expect from your kids, about why you’re providing the gifts you’re providing.

It’s very important to think about whether it’s best to leave an inheritance and/or whether to provide some money in the present to your kids. After all, if the purpose of the wealth is to somehow enhance others, to contribute to families, to do good, then what’s wrong with doing something in the present?

Too much closeness, too much ‘familyness,’ stifles individual development. If you try to treat everybody in the family exactly the same, it creates a situation that doesn’t feel fair to people.

The material shown is for informational purposes only and should not be construed as accounting, legal, or tax advice.  Altair Advisers LLC is a registered investment adviser with the Securities and Exchange Commission; registration does not imply a certain level of skill or training.  While efforts are made to ensure information contained herein is accurate, Altair Advisers cannot guarantee the accuracy of all such information presented.