Allow us to introduce the Purpose of Wealth Model: a practical tool that encodes assets with specific planning goals.

The model streamlines the selection and development of wealth planning instruments, connecting the principles of the family constitution with a family’s assets.

Exploring the family’s key planning goals, the model guides the choice of legal structures – like wills, trusts, and other fiduciary instruments – to make sure they’re aligned with the overarching wealth strategy.

In short: the model creates tailored “asset algorithms” to turn wealth planning goals into effective, actionable strategies.

 

From ambitions to reality: crafting tangible wealth planning instruments

Even the most rigorous, well-intentioned ideas only realise their full potential through active implementation. True in life, and in wealth planning.

Once a family has crafted their wealth plan (grounded in the Conduct Formula principles of healthy relational dynamics) and solidified it in constitutional documents, the question arises: how can they bring it to life?

This process means transforming strategic concepts into specific wealth planning tools. And, once those tools have been created, incorporating them into a comprehensive legal framework. Such a framework is vital: it brings to life the family’s vision of their objectives and legacy.

Let’s start with a straightforward scenario. For bequeathing a personal item like a wristwatch, the choice of legal instrument – such as a lifetime gift or a bequest by way of a last will – may be simple to choose.

But more complex scenarios – like transferring a multinational business or ensuring long-term support for future generations – demand a nuanced approach.

At this juncture, wealth owners face the question: ‘Should I directly transfer assets to my successors, set up corporate entities, create a trust, draft a last will, or incorporate a foundation?’

This question is fundamental, of course. But without a well-guided approach it can plunge wealth owners into the classic chicken-or-egg dilemma, as they struggle to prioritise a particular planning tool – or their underlying objectives.

 

Breaking the cycle: overcoming premature focus on planning instruments and ambiguity in planning goals

Ideally, a family’s wealth planning objectives should inform the tools it chooses. But several factors can complicate this process:

• A lack of clear goal articulation
• Potential biases from advisors pursuing their agendas
• The intricate nature of the wealth owners’ situations
• The dynamic evolution of planning goals can result in a premature focus on specific tools

Such factors can lead to paralysis by choice: a family may feel overwhelmed by options and unable to make a decision, while advisors might lose sight of the bigger picture. Such indecision (a decision in its own right) can obstruct the planning process, and jeopardise the family’s key planning objectives.

Often, this complexity leads to prioritising debates over tool selection – without interrogating how they should be designed, and how they serve the key objectives.

Families can become trapped in a ‘merry-go-round’ of choices. They may feel they are moving forward, when they are simply moving in circles. This can render previous planning efforts moot – and set back the entire planning process.

How, then, can families break the cycle to find a well-informed, definitive conclusion that aligns tools with their goals?

 

Understanding tool selection biases: cultural, advisor, and family dynamics

One must not forget that personal preferences and cultural norms also influence the choice of legal instruments and manner of transferring wealth.

For example: individuals from civil law jurisdictions might be less familiar with fiduciary instruments like trusts, which are more commonplace in common law jurisdictions.

Likewise, preferences regarding asset transfer can vary, influenced by factors including local traditions, familial expectations, or legal and jurisdictional considerations. Advisor biases can also complicate these decisions. Professionals – with their unique perspectives – can behave like a hammer: seeing every issue as a nail, steering choices towards processes and structures better aligned with their own interests.

Lawyers might advocate solutions that ensure their continued involvement, such as executors and protectors. Fiduciaries might favour trust structures that grant them extensive powers, while bankers recommend solutions that keep assets under their management.

So, we have personal biases, advisor biases – now family dynamics add another layer of complexity.

On one hand, some wealth owners and their family members may resist adopting legal structures that are beneficial, because they do not trust or understand them. On the other, they might insist on assuming key roles within these structures, potentially jeopardising their governance and integrity.

In our experience, this often occurs within families who have past negative experiences with service providers, and who now lack confidence in external advice. These dynamics can result in the creation of legal structures that are ineffective in practice. Without alignment and assurance, these structures may exist in name only – and fail to offer the intended protection or effectively meet the family’s wealth planning goals.

 

Aligning content and form: introducing a strategic approach and methodology for suitable selection of wealth planning tools

Coping with these considerations demands a practical, comprehensive approach. It’s important to recognise the influence of personal preferences, cultural backgrounds, and advisor biases, but to not let them dictate the path.

Instead, our approach integrates these factors into a structured methodology, aligned with the family’s goals and legacy aspirations. It ensures structures suit the family’s unique circumstances, merging individual influences with overarching objectives.

Ultimately, the central challenge is translating the family’s goals into tangible legal structures. This task extends beyond asset ownership, legal tools, and potential biases in succession planning.

Our experience highlights three key steps:

1. Grouping assets by distinct planning purposes.
2. Creating tailored ‘algorithms’ for each asset or category, reflecting specific goals.
3. Selecting the most suitable wealth planning instrument for each purpose (and customising it to fulfil its intended function)

With these steps, we can ensure every asset (or group of assets) achieves its planning objectives with personalised legal structures. The result? The seamless integration of planning intentions with practical implementation.

 

Introducing the Purpose of Wealth Model

The model’s strength is its approach to defining the ‘algorithm’ for each asset or asset category, achieved through two critical dimensions:

1. Control versus flexibility
2. Ownership versus trusteeship

These dimensions are central. After all, each wealth owner will have different preferences regarding control and adaptability.

In addition to these axes, the model adds depth by classifying the planning purposes for assets. This integrated approach, combining dimension-based algorithm definition with purpose classification, creates a nuanced, precise tool.

 

1. Crafting “asset algorithms” for “coding” effective wealth planning tools

In its most basic form, an algorithm is a sequence of instructions designed to perform a specific task or solve a particular problem. Think of it as a recipe: a series of steps to transform different ingredients into a delightful souffle.

In wealth planning, an “asset algorithm” is a structured approach designed to determine how an asset should be handled – both now and in the future, in line with the owner’s goals and intentions.

This asset algorithm includes various aspects:

• Comprehensive directives on the asset’s management
• Identification of beneficiaries for its use and income maintenance responsibilities
• Conditions governing its use, and specific instructions for any potential sale
• Outlines for the asset’s ongoing role within the broader context of an estate or succession plan

The complexity of this algorithm varies according to the asset’s nature and the sophistication of the planning purpose, including the parties involved and the planning horizon. But straightforward or complex, the algorithm functions as the ‘code’ for an asset, guiding its incorporation into a specific wealth planning tool.

Attaching an ‘algorithm’ to an asset (through the right wealth planning tool) enables wealth owners to ‘encode’ their goals for wealth planning. In doing so, they ensure the asset serves its intended purpose beyond the current owner’s lifetime. They provide clarity to future generations or trustees on managing the asset, according to the original owner’s wishes. (Even across different stages and transitions, if so desired.)

 

2. Defining tailored asset algorithms

Let’s explore our two axes in more detail:

1. Trusteeship versus Outright Ownership: This axis determines the most suitable legal and operational structure for each asset. It balances control and protective oversight.
2. Strict Code versus Flexibility: How much should pre-defined rules govern the asset’s management versus the adaptability of the wealth planning instrument? This can range from strict adherence to predefined rules to dynamic strategies that accommodate evolving family circumstances and needs.

This parameter addresses the number and strength of the code’s guidelines, who holds the authority to amend the planning instrument, and under what specific conditions.

 

The first axis: ownership versus trusteeship

Ownership confers legal rights, but often doesn’t allow settlors to provide detailed directives on how an asset should be used, shared, or sold.

So outright ownership is best suited to assets distributed among family members capable of handling the asset transfer, and who are aligned with the family’s values. For instance, the transfer of an asset should not discourage a younger family member from pursuing their ambitions (nor should it encourage them to become complacent).

In highly contentious environments, where family cooperation is improbable, dividing assets can be the preferred solution. In such scenarios, avoiding the necessity for cooperation can help alleviate conflicts.

Wealth owners considering an outright transfer of ownership – during their lifetime or posthumously – should evaluate the advantages and disadvantages with a thorough risk assessment. It’s important for heirs to be adequately prepared for the assets, and vice versa.

However, it’s important to note that outright transfer makes them part of a successor’s personal estate. It can expose them to individual legal challenges like divorce or bankruptcy, and be subject to prevailing succession laws.

This highlights a significant gap in traditional wealth and succession planning, which often overlooks the deeper purpose, utility, and significance of assets. As a result, there is a growing need for a more thoughtful approach to asset transfer, aligned with the family’s overall intentions to safeguard their legacy.

Creating a designated structure for co-ownership or trusteeship may be more appropriate, particularly for assets:

• Intended for multi-generational stewardship, such as businesses, legacy assets, or philanthropic endeavours
• Too vast or complicated for individual transfer
• Where legal restrictions like forced heirship rights prevent proper division

As we’ve seen, transferring ownership doesn’t automatically protect the settlors’ visions and wishes for such assets.

Given these limitations, a trust or similar fiduciary arrangement is often more suitable. Especially if the family has long-term aspirations to turn businesses and legacy assets into an entrepreneurial legacy.

Trusteeship legally separates assets from the settlor (the individual transferring the assets) and the beneficiaries (those entitled to the assets). Furthermore, it enables the establishment of governance bodies (made up of family members and trusted professionals) to play a vital role in strategic decision-making and stewardship.

Assets under trusteeship are held by legal entities, such as a trustee or foundation. They can be structured to uphold the asset’s purpose, management, and disposal in alignment with the settlor’s intentions.

Fiduciary structures also offer the flexibility to establish separate estates for different family branches, even in complex patchwork-scenarios. This approach ensures the legal structures continue beyond the original settlor and beneficiaries, and help reduce the potential for conflict among heirs.

Additionally, these structures can provide a safeguard against various types of legal challenges, including fraudulent litigation, creditor claims, disputes with spouses and ex-spouses, and more. Moreover, they help protect the interests of minors until they are ready to assume responsibility for the family wealth.

Finally, appointing a trustee to oversee specific assets can prevent the responsibility of managing certain assets falling on certain family members who may be perceived as “more capable and responsible.”

This unequal distribution doesn’t just infringe on personal freedom and well-being. It can create conflicts between those burdened with these duties and those who are not.

For example: what if one sibling has special needs, another a disability, and another faces addiction? A trustee can structure the assets to consider the unique circumstances and well-being of all family members.

 

Intermediate solutions: partnerships and corporate bodies

What about a hybrid approach that combines outright ownership and trusteeship? This can be realised through partnerships and bodies corporate, consolidating and structuring specific assets intended for multigenerational preservation – like businesses, real estate, or diverse financial portfolios. These assets are then held within entities like holding companies, investment funds, or partnerships.

Within these frameworks, shareholders or partners exercise ownership rights, governed by detailed shareholder or partnership agreements, in conjunction with the relevant statutory provisions.

These agreements are crucial. They outline critical elements including entry and exit mechanisms, management and governance structures, strategies for revenue distribution, and investment guidelines. They also impose constraints on unilateral actions by shareholders or partners regarding the assets, promoting a collective, collaborative approach to decision-making. This ensures a more stable, controlled stewardship of assets across generations – and, ultimately, aligns with the family’s overall goals.

The principal difference between consolidating and structuring assets via bodies corporate and investment funds – as opposed to partnership structure – lies in an additional layer of separation.

Corporations and funds act as distinct legal entities, providing a buffer between the assets and individual owners. This layer can serve as a shield, protecting personal assets from the liabilities associated with the business or investments held within these entities.

Conversely, partnership structures typically involve more connection between assets and partners, with less insulation from personal liability. This connection can have significant implications for individual partners, particularly in terms of legal and financial responsibilities.

So, while bodies corporate and funds offer enhanced asset protection and easier transfer of interests, partnerships often require more intricate legal arrangements to manage personal exposure and ensure smooth succession and continuity of ownership. In some instances, however, they may offer fiscal advantages.

But it’s essential to understand that direct ownership of shares in bodies corporate and partnerships can create challenges. Particularly in sibling disagreements, legal disputes, or disengagement.

Complications can also arise if only some of the younger generation are actively involved in the business, while others are not – yet all successors hold shares. Those actively involved may prioritise reinvestment and long-term growth, whereas those not involved might favour immediate financial returns. This can strain family relations and impede effective business management – highlighting the value of careful planning and clear governance structures in family-owned enterprises.

What if one sibling encounters legal challenges? These can have far-reaching implications on their shareholdings, potentially exposing other members to financial risks or inadvertently involving undesirable stakeholders in the business.

Likewise, the inheritance of shares often leads to fragmented ownership across generations, only complicating decision-making processes. If heirs act collectively and unanimously, they may have the capacity to make disproportionate income distributions or even decide to sell the business outright. This could oppose the original founder’s intention, disrupting a carefully developed stewardship plan.

The answer may lie in establishing a trust or foundation.

These fiduciary structures hold the shares of the corporate entity that in turn holds the family’s assets. As such, it ensures the long-term preservation of the business and other vital assets. In this arrangement, the trust or foundation manages the ownership of the entity. Each branch of the successor family appoints a representative to an advisory board, fostering a collaborative decision-making process. This board operates under a pre-established protocol, aligning with the founder’s vision for collective stewardship and future governance of their legacy.

However, in scenarios involving fiduciary elements, the implementation of robust checks and balances is crucial. In our experience, these safeguards can be neglected or intentionally bypassed by advisors who may have conflicting interests.

This is especially pronounced where successors are minors, not fully trusted by the settlor or unqualified to manage complex wealth, and therefore more vulnerable to manipulation. It’s essential to empower family members or other trusted individuals to effectively monitor and guide trustees in key positions.

This empowerment serves a dual purpose:

1. Maintaining a balance of power and preventing any single party from disproportionately influencing the decision-making process
2. Preserving the integrity of the fiduciary arrangement, aligned with the original founder’s intention

To achieve this approach, it’s important to strike the right balance between specific guidelines for the trust (or fiduciary instrument) and structural flexibility.

Such flexibility is vital for timely, appropriate adaptations. It plays a crucial role in facilitating changes, fostering innovation, and supporting diversification strategies. Conversely, a well-defined framework within the fiduciary tool should establish clear guidance and set boundaries. Navigating this framework should align wealth transition with the founder’s original goals, blending structured governance with the ability for adaptive stewardship.

The second axis of our model is designed to provide this practical guidance.

 

The second axis: strict code versus flexibility

The axis focuses on how much the governance of an asset (including its utilisation) is dictated by the controlling instrument. It analyses the balance between the flexibility and rigidity of the wealth planning tool, particularly in terms of adapting to changes from the initial arrangement.

Consider a scenario where an individual wishes to pass down a valuable piece of art to their child. But they also want to contribute to the local art community.

In their last will and testament, the individual can specify that their child will inherit the artwork. Once the child passes, the painting must be donated to a local art museum. This arrangement reflects the testator’s commitment to both preserving family heritage and supporting the local arts scene. However, the fulfilment of the arrangement may depend on the child respecting the terms of the inheritance, and not disposing the artwork during their lifetime.

Or imagine a settlor creating a trust for a family art collection. In one scenario, the trust stipulates fixed terms: the collection is exhibited in a family-owned museum for 25 years, after which the art is distributed among family members. This approach grants the settlor complete control over the collection’s management and future. But it lacks flexibility for any adjustments during the trust’s lifespan.

What might a more flexible trust arrangement look like? The trust could permit the collection to be loaned to other museums at the trustee’s discretion, potentially to enhance its value or public exposure. The trustee could even have the authority to sell or exchange art pieces under certain conditions, particularly if the exhibition proves unprofitable. The generated income could be allocated for maintaining the collection.

As such, the settlor’s letter of wishes provides guidance, suggesting preferred conditions for loans and income usage. But ultimate decision-making resides with the trustee.

Such a framework allows the settler to outline the overall vision for the collection’s preservation and appreciation, while entrusting operations to the trustee or a committee of trusted individuals. It remains responsive to the evolving nature of an art collection, yet faithful to the settlor’s intentions.

Whatever the chosen strategy, it is crucial – and this cannot be overstated – to establish explicit parameters, implement oversight mechanisms, and conduct periodic reviews. These steps are fundamental to ensuring the trustee’s actions are aligned with the settlor’s vision and the overall goals of the trust.

 

Should fiduciary instruments be used to redirect beneficiary behaviour?

Let’s delve into the balance between strict guidelines and flexibility. In doing so, we’ll examine how family values are integrated into wealth planning instruments.

These tools significantly shape both the current management and future utilisation of family wealth. But this aspect is often more delicate and complex than initially expected. It can frequently reveal stark disparities or uncomfortable truths between the intended, perceived, and actual use of wealth within the family.

As such, we often see revealing (yet sensitive) questions emerge:

• How does the current utilisation of wealth by family members align with the envisioned future practices?
• What are the discrepancies between present access, usage and management of wealth, and long-term stewardship goals?
• What challenges might appear after the current owners’ passing?

In families where wealth-related principles and conduct are consistently applied across generations, the necessity for stringent, external rules is less prominent. Strongly aligned values will foster a more flexible approach, enhancing the confidence of settlors in their legacy’s preservation.

Ideally, this will naturally promote adherence to family values, rather than requiring strict enforcement by external mechanisms. In turn, it should foster a unified environment to instil a collective responsibility in stewarding wealth – one that reflects the family’s core values and long-term goals.

And yet. In the past, we have witnessed wealth owners exhibiting a degree of naiveté, clinging to optimistic assumptions regarding the possibility that family members may change how they think (and behave). A wealth owner should be alert to the influence from spouses, advisors, the risk of disputes, and misalignments within the family. Just as importantly, external threats should not be underestimated.

A balanced system is essential to synergize personal influences (and vulnerabilities) with structured guidance and governance. In doing so, a family can ensure its method of transitioning wealth aligns with its values – while grounded in the practicalities of wealth planning.

How can this be achieved? A thorough evaluation of the future governance framework for family wealth is useful. This allows a family to determine if this framework is adequate to address (and potentially rectify) any harmful patterns in wealth distribution within the current generation, or future ones. This involves assessing if the system acts as ‘delegated guidance’ from trustees and other appointed parties, providing support to the family to align with the settlor’s intentions. It should also help correct any imbalances in wealth utilisation and distribution (which settlors will have often contributed themselves).

What is the role of advisors in all this? They can help navigate these complexities, facilitating a sustainable wealth transition. Their involvement calls for more than just technical planning expertise. It calls for Fingerspitzengefühl – or fingertips’ feeling, a nuanced understanding and empathy of family dynamics and values. Advisors can be instrumental in guiding current generations to share principles of wealth with younger members (and ensuring these principles are practically applied).

Central to this process is the interdependence between wealth and individuals; wealth shapes people, who shape how wealth is used. Balancing this relationship is crucial. It goes beyond the mechanics of wealth distribution to a deeper comprehension of wealth’s impact on individuals – and their role in wealth stewardship and legacy.

 

Differentiating key aspects in wealth transition and stewardship: Ownership, control, management, income, and use

Imagine one wants to preserve assets for stewardship, rather than division among future generations. What should the approach be?

In our experience, it’s useful to distinguish between the ownership, control, management, income, and use of an asset. This distinction is particularly significant for families with business interests, where the complexity of maintaining a successful business presents unique challenges.

But its importance goes beyond business assets. It applies just as well to tangible and liquid assets that require active management, and to legacy assets that families wish to preserve and pass down through generations. Effectively structuring assets with these distinctions in mind is essential for the continuity and integrity of family wealth.

Deriving benefits from an asset without ownership might seem a straightforward concept. In essence, it shows that direct ownership isn’t necessary for enjoying the benefits of an asset.

For example: a holiday home can be enjoyed by family members without any holding direct ownership. Likewise, successors in a family business may assume leadership and management roles without owning shares. Effectively navigating the separation between ownership and use calls for well-defined parameters:

1. Usage rules: Setting clear guidelines for the use, maintenance, administration, and financing of an asset. This helps prevent misunderstandings and ensures both the asset’s preservation and appropriate utilisation.
2. Income entitlements: Defining who is entitled to income from an asset and under what conditions. This clarity maintains fairness and transparency within the family and sets suitable incentives.
3. Disposition conditions: Clarifying the circumstances under which an asset can be sold, transacted, or transferred for long-term wealth preservation and to maintain family harmony.

To address these issues, families may base decisions on the values, principles, and notions of fairness outlined in their family constitution.

Such a balanced approach fulfils two purposes:

• It incentivizes and acknowledges those contributing to the economic growth of the family’s assets
• But also appreciates the varied (yet equally significant) contributions that enhance the family’s social and relational fabric

This methodology aligns with the principles articulated in the Conduct Formula: the quality of a family’s legacy is not solely measured by its wealth but by the strength and quality of family relationships.

 

A guide to categorising assets based on use and purpose

The choice between direct ownership or placing assets in a structure such as a trust is not straightforward – often lacking clear-cut “rights or wrongs”. But the guiding principles and frameworks of the model have consistently been beneficial. In our experience, they have assisted wealth owners and their families in creating well-defined, actionable strategies for organising and transferring wealth.

 

Personal Assets: the weight of sentiment beyond financial value

Personal assets, like everyday items and ‘chattels,’ may not hold much financial value. But their sentimental worth can be immeasurable.

Typically, they are not well-suited to being held or transitioned via complex legal instruments. Think of a cherished family heirloom like a mother’s necklace. Such an item can carry deep emotional significance, with disputes leading to intense, costly family legal battles.

To avoid strife, transparent conversations about distribution are crucial. Families are encouraged to reach a consensus on a fair distribution method, or establish an impartial system for allocation. One practical approach is to create assorted ‘lots’ of these items, allowing heirs to choose from them in an equitable manner.

 

Lifestyle Assets: facilitating desired living standards

Lifestyle assets range from appreciating investments like real estate to depreciating ones, like everyday vehicles.

Both bring maintenance costs, adding complexity to planning – particularly in terms of setting expectations for the younger generation accustomed to this lifestyle.

Key considerations involve:

• Determining the extent to which the younger generation should maintain the family’s standard of living once they become independent
• Ensuring the long-term availability of assets for the younger generation
• Establishing conditions and incentives that guide the younger generation
• Deciding whether the younger generation should receive a regular income or a protected capital sum, possibly through a trust arrangement

Central to these considerations is education.

For the younger generation, it’s crucial to shape their perspective on money: should it be readily available, and how can they learn to manage an allowance responsibly, appreciating the value of saving and investing over simple consumption, even amidst potential abundance?

For the older generation, it’s about learning to trust younger generations – considering their financial independence and resisting the urge to excessively control their financial decisions.

A practical approach is to assign a specific capital amount to younger family members, along with mentorship from a financial management expert. This mentor may be someone other than a parent to minimise emotional biases. The mentor’s role is to guide in financial matters and discuss progress with the members of the older and younger generation.

Ideally, such mentorship allows the younger generation to support themselves partially or fully through investment income over time, fostering an appreciation for wealth accumulation and responsible financial management.

 

Family Commons: essential assets for family support and success

Family commons are a unique category of assets – similar to lifestyle assets, but normally serving a more fundamental role. They’re resources dedicated to support members in navigating life’s challenges – something valued across cultures.

They exist to foster self-reliance and success among current and future family members. They play a vital role in supporting during difficult times and ensuring care for dependents in unexpected circumstances.

Typically, family commons are used to create trusts dedicated to vital needs such as education, healthcare, and hardship. These trusts operate separately from the main family wealth, ensuring focused use of funds without impacting the family’s overall financial health. Additionally, family commons can support significant life events, like buying property after marriage.

 

Access to Opportunities: encouraging entrepreneurship and diverse interests

Many families opt to establish dedicated funds, often termed as ‘Opportunity Funds’ or ‘Family Banks,’ to support members in entrepreneurial ventures, philanthropic efforts, or other personal projects.

These funds act as catalysts for entrepreneurship, self-drive, and financial prudence, while aligning with the family’s broader vision for business and investment. This is crucial for long-term wealth preservation, and the promotion of professional diversity and asset diversification.

Such funds are particularly useful in multi-generational businesses – with shareholdings spread across different family branches, and not all members involved in daily operations.

Families typically implement a structured process to approve investment proposals. This may include equity investments, loans, or options for buying stakes in ventures under specific conditions, like first refusal rights. In certain scenarios, a one-time financial gift may be provided to kickstart a family member’s initiative.

Additionally, families normally set specific ethical and guidelines for their Opportunity Funds, underscoring their commitment to sustainable and responsible ventures. They also establish provisions such as no-compete clauses to prevent conflicts with the family’s core business and regulate the use of the family name.

These measures ensure a balance between nurturing personal ambitions and maintaining the integrity of the family’s overarching values and commercial interests.

 

Business Assets: select strategic considerations

The pursuit of long-term success in entrepreneurial families is like a quest for the Holy Grail. At the core of this journey are crucial elements: relentless innovation, consistent governance, and the careful stewardship of business assets. These components, integrated within the family’s operating model and strategic approach to diversification and investment, are key for safeguarding any entrepreneurial legacy.

However, it’s essential to recognize that the stage of the business (and the entrepreneur) is pivotal in wealth planning. Structuring a start-up for an entrepreneur with aspirations of a future capital market transaction is very different from managing a multi-generational family business.

Nevertheless, there are some key questions to explore:

• Defining the business’s role: What purpose does the family business serve? Is its primary function income generation for now and future generations, or to nurture an entrepreneurial spirit?
• Decision-making authority: Who is responsible for making strategic decisions within the business? This includes considerations around potential sales, mergers and acquisitions, and forming joint ventures.
• Ownership and partnership: Who qualifies to be a shareholder or partner in the business? Should it include all descendants or only those actively involved? Alternatively, should a trust or foundation hold the shares?
• Beneficiary entitlements: Who is entitled to benefit from the business, and under what conditions? How should income be distributed – equally among all family members or to those actively involved in the business?
• Shareholding structure: How are the shares structured and held? Are family members allowed to sell their shares, and if so, under what conditions? Or are they considered custodians for future generations?
• Profit distribution policy: What guidelines govern the distribution of profits? How should the business decide between distributing dividends, reinvesting in the family assets, diversifying through a family venture fund, or allocating funds to charitable causes?
• Entry and exit protocols: What criteria determine eligibility to join the family business? What are the terms for entry and exit, and how is this transition financed?
• Talent management: How can the business objectively identify, evaluate, and nurture talent within future generations while addressing any weaknesses?
• Succession planning: How is leadership transition planned within the business? What training and preparation are provided for future leaders?
• Risk management: What strategies exist to identify, assess, and mitigate risks that not only originate within the family and affect the business, but also those that stem from the business and impact the family?
• Corporate social responsibility: How does the business incorporate social and environmental responsibility into its operations and strategies?

It’s important to consider the various scenarios of business ownership from both business and family perspectives. These questions aid in strategic thinking and decision-making, whether the goal is to prepare the business for a smooth transition to the next generation or to position it for a potential sale. They guide the drafting of wealth planning instruments and other necessary documents to hold and manage the business in accordance with the family’s planning goals.

This task extends beyond upholding business integrity. It involves evaluating the business’s alignment with the family’s prosperity, and long-term objectives. The ultimate goal is to make informed decisions that best serve the family’s interests, whether that means continuing the business legacy within the family, or choosing to sell the business as a strategic move.

Either way, the aim is to ensure both business success and family harmony, across all possible directions.

 

Legacy Assets and Philanthropy Assets: Creating commons for future generations and communities

Legacy assets form a distinct category of wealth. They can impact both future family generations, but also the broader community. These assets range from art collections and classic cars to unique real estate and historic lands. For many, their businesses also constitute integral legacy assets.

Over time, legacy assets can evolve into public goods like museums, nature reserves, or heritage foundations, extending their influence far beyond the family to benefit employees, communities, and charitable causes.

The management of legacy assets starts with a clear purpose to guide future use and align with family goals. Legally separating these assets from the family’s main wealth portfolio allows for tailored management, focusing on their unique nature and impact.

When curating these assets, families must decide whether to leverage internal resources or appoint external experts. This decision hinges on the complexity of the assets, the family’s involvement level, and their preference for hands-on management or delegation.

A dedicated funding source is essential for the sustainability of legacy assets. An independent endowment, whether self-funded or externally supported, ensures their ongoing preservation, and aligns with the family’s financial capacity and long-term objectives.

Similarly, philanthropic assets form a vital part of a family’s legacy. Their structure should align with philanthropic objectives, whether establishing a dedicated charity, creating a feeder fund for routine contributions, or making opportunistic donations.

Effective governance is necessary for aligning philanthropic activities with the family’s vision. This involves strategic decision-making in project selection, impact measurement, and managing the family’s public profile. Fiscal considerations, particularly for continuous endowments or attracting third-party funds, require careful navigation due to the complexities of cross-border giving.

In summary, both legacy and philanthropic assets are instrumental in preserving family heritage and contributing to societal betterment. Their careful structuring, governance, and financial management are vital to ensure these assets not only embody the family’s values but also make a significant societal impact. Together, they form a powerful testament to a family’s enduring legacy and commitment to societal welfare.

 

The right tool for the right challenge: blending strategy with action

No single tool can solve all a family’s wealth planning challenges.

In the same way a holistic network of advisors can offer complementary perspectives and expertise, we believe a balanced range of tools can offer a blend of strategic and practical benefits.

In this article, we have outlined the value of the Purpose of Wealth Model, explaining how it can guide a family to select and design legal structures that align their wealth with their long-term planning objectives.

As such, the Purpose of Wealth Model bridges the gap between high-level strategy and ground-level action. It ensures every planning decision is not only aligned with the family’s broader wealth and legacy strategy, but is also actionable and tailored to their specific needs and circumstances.

In our next article, we’ll explore how the Purpose of Wealth Model can be combined with our Family Wealth Navigator to help a family achieve a comprehensive, actionable wealth plan.