What is the most important factor driving the long-term success of wealthy families? It is not prudent investment advice or good estate planning, or even risk management. In a word, it is communication.
Seventy percent of wealthy families lose control of their wealth by the second generation, and 90% do so by the third generation, primarily due to lack of communication and trust in the family.1 Brown Brothers Harriman (BBH) recently completed a study focused on what makes families successful and found that preparing younger family members to manage family wealth is a critical factor.2
Barriers to Communication
While the evidence in favor of thoughtfully articulated wealth values is clear, families of substantial wealth often shy away from talking about money. Many parents feel they are not prepared to answer their children’s questions. They are unsure how to respond to questions like: “How much do you have?” or “How much do I get?” One possible response is: “That is a great question. Why do you ask?” By uncovering the motivation for the question, you can embark on a productive conversation. With older children, you may ask more sophisticated questions, such as: “How do you think the answer will affect you?” or “How will the amount of wealth I have change your outlook or plans for the future?” You will certainly learn something valuable about your child’s perspective. With a few prepared responses in mind, starting conversations about money can be less scary.
Many families feel that they do not need to communicate their values because their children see how they live. While your children see how you act and react in all types of situations, they have very limited context – first, because they have limited experience, and second, because as parents we protect them from difficult information. Since they do not have context for our actions, they often do not understand the significance. Living in consistency with values is incredibly important, but it is not enough.
Often adults make financial literacy the cornerstone of family communication about wealth because there are clear, accessible answers. While understanding the “how” (what a 401(k) is and the role it plays in saving for the future, for example) is critical, it is no substitute for an education on the “why” (why you save and plan for the future). The “how” and the “why” must go hand in hand. To learn more about financial literacy, please read this issue’s article titled “A Guide to Talking to Your Children About Money.”
Understandably, talking about wealth values can seem daunting. However, it does not need to be overwhelming. It starts with understanding your own values and creating a plan for communication. At BBH, we help clients tackle these discussions by following three steps:
1. Discover Your Story: Understand what in your family history has influenced your values.
2. Live (and Plan for) Your Values: Consider how your values affect your decisions today and the plan that you put in place for the future.
3. Share Your Story: Create a plan for communication, either now or in the future.
Discover Your Story
How we think about money is often deeply rooted in our past experiences – frequently in stories from childhood or early adulthood. Therefore, understanding our own perspectives should start by looking back. As Warren Buffett famously said, “Someone is sitting in the shade today because someone planted a tree a long time ago.” Values often have deep roots that trace back to ancestors we may have known in childhood or vivid memories from our early years and “first” experiences.
Luckily, unearthing these stories does not require hours on a couch or writing an autobiography. Instead, it can be a simple 10- or 15-minute exercise in recollection. BBH’s family timeline tool facilitates the recollection of stories, events and messages from your family history.
To start, sit down with a blank sheet of paper, and draw a timeline on one side of the page. Go as far back as you have actual or inherited memories. Along the timeline, plot events and people who influenced your view of wealth. After you are finished, consider some of the following questions:
- What messages about money did you take away from each of those moments or people?
- What key choices did your ancestors make about money? Do you agree or disagree with those choices, and why?
- What lesson did you learn from this family story?
- How has this story informed your life choices? Your wealth choices?
- What part of this history is important to pass on?
Your family wealth story can elucidate why you make the choices you do about spending, saving, investing and giving. Attitudes about wealth are framed by the messages delivered to us – whether intentional or unintentional – by those who came before us.
Live (and Plan for) Your Values
We all have values, but most of us cannot articulate them readily. Not being able to describe your values does not mean that you do not act and plan in accordance with them. Your values influence your everyday decisions on an unconscious level.
Consider where you are spending your most valuable resource – your time – and your financial capital. What boards do you sit on? In which community, political or charitable organizations do you invest your time and money? Which qualities, characteristics and behaviors do you spend time emphasizing with your children – kindness, education, perseverance, achievement? From thinking about what you do, you will begin to understand your operational values – those values that influence how you make decisions (vs. those values you merely aspire to). The next steps after completing this thought experiment are:
- Write down and prioritize the values that come from this exercise, and note a few that you want to be sure your children hear. Attach a story to each that explains the meaning and significance to you. Storytelling can be our most compelling form of communication. Remember to tell these stories when the opportunity presents itself.
- Link your everyday actions back to your values for your children. For example, a message I heard a lot growing up was the importance of reliability: “You do what you say you are going to do.” I saw my own father do this when he would put on a suit in the middle of the night and go to the emergency room to see a patient who needed him. Now when my children ask me about why I attend an evening meeting instead of being home with them, I explain that I made a commitment to be there and had to follow through. The message: We follow through on our commitments, even when it is not fun or convenient, and we show up for the people who depend on us.
Some clients have a clear beacon that shapes how they use their personal and financial capital – a sibling or parent dying at a young age, being the first in their family to attend college, an influential mentor or parent. These vivid experiences and memories can drive their planning and how they want others to think about their legacies. One client had a son die at a young age. Now with her daughters, she has created a foundation to support families as they cope with similar childhood illnesses. However, more often than not, many experiences (rather than a single one) shape our values and influence how we plan to give away assets.
After identifying formative experiences with money and operational values, you may then integrate them into how you think about estate planning, lifetime giving and philanthropic decisions. For example, the decision we see clients struggle with routinely is what purposes the assets in long-term trusts should and should not be distributed for. Often it is worthwhile for the donor of the trust to write a letter of wishes to the trustee explaining his or her intent.3 A letter of wishes that retells an important family story and cogently outlines the donor’s most important values can be useful and compelling for both the trustee and the beneficiaries in understanding why the trust was established and how it should be used going forward. Without this understanding, these letters can lack focus and sound somewhat homogeneous.
Share Your Story
Once you have done the work on values, you must decide what to communicate and when to communicate it. For some families, now may not be the time. However, it is important to begin crafting a communication strategy. Here are some tactics to incorporate when creating your plan:
- Leverage the power of storytelling. A story beats a lecture any day. Share the stories that shaped your values with younger family members. By weaving the stories identified during the process of discovering your story into your living family history, you honor the lives and work of your ancestors.
- Identify the right time. Timing is everything – choose a time when your message can be heard. Perhaps it is when a child exhibits curiosity about money or a recent purchase. Maybe it is during a quiet moment or meal.
- Create family traditions. These traditions – activities that you do together and can then do separately – help you communicate and live your values. For example, you may choose to volunteer as a family during the holidays or express gratitude before family meals. Traditions can be simple.
- Record your story. If now is not the time to share your values because of immaturity, infirmity or other family transitions, consider recording some of the formative stories about wealth that you discover when thinking about your wealth values. If you are a writer, write them down. These recorded stories will also be available to descendants who you may never meet – they are a gift to future generations.
Engaging family members on topics related to wealth values and planning is not one conversation – it should be a series of conversations, both big and small. Your initial goal may be just having your children understand your perspective on the value of a dollar. Then you can move on to more complex issues. The most important reason to create a communication plan is to establish an environment of trust and communication that will serve you and your family well for the long term.
Love and Legacy
With money, we must also pass down love. No one wants to leave behind merely a list of assets and a stack of legal documents. Being open with what you value most, why and how those beliefs have influenced your planning for your children and the future is how you incorporate love into your legacy.
We acknowledge and thank Danielle Oristian York of 21/64 and Ellen Perry, author of Wealth of Possibilities: Navigating Family, Money, and Legacy, for their insights and contributions.
This publication is provided by Brown Brothers Harriman & Co. and its subsidiaries ("BBH") to recipients, who are classified as Professional Clients or Eligible Counterparties if in the European Economic Area ("EEA"), solely for informational purposes. This does not constitute legal, tax or investment advice and is not intended as an offer to sell or a solicitation to buy securities or investment products. Any reference to tax matters is not intended to be used, and may not be used, for purposes of avoiding penalties under the U.S. Internal Revenue Code or for promotion, marketing or recommendation to third parties. This information has been obtained from sources believed to be reliable that are available upon request. This material does not comprise an offer of services. Any opinions expressed are subject to change without notice. Unauthorized use or distribution without the prior written permission of BBH is prohibited. This publication is approved for distribution in member states of the EEA by Brown Brothers Harriman Investor Services Limited, authorized and regulated by the Financial Conduct Authority (FCA). BBH is a service mark of Brown Brothers Harriman & Co., registered in the United States and other countries. © Brown Brothers Harriman & Co. 2019. All rights reserved. 2019. PB-03216-2019-11-27
1 Williams, Roy O., and Vic Preisser. Preparing Heirs: Five Steps to a Successful Transition of Family Wealth and Values.
2 For more information on our families and wealth survey, read the following article from our spring 2017 issue: “Survey Says: Before You Share Your Wealth, Share Your Story.”
3 For more details on this subject, read the following Owner to Owner article: “How to Be a Good Trustee When the Trust Owns Business Interests: A Letter to My Brother.”