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How to keep the family fortune

By Judy Martel · Bankrate.com
Monday, August 18, 2014
Posted: 7 am ET

The path to losing a family fortune can seem obvious when looked at through a financial lens: Borrow or spend too much too quickly, bet the wrong way on real estate or the stock market, or spread it out over multiple generations without new infusions of wealth.

© Andrew Shurtleff/ZUMA Press/Corbis

Patricia Kluge and her husband Bill Moses on the winery they founded and then lost to foreclosure. © Andrew Shurtleff/ZUMA Press/Corbis

But Roy Williams, president and founder of The Williams Group in San Clemente, Calif., says the reasons families lose it all are not tied to the money. Rather, it's because the family itself breaks down.

It's all in the family

The overwhelming majority of estate-planning attorneys get it right when helping families determine how to transfer assets to heirs, says Williams, but that doesn't address the bigger picture of family trust and communication. Without family harmony, the assets won't last long.

Williams co-authored two books with Vic Preisser, managing director at The Williams Group: "Preparing Heirs" and "Philanthropy Heirs and Values." Over a period of 20 years they interviewed 2,500 wealthy families to discover why there is a 70-percent failure rate when it comes to sustaining the wealth over multiple generations.

In 60 percent of the cases, the failure to sustain the money was due to a breakdown in communication and trust within the family. The second most common reason was that heirs were unprepared, and third was the lack of an agreed-upon purpose and mission for the wealth.

Show, don't tell

Parents may think that effective communication happens when they sit their children down and inform them of the details of the estate plan and their values around money. "Then what do you think happens? The kids nod and say, 'Sure, whatever you want.' That's called 'cordial hypocrisy,'" Williams says. "I see it in family after family after family." The kids are saying what you want to hear, but they have no stake in determining the family's mission or values about the shared wealth.

That's a recipe for disaster, Williams adds. Instructing your heirs about what you want does nothing to get them to buy into the mission and, once the parents are gone, the kids are essentially unprepared to inherit because they haven't explored their own values.

Heirs may also be unprepared simply due to lack of financial knowledge. "It's OK to raise your hand and say, 'I'm a beginner,'" says Williams.

Too often, heirs feel they should know how to manage money because they grew up wealthy or because they've reached a certain age. Yet the inability to ask for help can lead to irreversible financial mistakes.

The path to success

The best ways for families to sustain wealth, Williams says, is to determine the values and the larger purpose for the wealth as a family. "Then build the estate plan and determine the roles needed within the family for the long term. Otherwise, how will the heirs know what roles they can play if they don't know what's needed?"

Once the plan is in place and the roles determined, there is a focal point for all future decisions, Williams adds.

For example, if the family is philanthropic, they can go back to the family values and determine if they are using philanthropy as a way to promote those values, he says. "Without common values, a common mission or trust, a family can't be successful."

It may be bad timing in a risky real-estate market or a slow dissipation of wealth over multiple generations, but the result for these five rich families is the same: a reversal of fortune.

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1 Comment
August 18, 2014 at 4:43 pm