Family strategic planning

Family estate planning
Generally known simply as "Estate Planning" (and sometimes as "Inheritance Planning"), "Family Estate Planning" typically revolves around planning for the future transfer of financial assets from an Owner to one or more Heirs. The transfer is typically initiated by the death of the financial asset Owner and the planning typically focuses on: Indeed, traditional family estate planning often focuses almost exclusively on minimizing the taxation implications of a financial asset Owner's death in order to maximize the financial wealth transferred to the Owner's Heirs.
 * 1) the allocation of financial assets to Heirs;
 * 2) the terms of financial asset transfers to Heirs; and,
 * 3) the legal and taxation implications of financial asset transfers to Heirs.

In recent years, however, there has been a growing recognition that traditional estate plans often fail to accomplish the financial asset Owner's objective of maximally benefiting the Owner's Heirs. Indeed, traditional estate plans can sometimes positively harm the Owner's Heirs. Williams and Preisser claim that "research has established that 70% of wealth transitions fail", with "failure" "defined as 'involuntary loss of control of the assets'". Hughes notes that many cultures have a version of a proverb that states, "From shirtsleeves to shirtsleeves in three generations" -- suggesting that a family's financial wealth rarely lasts more than two or three generations.

In most cases, the failure of traditional estate plans to achieve the financial asset Owner's objective is not due to shortcomings in the legal and taxation planning -- "the 'money side' of inheritance planning". Rather, most cases of traditional estate plan failure are due to shortcomings in the "human side" of estate planning -- in other words, failures to adequately plan for (and even pro-actively shape) the attitude and behavior of Heirs (and those of the Heirs' social networks of family and friends) prior to, during, and after inheritance. Williams and Priesser claim that research indicates that: Only:
 * 60% of "Estate-Transition Failures" were due to "a Breakdown of Communications and Trust within the Family Unit"; and that,
 * 25% of "Estate-Transition Failures" were due to "Inadequately Prepared Heirs".
 * 15% of "Estate-Transition Failures" were due to "ALL Other Causes such as Tax Considerations, Legal Issues, Mission Planning, etc".

Family succession planning
Loosely modeled on the notion of "succession planning" in business and other organizations, "Family Succession Planning" focuses on the "human side" of estate planning. "Defensively", one might say, family succession planning anticipates and effectively prepares for "the family issues, problems, and conflicts that arise with ever-increasing frequency when spouses, children, and others inherit the 'family wealth'." "Offensively", one might say, family succession planning seeks to prepare Heirs to effectively receive the "family wealth" they will someday inherit.

Family strategic planning
Strategic planning can be defined as a:
 * Systematic process of envisioning a desired future, and translating this vision into broadly defined goals or objectives and a sequence of steps to achieve them.

When a family takes a long-term view of itself as an organization devoted to some "mission" that it seeks to fulfill as effectively and efficiently as possible, the family can engage in strategic planning similar to that undertaken by other types of organizations. Family strategic planning will thus result in an articulated and agreed family mission, as well as articulated and agreed objectives and plans designed to achieve the family mission. From this point of view, traditional family estate planning and family succession planning may be seen as truncated forms of family strategic planning devoted to the often-unarticulated "mission" of maximizing the intergenerational transfer of financial wealth. Families that engage in full-blown family strategic planning have the opportunity to articulate and agree upon alternative missions as well as the objectives and plans necessary to achieve them.

Financial wealth is a means not an end
Financial wealth is thus not an end in itself and is therefore only valuable to the extent it can "buy" other things. Although most would agree with this in principle, many forget it in practice and "wealth for wealth's sake" often becomes the implicit order of the day.

Financial wealth is not inherently beneficial
Instances in which financial wealth has harmed the persons it was intended to benefit are all too common. This often happens to lottery winners, for instance, and within dysfunctional families. As Socrates pointed out long ago, it is the "wise use" of financial wealth that makes it beneficial and "foolish use" of financial wealth that makes it harmful.

A family's "end" is its members' well-being
Or in American terms: A family's "end" is facilitating its members' "pursuit of happiness". Or in Maslovian terms: A family's "end" is facilitating is members' self-actualization. Or in ancient Greek terms: A family's "end" is facilitating its members' "excellence" / "goodness" / "virtue". However one puts it, though, a family's "success" is measured in terms of its members' "quality of life" (not: "quantity of toys").

Most families are dysfunctional to some degree
In other words, most families are failing to achieve their "end" of their members' well-being to some degree. This is especially true since family dysfunction often (if not always) results in family members harming one another and/or themselves -- taking the family farther from, rather than closer to, its goal. Families with financial wealth are not only not immune from family dysfunction, they are on the contrary probably more prone to family dysfunction due to a variety of factors. In any case, the presence of financial wealth generally serves to amplify whatever dysfunction exists -- and also to motivate the disguising of family dysfunction in order to promote the public (and private) image of a "successful family".

Family estate planning is necessary but not sufficient
Although financial wealth is neither an end in itself nor inherently beneficial, it is in inherently powerful. Maximizing the financial wealth available to a family is therefore a necessary task for a family seeking to fulfill its "end" of maximizing its members' well-being. Family financial planning, family investment planning, and family estate planning are therefore necessary components of a successful family. However, because financial wealth is neither an end in itself nor inherently beneficial, these tasks (individually or collectively) are not sufficient to make a family successful.

Family succession planning is necessary but not sufficient
Because it is the "wise use" of financial wealth that makes that wealth beneficial and the "foolish use" of financial wealth that makes that wealth harmful, planning for the proper use of wealth is a necessary task for a family seeking to fulfill its "end" of maximizing its members' well-being. The cultivation of financial wisdom (attitudes and behaviors) in family members is therefore a necessary component of a successful family. However, because financial wisdom is of little value in the absence of financial wealth, this task is not sufficient to make a family successful.

Family strategic planning is necessary
In order for a family to fulfill its "end" of promoting its members' well-being it must know what each individual member's well-being comprises and how that well-being can be promoted. The family must also know how the needs of the individual members can be integrated within the family unit. Only with this knowledge in hand can the family determine the ways in which the family's financial wealth can be employed to maximum overall benefit. Likewise, only by assessing each member's current financial wisdom and each member's future financial wisdom needs can appropriate financial education plans be established. Family strategic planning thus integrates the two necessary but insufficient tasks of family estate planning and family succession planning as part of a larger family governance process necessary for a family to fulfill its "end" (which can never simply be "maximizing the intergenerational transfer of financial wealth").

Family therapy is likely to be necessary
By design, family strategic planning will identify the obstacles impeding the success of the family in maximizing its members' individual and collective well-being and develop plans for the minimization (if not outright elimination) of those obstacles. The "wealth obstacles" impeding the family's maximization of its members' individual and collective well-being will be addressed through the familiar avenues of strategic wealth planning (family estate planning, family financial planning, family retirement planning, etc.). The "wisdom obstacles" impeding the family's maximization of its members' individual and collective well-being will be addressed through the somewhat less-familiar avenues of strategic wisdom planning (e.g. family succession planning). Given the prevalence and significance of family dysfunction, however, addressing the "wisdom obstacles" will often require family therapy (even if the family dysfunction appears localized in one or a few family members). Although many (if not most) families will resist family therapy, they should in fact welcome it -- both for the short-term healing it can bring to the family and for the long-term benefits it can bring to the family (most of which will be unattainable if the short-term healing is not attained).

Families with family businesses
For perhaps obvious reasons, most family strategic planning efforts have historically been targeted at families with substantial family businesses. The strategic planning needs of the family business naturally highlight the strategic planning needs of the family and the large amounts of money involved attract the sustained attention of both family members and the family's actual and potential professional advisers. Indeed most family strategic planning resources have been developed by professionals whose business is geared towards serving such families.

Families without family businesses
Families with substantial financial assets (often due to the prior sale of a successful family business) but no particular family business may be thought of as being in the investment business. Such families generally have family strategic planning needs similar to families with family business and generally attract similar attention from family strategic planning professionals. On the other hand, such families often have greater family strategic planning needs due since the lack of a family business can lull the family into assuming its "end" is simply the maximization of the intergenerational transfer of financial wealth.

Boglehead families
While there is no doubt great variation among Boglehead families, the typical Boglehead family probably resembles a modest type of family without a family business. Such a family probably engages in family estate planning with limited attention to family succession planning and/or family strategic planning.

Family leadership pre-planning
Family strategic planning typically begins with the current family leadership determining that their family might benefit from family strategic planning and investigating what such a process might entail. Family leaders then typically educate themselves about family strategic planning and seek out professionals in the field of family strategic planning. The family leaders and their professional advisers then design a family strategic planning process intended to engage the entire family and produce the desired results.

Whole family strategic planning
Although the family leadership unilaterally initiates and sets the parameters for the family strategic planning process, the family strategic planning process itself is a multilateral process in which the family leadership are typically no more than "firsts among equals". Through one or more whole family meetings -- often facilitated by a neutral facilitator -- and other exercises the family works its way towards articulating an agreed family "mission" as well as agreed goals and plans in furtherance of that mission. In the course of this process, submerged and/or unforeseen family problems are likely to come to light as impediments to the family's success.

Whole family ongoing development
Once a family strategic plan has been articulated and agreed upon, the work of implementing that plan begins. Individual family members pursue their agreed upon development tasks and regular family meetings are held to review progress and to revise goals and plans as changing circumstances require.

Control
By definition and design, family strategic planning is intended to involve the entire family in the making of family decisions, including decisions about the family's financial wealth. This is not to say that such decision-making is necessarily purely democratic or that the family leadership has no veto. But it is to say that effective family strategic planning requires the "buy-in" of the entire family which in turn requires that everyone in the family feels responsible for and to the family's strategic plan. Family leaders often find it difficult (if not impossible) to share control with members of their family in general or with specific family members in particular.

Secrecy
Since shared control of the family requires shared information about the family, family strategic planning requires that family members share information -- including about financial wealth -- among themselves. Families with a history of secrecy in general or about finances in particular often find it difficult to share information generally or with specific family members in particular.

Greed
As Condon and Condon point out, "In every literate society, there is this saying about inheriting wealth: If you really want to know a person's true character, share an inheritance with that person". Actual or potential inheritance conflicts often bring out aspects of a person's personality that otherwise remain unseen. Although family strategic planning is designed to be about more than financial wealth, discussions of, and disagreements about, potential distributions of financial wealth can become unexpectedly unpleasant. Indeed, the conscious or unconscious dread of such unpleasantness often leads financial asset Owners to avoid family succession planning (let alone family strategic planning) in the first place. On the other hand, it is usually better for the family to confront and somehow resolve these difficult issues while the financial asset Owner is alive and competent.

Longevity
As financial asset Owners live longer and longer lives, there is often an increasing tension between their own need to support longer retirements and the desire of Heirs to inherit financial assets at a point in their life when the assets can be materially useful to the Heir. Family strategic planning will almost certainly bring this tension to the surface in potentially unpleasant ways.

Market variability
Since the market returns in the early years of retirement often have a marked impact on the final value of a retirement portfolio, the magnitude of a financial asset Owner's estate is often unknown in advance. This uncertainty, combined with the financial asset Owner's longevity, can make it very difficult to plan pre-death transfers of financial assets.

Objections to family strategic planning
Under construction.

Books
Hughes, James E., Jr.


 * Family Wealth--Keeping It in the Family: How Family Members and Their Advisers Preserve Human, Intellectual, and Financial Assets for Generations, 2nd. rev. ed. (New York: Bloomberg, 2004). ISBN 978-1576601518.
 * Family: The Compact Among Generations (New York: Bloomberg, 2007). ISBN 978-1576600245.

Williams, Roy [and Vic Preisser]


 * For Love & Money: A Comprehensive Guide to the Successful Generational Transfer of Wealth, (San Francisco: Monterey Pacific Publishing, 1997). ISBN 978-1880710012.
 * Preparing Heirs: Five Steps to a Successful Transition of Family Wealth and Values, (San Francisco: Robert Reed, 2003). ISBN 978-1931741316.
 * Philanthropy, Heirs & Values: How Successful Families Are Using Philanthropy To Prepare Their Heirs For Post-transition Responsibilities, (Brandon, OR: Robert Reed, 2005). ISBN 978-1931741514.

Lucas, Stuart E.


 * Wealth: Grow It, Protect It, Spend It, and Share It, (Upper Saddle River, NJ: Prentice-Hall, 2007). ISBN 978-0132350112.

Condon, Gerald M. and Jeffrey L. Condon


 * Beyond the Grave: The Right Way and the Wrong Way of Leaving Money To Your Children (and Others), rev. ed. (New York: HarperCollins, 2001). ISBN 978-0060936310.

Articles

 * Sullivan, Paul. "What to Tell the Children About Their Inheritance and When". New York Times. 20 July 2012
 * Riva, Richard A. "The Family Retreat". Revelations. (20 October 2010?)

Podcasts & Videos

 * Diefendorf, Rory and Vic Preisser. "Estate Planning for the Post Transition Period". 3 Dimensional Wealth. 1 October 2007.

Other

 * "Ongoing Family Meeting Process Chart". Money, Meaning & Choice Institute. (August 2012?)