Insights

October 29, 2024

Creating a Family Wealth Charter: Your Roadmap to Lasting Family Prosperity

In Estate Planning, Family Needs, Financial Planning, Philanthropy, Wealth Strategy

Wealth is more than just money—it’s about security, opportunities, and legacy. But preserving and growing that wealth across generations requires a proactive plan. Enter the family wealth charter, a personalized document that lays out your family’s financial goals, values, and a structure for decision-making. It’s not just about handling assets, but about ensuring everyone in your family is on the same page, both now and for generations to come.

So, how do you go about creating one? Let’s walk through the process together.

1. Start with Your Family’s “Why”

Before diving into the nuances of financial strategies, it’s important to take a step back and talk about your family’s shared vision. What’s the purpose behind the wealth you’re building? Maybe it’s about financial security for future generations, supporting charitable causes, or continuing a family business. Whatever your goals, it’s important to get everyone aligned from the beginning.

Here are a few questions to spark that conversation:

  • What role does wealth play in our family’s future?
  • How do we want to use it to impact our children, grandchildren, and generations beyond?
  • What values do we want to pass along with our wealth?

Answering these questions gives you a foundation for everything else that follows. It’s not just about building financial assets, but about a shared purpose for how that wealth will be used.

2.Identify Your Core Family Values

Next up: values. Every family is unique, and your approach to managing wealth should reflect that. Are you all about philanthropy? Is entrepreneurship a big part of your family story? Maybe financial independence and security are your top priorities. Defining your core values will help ensure that the decisions you make with your money align with what matters most to your family.

For example, if giving back is a core value, you might outline specific ways your family will support charitable causes. If you’re an entrepreneurial family, you may want to establish structures that support future generations in starting their own ventures.

This part of the process is key for making sure that your wealth isn’t just a number but a reflection of who your family is and what you stand for.

3.Set Clear Financial Goals

Now, let’s talk about what you want to accomplish with your wealth. It’s one thing to have a vision and values, but it’s another to get specific about where you’re headed. Setting clear, measurable goals gives everyone in your family a roadmap to follow.

Consider goals like:

  • Ensuring financial independence for the next two or three generations.
  • Growing the family business by a certain percentage each year.
  • Funding education for all family members or even establishing a family scholarship fund that can be used for future generations.

Your goals should cover the full spectrum of managing family wealth, from preserving what you have to growing it, managing risks, and eventually transferring it to the next generation. With these clear financial targets, your family can work toward a shared destination.

4.Establish a Family Governance Structure

Here’s where things can get a little more tricky: How will your family make financial decisions together? A good family wealth charter includes a governance structure that outlines who’s responsible for what and how decisions are made. This helps avoid confusion or conflict later on.

Some key elements to think about:

  • Family Council: This is a group of family members who take the lead on overseeing wealth management, usually with representation from different generations. It’s a way to keep everyone informed and involved.
  • Decision-Making Processes: How will decisions get made—by consensus, majority vote, or through a smaller leadership team? Also, consider including ways to resolve disputes if (or when) they arise.
  • Roles and Responsibilities: It is important to be clear about who is responsible for what. Who will manage investments? Who oversees charitable giving? Having these roles spelled out helps ensure accountability and smooth operations.
    • Regarding managing investments, it can be prudent to have an experienced third party managing the portfolio. This will ensure the objectives of the assets are invested correctly and eliminates the potential of a family member bearing responsibility if performance issues arise.

By having a governance structure, you create a framework that allows everyone to be involved, while keeping decision-making clear and efficient.

5.Prioritize Education for Future Generations

Passing on wealth is one thing; passing on the knowledge of how to manage that wealth is another. One of the most important sections of your wealth charter should focus on educating future generations. After all, what good is wealth if they don’t know how to handle it?

Consider including:

  • Financial Education: Programs or initiatives to teach younger family members about investing, business management, and responsible financial practices.
  • Mentorship Opportunities: Create opportunities for younger family members to learn from older generations—whether through family business internships, philanthropy work, or simply involving them in financial discussions.
  • Early Involvement: Encourage the next generation to get involved early on. Whether it’s attending family meetings or sitting in on decisions, this helps them feel invested and prepares them for the future.

By prioritizing education, you’re equipping the next generation with the tools they need to grow and protect the family’s wealth.

6.Include a Plan for Philanthropy

If giving back is important to your family, philanthropy should be a core part of your wealth charter. Not only does it benefit society, but it can also serve as a way to reinforce family values and keep future generations engaged in meaningful work.

Your charter could cover:

  • Philanthropic Missions: What causes or organizations does your family want to support?
  • Allocation of Resources: How much of the family’s wealth should be dedicated to charitable efforts?
  • Decision-Making: How will decisions about charitable giving be made? Will certain family members take the lead, or will it be a family-wide decision?

By formalizing your family’s approach to philanthropy, you can ensure that your charitable efforts are both impactful and aligned with your values.

7.Plan for Wealth Transfer and Succession

One of the most critical aspects of your wealth charter is figuring out how your wealth will be passed down to future generations. Without a clear plan, the transfer of wealth can lead to disputes, tax inefficiencies, or worse—the loss of family harmony.

Here are a few things to consider:

  • Succession Planning: If your family has a business, who will take over? How will leadership transitions be handled?
  • Trusts and Legal Structures: Consider using trusts or other legal vehicles to protect your wealth and ensure it’s distributed in a tax-efficient way. Trusts are a great way to ensure your intent gets carried out after you are gone.
  • Gifting Strategy: If you plan on giving wealth to future generations during your lifetime, outline how this will happen—through trusts, gifts, or other means.

Having a clear plan in place helps prevent misunderstandings and ensures that wealth is passed down in a way that aligns with your family’s goals and values.

8.Keep It Flexible and Review Regularly

Finally, remember that a family wealth charter isn’t a static document. It should evolve as your family grows and changes. Set up a regular review process—every few years, or when there are major changes in the family or finances—to ensure the charter stays relevant.

By keeping it flexible, you can adapt to new challenges and opportunities, while staying true to your family’s vision and values.

In Conclusion

Creating a family wealth charter might sound like a big undertaking, but it’s a powerful way to ensure that your family’s wealth, values, and goals are aligned across generations. It provides clarity, reduces the chance for conflict, and helps everyone feel a shared sense of purpose. By working together to create a roadmap for your family’s financial future, you can build a legacy that lasts well beyond your lifetime.

 

 

Insights Tags

Related Articles

October 29, 2024

Long Term Care Planning

Whether you are part of the “sandwich generation” ― caring for both your kids and your parents ― or you are aging yourself, eventually some form of long-term care may be necessary in your family. Morningstar reports that 70 percent of those who turn 65 will need long-term care at some point in their lives, [...]

Vonie Bright
Contributions from: Vonie Bright, CFP®

October 21, 2024

Getting the Most from Your Amazon Benefits

Amazon provides generous company benefits that can help you build wealth, manage risk, and secure your future. It’s important to consider how to best integrate the additional compensation, retirement, and health benefits into your financial plan. Equity Awards Your grants of Amazon restricted stock units (RSUs) can help increase your cash flow or meet long-term [...]

Katie Mietus
Contributions from: Katie Berntson, CFP®

October 11, 2024

Getting the Most from Your Microsoft Benefits

Microsoft (MSFT) offers a comprehensive suite of benefits that can help employees build wealth, manage risk, and secure their financial future. It’s important to optimize these benefits by integrating them into your overall financial plan. Open Enrollment in early November provides the perfect opportunity to review and make decisions about your health, retirement, and other [...]

Contributions from: Anne Marie Stonich, CFP®, CPA