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Financial Planning > UHNW Client Services > Family Office News

Heritage Planning Pt. 8, Bringing Families Together Financially

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In previous columns I introduced a number of topics related to the concepts of heritage planning, and in my last posting dated March 23, I wrote about how to foster healthy family dynamics. In this posting I will focus on the importanance of openly discussing money matters with children (view all eight postings to date on the concept of Heritage Planning on this AdvisorOne home page). 

It is critical that children begin to discuss financial matters at an adult-to-adult level with their parents. Developing and establishing a Family Bank is one of the keys to accomplishing this. The process of building a functional multigenerational Family Council that actively mentors subsequent generations and brings them into the leadership fold will promote the long-term success of a multigenerational strategy for fostering family unity and growth. 

Failure to openly discuss money matters with children is one of the greatest predictors of family disharmony and affluenza—a dysfunctional relationship with money or the pursuit of money. How many of you have ever witnessed someone receiving an inheritance or winning the lottery, only to be left with nothing soon thereafter?

The cure for this problem is the ongoing implementation of pre-inheritance experiences. The Family Bank is the best vehicle for ensuring that this process is intentionally integrated into a family’s heritage planning.

Each Family Bank is different, and serves the unique needs of the family for which it is created. That said, there are a number of elements and concepts that universally apply. To address the issue I’ll be calling upon the work of Jerry Garrett and John Unice of the Orem, Utah-based Keeler Thomas, Inc. Garrett and Unice are leaders in the field of heritage planning, and they have paved the way in helping to streamline the process of setting up a Family Bank. 

According to Garrett and Unice, there are three distinct stages of Family Bank Development: 

  1. Capital Accumulation
  2. Family Advancement
  3. Legacy Participation

Each stage has specific goals. During the Capital Accumulation phase, for instance, the goal is to set in place the necessary training, Bank procedures, reporting systems, and Council regulations in preparation for Bank activities. It is also the time for concentrating effort on development and accumulation of Bank assets prior to major disbursements. 

The Family Advancement phase is the time and process during and through which the activities of the Bank are turned toward disbursements that are aligned with and/or fulfill the family development objectives that were initially outlined in the family’s Heritage Statement.

Finally, the Legacy Participation phase acknowledges and acts upon the role of mentoring and training the upcoming generations to be prepared to continue the mission of the Family Bank and broader integration with the concept of facilitating a transfer of authority and leadership from G1 (Generation 1 = Parents) to G2 (Generation 2 = Siblings) to G3 (Generation 3 = Grandchildren and nephews and nieces) and beyond. Garrett and Unice have given each of these three phases much thoughtful treatment. In my next column I will follow up on each of them with more depth and engagement.

There are a number of issues that those who are setting up a Family Bank must address. One issue that needs to be addressed during the setup of a Family Bank is the organization of the Bank’s Investment Committee. In addition, a determination needs to be made and put in place regarding cash balance fund requirements. It is also normal for the Committee to draft an Investment Policy Statement to assist in effectively supervising, monitoring and evaluating the management of the Family Bank. Guidelines need to be developed to ensure that bank assets are used in ways that promote the development of the family for current and succeeding generations, especially regarding the establishment of approved lending purposes, requirements for family members to borrow funds, creation of standard terms, documentation and the lending approval process.

Provisions also need to be made regarding the ongoing responsibilities of the Investment Committee, especially as it pertains to Committee development and maintenance; qualifications for use of Family Bank income; and ongoing Committee fiduciary responsibility. 

It might sound like a lot of work.  By many measures, it is a lot of work.  f course, no one ever suggested that building a successful multigenerational family and team would be easy. In my next column I will endeavor to suffuse each of these topics and areas with more clarifying light. 

Heritage Planning Month
The month of May is designated “Heritage Planning Month.” Around the nation, events will be held to introduce Heritage Planning and its benefits to professional advisors, families and non-profit organizations.

If you are interested in learning more about Heritage Planning and how it can be of benefit in your financial planning practice, please watch the live webinar presented by the CEO of The Heritage Institute on May 16 from 10:30am to noon CST. In addition, Heritage professionals will be hosting a series of local events nationwide to inform advisors and the public on Heritage Planning.


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