We will not live forever...but we can leave a legacy that will impact our family, friends or community long after we are gone.
Although we don't need huge amounts of wealth, strategic planning is a critical factor in determining the success of your legacy.
Family is one of our most important assets and all parents want to ensure that their decendents thrive long after they are gone. There are several challenges that we all face when creating a meaningful legacy- especially when transitioning from one generation to the next one.
The challenges to your family legacy can take several forms:
We will explore the steps that you will need to take to set up your legacy and to ensure that your family maintains a lasting and impactful legacy.
Its important for each family to have sense of who they are and what common values they share across generations. A good place to start is the family tree and an understanding of the family history to give a perspective on how you arrived at your current situation.
Mapping your family tree can be a fun excercise across the generations and often requires all generations to work together.
Once a common history has been documented - the family can start exploring common values that are important to all generations. These could include a common religion or other general values like protecting the environment or common goals for future family members (example educational attainment). Once these common values have been identified, the family should start translating these values to long term goals that can then be expanded upon to construct a strategic vision for the family. The family should also set up specific actions related to these goals and identify which members are best placed to acheive them.
An interesting option at this stage is to include the possibilities that individual members write and share their stories (life or simply specific life events that were meaningful). These can be archived with the legacy documents. This adds a personal dimension that can facilitate an emotional connection to the legacy.
Once the values, goals and actions have been outlined - the family should consider which assets it has at its disposal. At this stage it is important for members of the family to consider which assets they would like to dedicate to the legacy and which will remain exclusive to the private use of a specific member. A family can take different approaches in terms of disclosure, you may feel that the full extent of wealth is best kept secret. The assets of the family can have various forms from the physical (land, property, art, etc.) to the financial (money, shares, etc.) or other (reputation, etc.).
Our focus here will be limited to financial assets and potential considerations. If one looks at the financial assets we plan to pass on - we need to consider exactly what we would like the next or following generations to acheive. If we would like a short term outcome for example - assist in buying a family home, the options are relatively straight forward. However, if we would like to make a greater impact over the longer term and across generations - we need to think about how we structure the portfolio. We have not considered legal or tax considerations - please consult a professional for advice.
The great benefit of a long term goal is that the family portfolio can be structured with a long term horizon. This increases the potential of the portfolio to acheive higher returns- a family can now consider illiquid assests in addition to higher risk assets likes equities. This enables the family to capture additonal returns (liquidity premium). A key consideration is when the money or income from the assets will be needed and how to generate that liqudity. This could entail accomulation of modest income from the assets over time which are invested in more liquid alternatives or partial liquidation of the assets at specific times (favourable market conditions, etc.). Planning is key to ensure that your investment strategy thats into account the liquidity requirements in advance, so not to impact the returns of the portfolio.
Linking Assets to goals.
Once your goals have been established and you have structured your portfolio accordingly - it is helpful that all generations actively engage to meet those goals. The level of disclosure will depend on each families circumstances. The ability for generations to activetly work together on a shared goal greatly increases the success rate of the legacy. A common goal which families can work on is usually supporting a charity. In this manner - older and financially stronger generations can provide financial input - while younger generations provide time and energy. This will cement the core values and principals of the legacy and significantly increases the success rate of it transitioning beyong the first generation.
Breakdown of family relationships and other emergencies.
It is unavoidable that families will face crises, these can take various forms from financial to breakdowns of family relationships. These type of situations are dificult to predict but are certain to occur. A good strategic plan may not necessary plan for each of these potential occurances - but what it can do is build in a framework or guiding principals that can be used by the family to help resolve the problem. It is important that all members agree on the general framework, even if they acknowledge that it may not be perfect.
Framentation of financial assets over time.
Another concern is that over time, due to the increasing numbers of beneficiaries of the legacy, is that the legacy becomes exhausted or financially irrelevant. There are various ways to deal with this which could include selecting only the best placed beneficiaries to inherit the full legacy or in our view, a better alternative, is to encourage active renewal of the legacy. In terms of the later the key to active renewal lies in the future generations believing and accepting the value of the legacy, its core principals and values. If that is acheived - it is more probable that they will actively support it with their own resources in the future.
We hope you have found this introduction into strategic planning for your legacy useful. Should you have any questions or suggestions - please contact us.
18 January 2018