Establishing Rules for Family Wealth

Where do you keep your house rules? Are they hanging on the fridge, framed in your study or simply preserved through an unspoken mutual understanding? The fourth installment of our True Family Wealth series is about intellectual capital, which includes the framework for making decisions in wealthy families. The intellectual capital topic often sits untouched and unarticulated. Here’s how it can help you.

In many families, the rules—also called family governance—boil down to something like, “Grandpa makes all those decisions.” That may work well as long as Grandpa remains healthy, focused and in sync with the rest of the family. But a truly wealthy family retains the benefits and responsibilities of wealth for many generations. (For related reading from this author, see: True Family Wealth Is Built With These Components.)

Be Like GE and Harvard

Think about the world’s great organizations that have outlasted any single founder or visionary leader. How are they able to do this when great leaders retire or pass away? One crucial answer is smart governance. Rules, goals, philosophies and strategies are discussed, recorded and followed, no matter who is at the helm at any given moment.

Household Handbook

Our advice is to get a discussion started, with the goal of eventually capturing key thoughts in writing. Your house rules should be a living document based on core family values, evolving over time to recognize changes in your family and the world around you.

Try transcribing your informal conversations and ideas onto paper. You can include the following:

  • Reading list– What background do you think is necessary for making smart decisions with money? What would be your required reading list? We can help you pick a few classic or age-appropriate titles. High-level financial conversations are mystifying for those who don’t have the proper context. 
  • Legal discussion – What structures have been put in place to make the most of family assets? What trusts did you create and why? Where are the life insurance plans, trusts and wills stored? Who are the critical contacts for each plan? Who are the trusted advisors, professional or not. 
  • Their own topics – Encourage other family members to contribute their own sections for rules or discussions. Ask what is important to them. Does it include supporting the arts, education, humanitarian causes? You may be surprised by their answers. (For related reading, see: Impact Investing: Making a Difference and a Profit.)
  • Decision making – What kind of decisions can be made by the group? Who has input? Who gets to vote? Who has final say on a controversial topic?
  • Fun – There are no rules that say wealth must only be serious business. There are also no rules that say that it has to be boring. What percentage of the family wealth should be allocated to fun – especially family experiences and adventures? When you’re under budget, who gets to pick what to do with the surplus? The youngest, perhaps. (For more from this author, see: The Most Important Component of True Family Wealth.)
  • Annual discussion – Don’t set rules and let them collect dust. What check-in questions can you go through with family members? How often will you review your handbook and consider making tweaks? We’d say at least annually, and twice a year is twice as nice.

Sound Like Too Much?

This may sound like a lot of work. And yes, it may be some work to get everyone involved. But the completed written plan will give everyone a sense of familial pride, a sense of empowerment even, and act as a compass for where the family goes in the future. If you would definitely do this at the billion-dollar level, why not give yourself the same treatment at the $10 million level?

The reality is that with wealth comes responsibility, not just for the head of the household, but for all members of the family. Helping your family establish good practices related to that responsibility is one way to ensure that your tried-and-true insight, training, advice and habits get passed on to future generations when you are no longer the one in control.

(For more from this author, see: How to Stop Doing Nothing With Your Investments.)