Leaving a lasting legacy for multiple generations is a goal many families share. However, studies estimate that 70% of families will lose their wealth by the second generation and 90% will lose it by the third.1 While this doesn’t have to be the case, there are a number of reasons wealth diminishes over time. A lack of clear guidelines governing the purpose and use of family wealth ranks high among them. This can be further exacerbated when poor communication, insufficient financial education, and disagreements exist among family members. Consider drafting a family constitution
Preserving family wealth begins with getting everyone on the same page. One way to achieve this is by creating a family constitution. A family constitution is simply a written agreement embraced by family members that provides a framework for: - Communicating your family’s values, priorities, and wishes regarding family wealth
- Providing guidelines governing the purpose and intent of family wealth, such as funding higher education costs or philanthropic endeavors
- Establishing a process for family members and future generations to follow when making decisions regarding the management and use of wealth, including how assets should be invested and who will have decision-making authority
- Outlining the rights of all stakeholders to head off disagreements between family members
- Ensuring future generations understand and respect the history and purpose of the family legacy
Benefits of a family constitution
Although a family constitution is not legally binding, it can be an effective tool for maintaining clear and open channels of communication among family members and resolving any conflicts that may arise. While any family can create a constitution, it can be particularly effective for those with family-owned businesses by addressing and defining the roles of family members within and outside of the business and helping to smooth operational and leadership transitions between generations. If you are not comfortable developing a family constitution on your own, seek assistance from your legal or financial professionals. Plan to review and adjust your family constitution regularly or as family dynamics or other circumstances evolve. If you have questions about strategies for managing multigenerational wealth, call the office to schedule a time to talk. 1)“Generational Wealth: Why do 70% of Families Lose Their Wealth in the 2nd Generation?” Nasdaq.com, 19 OCT 2018, https://www.nasdaq.com/articles/generational-wealth%3A-why-do-70-of-families-lose-their-wealth-in-the-2nd-generation-2018-10 | 
