While in Philadelphia with my teenage son this past summer, we visited the Franklin Institute and checked out some of their great science exhibits. They have a huge variety of things to see, as well as some live demos scheduled throughout each day.

I always make sure that we come up with some kind of a plan to see the most important stuff in some kind of a coherent fashion, and the last demo we saw really stuck with me.

It was about the changing nature of water through a range of temperatures, from ice to water, and then from water to steam. The guy doing the demo was the same man we had seen earlier in the day showing kids some cool stuff involving liquid nitrogen, and we both enjoyed his way of getting the little kids into it, and garnering a lot of laughs along the way.

I can’t say that either of us actualy learned anything new, but for some reason an important analogy popped into my head. As usual for me, the only way to do it justice is to write a blog about it.

Of course the ice-to-water-to-steam concept also applies to many other forms of matter, but I started thinking about how it applies to wealth, and more specifically family business wealth.

An established business, that is profitable and well run, represents a form of wealth that most people consider solid. When a family owns such a business, they often try to find the best way to pass this solid wealth on to future generations, as they see the value and potential permanence of the wealth that it holds.

Passing a business from one generation is often quite tricky, as the statistics surely bear out, but the stories of those that succeed are an inspiration to those who are attempting a similar feat.

In many cases, and for many reasons, passing the wealth down in the solid form of a business is not possible or practical. In many of these instances, the business is sold off to others instead, in what is often dubbed a “liquidity event”. How convenient for my analogy, that the wealth has gone from solid to liquid.

Liquid wealth has its own pros and cons, of course. The biggest advantage is the flexibility that it affords its owners, especially as far as diversification and asset allocation are concerned. Sounds great, so what are the cons?

My simplest reply is that the business, much like real estate, is viewed as solid, especially by the expected heirs, who expect to benefit from the profits, income and/or dividends it throws off, but very few members of the next generation ever consider the idea of selling pieces off in order to get their hands on the wealth.

Going back to the ice-water-steam analogy, here is how I think most of the senior generation members view this situation.

A business is solid, like a block of ice. If you can keep it in the freezer, it will last a long time, and it can even just sit there in a block, on a shelf. And you can even lock the freezer. Once it is liquid, you don’t have to keep it in the freezer anymore, and you can use it for more things.

But, it is also easy to spill, and you need some kind of a container to keep it in. And you need to beware of thirsty people coming by and asking for a sip. The related problem is that it is now subject to evaporation, one step closer to steam, and much more difficult to control.

The generation that is currently in control understands how easily it can disappear, and they struggle with how they can be sure that some of the wealth will be available to their grandchildren and future generations.

Keeping a family together around a business is one thing, keeping them together around money is much harder.