There Are Better Ways to Think About This
Once again, we’re going back to LinkedIn as a source of inspiration for this weekly missive.
Between events I attend, conversations I have with clients and colleagues, and my favourite social media site, these cover the genesis of 95% or more of what I share here.
The post in question is part of a weekly series I’ve been enjoying, from Pierre Dupont, who is several generations removed from the founder of the eponymous industrial behemoth.
His series, Projecting Wealth Across Generations, is full of great ideas and viewpoints.
In a recent instalment, he mused about the dangers of treating a family’s wealth as a “pile of money”.
Section 01
Three Possible Outcomes for the Pile
He shared the following:
“But left without intention, a pile tends to do one of three things:
- dissipate quietly,
- sit frozen out of fear, or
- become the thing the family fights over.”
In the comments, I thanked him for his succinct list, and shared a thought:
“I’ll add that these three results are NOT mutually exclusive, and the pile can end up checking more than one box over time, and #2 and #3 often occur together!”
Section 02
Reality Check from My Dear Wife
As I occasionally do, I bounced my idea for this post off my wife of 33 years, who happens to be part of a family where some of those 3 outcomes may or may not have occurred.
She nodded and said “Yeah!”
I didn’t need her blessing, but I was glad to know that this brief list resonated with her.
I should note that this list is not to be confused with a related one about “who gets your money after you die”.
That one is popular with those advocating for philanthropy, because the three places your money can go after death are: the government, your family, and charity.
But that’s a subject for another post.
Let’s get back to dissipation, fear, and fighting!
Section 03
Flinging Open the Doors of the Brinks Truck
Let’s start with the fear of dissipation of wealth.
Here’s an analogy I’ve used with a family I’m working with, who’ve experienced a recent liquidity event.
See Integrating the Wealth into the Family.
I explained to the rising generation that their parent had spent several decades building a wealth creation engine, but they are now faced with a brand-new challenge that they hired me to help them work through.
It was as if that wealth creation engine had suddenly transformed into a Brinks truck full of cash, which has now landed in the family’s backyard.
Now the parent isn’t going to suddenly fling open the doors of that truck and invite everyone to help themselves to this “pile of money”.
They are also not going to say, “Hey kids, look at MY cash, you’ll get it when I die”.
Making the financial wealth freely available will surely see it dissipate.
Section 04
Frozen Out of Fear
What sometimes occurs when the fear of dissipation is too great, is that the financial wealth gets put into complex trusts or other structures to make sure it doesn’t get frittered away.
That’s the other extreme of the continuum and isn’t necessarily a much better result.
The wealth creator has often ended up in an unforeseen situation of suddenly having more wealth than they need, but they also don’t want their hard work to blow away into the wind after they die either.
There are plenty of professional advisors out there who know how to structure wealth in ways to make sure it lasts forever, and clients can easily be swayed by their arguments.
Section 05
Family Fights Over Money Are Not New
Families with a great deal of wealth have been fighting over it for centuries and estate litigation is one of the fasted growing areas of the law for attorneys.
This will not change anytime soon.
Section 06
The Secret: Avoid the “Pile of Money” by Talking About It
The best way to try to avoid the extremes of dissipation of wealth and freezing it out of fear, and all the fighting in between, is to have the family discuss it openly.
This needs to be done over time, on a regular cadence.
See Ideas on Dealing with the Family CRAP.
It isn’t just some undefined pile of cash.
It needs to become something the family co-creates, along with a purpose and mission and a strategy to have it fulfill its and the family’s potential.
Progression is often slow, and that’s even better.
See Your Family’s Continuity Journey — Progress or Paralysis.
Get help and get started.
At A Glance
The Three Fates of an Unmanaged Pile
Tap each card to reveal the fate — and the way out.
+Fate IDissipate Quietly
“Making the financial wealth freely available will surely see it dissipate.”
+Fate IISit Frozen Out of Fear
“The financial wealth gets put into complex trusts or other structures to make sure it doesn’t get frittered away.”
+Fate IIIBecome the Thing They Fight Over
“Estate litigation is one of the fastest growing areas of the law for attorneys.”
+AlsoFates Are Not Mutually Exclusive
“The pile can end up checking more than one box over time, and #2 and #3 often occur together!”
+The Way OutCo-Create Purpose, Mission & Strategy
“It needs to become something the family co-creates, along with a purpose and mission and a strategy to have it fulfill its and the family’s potential.”
