Beneficiary Well-Being Trusts under Delaware’s Section 3325 (continued)

Beneficiary Well-Being Trusts under Delaware’s Section 3325

 Integrating Wealth, Well-Being, and Family Governance (Part 2 of 2)

Rod Zeeb & Lori Coonen 

Incorporating Section 3325 Principles Beyond Delaware

While Delaware is known for its innovative trust laws, Beneficiary Well-Being Trusts’ core principles have much to offer professional advisors in other regions, as well. For families and advisors who desire to adopt a well-being-centered approach as they plan, this concept can be implemented by drafting trust documents that emphasize well-being goals, using distribution guidelines that prioritize personal development, or establishing frameworks for trustees to support non-financial aspects of beneficiary growth.

To adopt these principles outside of Delaware, families and advisors might consider:

• Flexible Distribution Policies: Many jurisdictions permit trustees to make discretionary distributions based on the beneficiary’s needs, which could encompass educational, wellness, or personal development needs.

• Incorporating Life Coaching or Mentorship: Trusts could include provisions for beneficiaries to access coaching or mentorship, reinforcing personal and professional growth.

• Integrating Health and Wellness Clauses: Some trusts might include clauses that enable trustees to fund wellness-related expenses, from healthcare to holistic therapies, supporting beneficiaries’ physical and emotional health.

Trustees’ Role in Administering Well-Being Trusts

Beneficiary Well-Being Trusts place a unique responsibility on trustees. Trustees are empowered to move beyond traditional investment and tax considerations, adopting a more personal role that includes understanding and prioritizing the individual goals and challenges of each beneficiary. To effectively administer a well-being trust, trustees should be prepared to:

1. Engage in Active Communication: Regularly communicating with beneficiaries to understand their evolving needs, ambitions, and well-being goals.

2. Exercise Discretionary Powers with Sensitivity: Considering beneficiaries' non-financial needs and acting in ways that enhance long-term quality of life.

3. Incorporate Professional Guidance: Partnering with professionals like life coaches, educational advisors, or wellness experts to align trust distributions with the beneficiary's holistic needs.

By focusing on these aspects, trustees ensure that the trust serves as a dynamic, living tool to support beneficiaries’ well-being. 

Conclusion

The Beneficiary Well-Being Trusts introduced in Delaware’s Section 3325 represent a shift in multigenerational wealth management strategy by promoting holistic well-being as a pathway to achieving a productive, fulfilling life. This innovative approach integrates historical values with modern perspectives, framing wealth as a means to foster happiness, health, and achievement. In multigenerational wealth planning, Beneficiary Well-Being Trusts are more than a financial safety net; they are a tool designed to empower each family member to pursue personal growth, foster family harmony, and contribute positively to society. Through this lens, Section 3325 paves the way for the creation of a legacy that values life quality and promotes personal fulfillment while maintaining financial security.

These Trusts align trust resources with a well-defined vision for family well-being, making it possible for families to craft an enduring legacy of educated, accomplished successors who possess both the ability and the wherewithal to navigate even the most complex financial and societal circumstances.

Importantly, the principles of Section 3325 offer a foundation not only for Delaware trusts but also for broader family governance strategies and legacy planning worldwide. For families committed to intergenerational well-being, Beneficiary Well-Being Trusts embody a forward-thinking approach that can inspire trustees, beneficiaries, and advisors to view wealth as a tool that can help families and individuals identify and achieve what matters most to them.

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                                                              ________________

Rod Zeeb is the CEO & Founder of The Heritage Institute and Founder and Principal in Genacy Group. 

Lori Coonen is CLO at The Heritage Institute and a Principal in Genacy Group. You may contact them at www.theheritageinstitute.com or www.genacygroup.com.

Beneficiary Well-Being Trusts under Delaware’s Section 3325

Beneficiary Well-Being Trusts under Delaware’s Section 3325

 Integrating Wealth, Well-Being, and Family Governance (Part 1 of 2)

Rod Zeeb & Lori Coonen 

In 2024, Delaware’s innovative legal framework for trusts was expanded under the Delaware Trust Act to introduce a specific focus on beneficiary ‘well-being.’  Section 3325 of this Act outlines principles for Beneficiary Well-Being Trusts, which allow trustees to consider a beneficiary’s overall life quality—not just their financial status—in their administration and distribution decisions. This concept reflects a historical perspective of wealth that emphasizes well-being, one that aligns with modern perspectives on multigenerational wealth planning and Family Governance. Furthermore, the core principles embedded in Section 3325 are versatile enough to be incorporated into wealth management structures across jurisdictions, offering a path toward a more holistic, purpose-driven approach to family trust administration.

A Historical Understanding of Wealth and Well-Being

Ancient cultures often equated wealth with harmony, virtue, and the health of individuals and communities. In this context, wealth was more than money; it was a balanced life that allowed individuals and families to thrive across generations. The word ‘wealth’ itself comes from the Old English word weal, which originally meant to be “in a state of good fortune, welfare, or happiness.” Over the years, wealth came to be more generally defined by one’s financial assets—property, investments, and income. However, that interpretation is a limited and incomplete definition that overlooks a far richer, broader, and more encompassing perspective: wealth as an embodiment of well-being that includes health, relationships, purpose, and fulfillment.

Today, many families and wealth managers recognize that financial resources alone cannot guarantee future generations' prosperity or happiness, and it is this broader understanding of wealth shapes the guiding principles of Beneficiary Well-Being Trusts. These trusts recognize that well-being includes mental, physical, emotional, and relational dimensions, aligning with the aim to ensure that wealth enhances beneficiaries' lives in meaningful ways. Section 3325 of the Delaware Trust Act embodies this vision, creating a legal framework to elevate beneficiary well-being as a primary goal in trust administration.

Understanding Beneficiary Well-Being Trusts under Section 3325

The Delaware Trust Act of 2024's Section 3325 introduces Beneficiary Well-Being Trusts as a specialized framework for trust administration, focusing on enhancing the beneficiary’s quality of life rather than merely safeguarding financial assets. The statute enables trustees to distribute assets and manage trusts with a heightened focus on the overall well-being of the beneficiaries, reflecting the concept that wealth should serve as a tool for enriching lives holistically.

Under Section 3325, trustees are given the flexibility to consider factors such as:

1. Educational Advancement: The ability to pursue meaningful educational or training opportunities, fostering a well-rounded and capable individual.

2. Physical and Mental Health: Financial support for healthcare needs and wellness initiatives that improve overall life quality.

3. Personal Development: Investments in personal interests, hobbies, and pursuits that contribute to fulfillment and personal growth.

4. Family Relationships and Community: Encouraging connections with family and community that offer emotional support and a sense of belonging.

By integrating these factors, the trustee has a responsibility not only to manage assets prudently but also to use them to foster conditions that promote well-being. Section 3325 offers a more complete vision of wealth management, enabling trustees to respond to the unique needs and goals of each beneficiary. This approach also represents a fundamental shift from traditional trusts, where distributions are often made based on more rigid, financial benchmarks.

Application in Multigenerational Wealth Planning and Family Governance

While Section 3325 specifically references Delaware law, its principles are adaptable to various jurisdictions, extending its relevance to multigenerational wealth planning and Family Governance worldwide. In this capacity, Beneficiary Well-Being Trusts can be instrumental in shaping legacy planning, ensuring that wealth supports values and purposes that benefit future generations.

Holistic Family Governance

The Family Governance process establishes structures, policies, and practices to promote harmony, shared values, and collective goals across generations. The principles underlying Beneficiary Well-Being Trusts are designed to integrate seamlessly with Family Governance because they promote open communication, thoughtful resource distribution, and an emphasis on legacy beyond financial wealth.

In the Family Governance context, the following applications of Section 3325’s well-being focus can be especially valuable:

• Alignment of Family Purpose: Families can formalize their shared values and aspirations in trust provisions, directing wealth toward goals like lifelong learning, social responsibility, or entrepreneurial initiatives that align with family values.

• Encouraging Independence and Interdependence: By considering each family member’s unique strengths and aspirations, Beneficiary Well-Being Trusts can create an environment where beneficiaries feel supported in pursuing purposeful, self-reliant lives.

• Enhanced Communication and Harmony Families can discuss trust purposes and build consensus on how wealth will be used to support each member's and the family’s well-being.

• Pre-inheritance Experiences:  Rising Gens working and making decisions together while the senior generation is still active, so they can determine how they can best work together after the senior generation is gone.

Through these approaches, families can harness wealth not only as a means of financial support but also as a resource to strengthen intergenerational bonds and contribute to family harmony.

Part 2: Click Here

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                                                             ________________

Rod Zeeb is the CEO & Founder of The Heritage Institute and Founder and Principal in Genacy Group. 

Lori Coonen is CLO at The Heritage Institute and a Principal in Genacy Group. You may contact them at www.theheritageinstitute.com or www.genacygroup.com.

continuing the Delaware Trust Act of 2024, Part Two

continuing, the Delaware Trust Act of 2024

Additionally, the Act revises the use of letters of wishes, a tool through which the settlor can communicate non-binding guidance to trustees about the trust’s administration. Under the new legislation, trustees have greater discretion to interpret or disregard letters of wishes if they conflict with the trust’s governing provisions, thereby avoiding ambiguity in trust interpretation. This allows estate planners and their clients to utilize letters of wishes as a means to express nuanced, situational intentions—such as prioritizing specific beneficiaries’ needs without legally binding the trustee. This enhancement provides flexibility while maintaining settlor confidentiality, as trustees are not obligated to disclose these letters to beneficiaries unless specified by the trust document.

Furthermore, the Act extends virtual representation to designated representatives of beneficiaries, broadening the scope of representation for minors, incapacitated individuals, and future beneficiaries in non-judicial matters. This update can simplify trust administration by allowing designated representatives to represent beneficiaries who may not have the capacity to participate in trust decisions, providing more streamlined management for estate planners handling multigenerational trusts.

Lastly, the Act introduces more clearly defined guidelines under the Uniform Transfer on Death Security Registration Act, aiding in smoother asset transfers upon the settlor’s death. By aligning Delaware’s laws with national standards, this change reduces ambiguities that estate planners and beneficiaries often face during the inheritance process.

In summary, the Delaware Trust Act of 2024 enhances the versatility and responsiveness of trusts to individual family needs, offering estate planning professionals a robust framework to tailor estate plans. From improved educational provisions for beneficiaries to clearer interpretative guidelines for trustees, the Act marks a progressive step in trust administration that can lead to more empowered and engaged beneficiaries. This makes Delaware an increasingly attractive jurisdiction for estate planning professionals and clients who seek innovative, client-centered solutions in managing generational wealth.

For estate planners, these new provisions can provide a unique competitive edge, allowing them to offer clients trust structures that not only safeguard assets but also foster financial literacy, legacy education, and responsible stewardship among beneficiaries. And, the concepts of this Act can also be integrated into estate planning that is done outside of Delaware Trusts.

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________________

Rod Zeeb is the CEO & Founder of The Heritage Institute and Founder and Principal in Genacy Group.
Lori Coonen is CLO at The Heritage Institute and a Principal in Genacy Group. You may contact them @ www.theheritageinstitute.com or www.genacygroup.com.

©2024 Allegiance Publishing LLC

The Delaware Trust Act of 2024, Part One

What It Means for Professionals and Their Clients

The Delaware Trust Act of 2024 introduces significant provisions that will impact estate planning professionals and their clients, enhancing flexibility, transparency, and beneficiary engagement in trust administration. This legislation aims to align with modern wealth management needs by introducing concepts such as the Beneficiary Well-Being Trust, updates to letters of wishes, and expanded powers for trustees to provide beneficiary education. The principles and concepts included in this legislation can be implemented in other multigenerational wealth transition planning tools and strategies beyond Delaware Trusts.

One notable aspect is the Beneficiary Well-Being Trust, which allows trustees to incorporate educational and developmental programs that prepare beneficiaries for managing inherited wealth responsibly. These programs can include financial literacy courses, family governance discussions, and philanthropic training. This provision is intended to improve communication between trustees and beneficiaries, supporting not only financial but also personal growth, and offers families a structured way to pass down values and financial stewardship skills across generations. The flexibility to customize these programs per the settlor’s preferences is particularly groundbreaking, as it enables trusts to align with each family’s unique needs and objectives.

Included in the new Act's provisions is supportive language for fostering a "culture" of financial literacy, multi-generational education, and overall well-being for trust beneficiaries. And the statute says that if the Trustmaker includes the well-being programs in the Trust, then the Trustees must pay for those programs out of the trust.

Estate planning professionals can leverage this provision to recommend strategies that enhance a beneficiary’s understanding of the trust and its purpose. For example, financial education initiatives funded by the trust can cultivate beneficiaries’ wealth management skills, promoting responsible wealth handling that is in line with the settlor’s long-term vision. This statutory change allows advisors to incorporate holistic educational elements that go beyond financial disbursements, potentially leading to more fulfilled beneficiaries who are prepared for the complexities of wealth inheritance.

Additionally, the Act revises the use of …

We will continue the Delaware Trust Act discussion in the next article.

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________________

Rod Zeeb is the CEO & Founder of The Heritage Institute and Founder and Principal in Genacy Group.
Lori Coonen is CLO at The Heritage Institute and a Principal in Genacy Group. You may contact them at www.theheritageinstitute.com or www.genacygroup.com.

©2024 Allegiance Publishing LLC

Transformational Philanthropy

“Transformational philanthropy” may be a new term to some of you. Here is an easy way to understand the concept: imagine a gift that has as profound an impact on the donor who makes it (and often their family) as it does on the organization receiving the gift. That is the essence of transformational philanthropy.

One of the most interesting things about the transformations that take place with this kind of gift is that there is no relationship between the size of the gift and the degree of transformation it can bring about. The transformation occurs not as a function of the size of the gift, but instead as a reflection of the passion behind the gift.

One of our clients described the difference between a donor and a philanthropist this way: a philanthropist gives from their soul; a donor gives from their wallet. Another person said: “a donor goes to the charity’s auction to buy something (that they want or need!) at a discount, and then seeks recognition as a donor for doing so.” A philanthropist is the one who donates those items or spends their precious time obtaining the items in order to fulfill the mission of the organization.”

So, how does a donor become a philanthropist? Through a transformational gift. It is the experience of joy and meaningful accomplishment that comes from fulfilling their passions that inspires them to commit more of their time and money to organizations that allow them to fulfill their passions.

Philanthropists overwhelmingly desire to pass their philanthropic passion on to their children. The organization or advisor who facilitates that desire through multi-generational planning accomplishes several important objectives:

• Fulfilling the philanthropist’s passions through support of organization(s) that fulfill their passions;

• Developing a philanthropic spirit in the philanthropist’s children /grandchildren;

• Strengthening and uniting the family in common cause, which helps the family to remain prosperous enough to continue their philanthropy for multiple generations; and

• Creating multi-generational ‘gift streams’ to organizations.

The turbulence in our economy underscores how critical it is for non-profit organizations to build and maintain reliable, enduring, passionate donor support. Organizations and advisors who provide multi-generational planning are uniquely equipped to help achieve those goals.

Are you asking the important questions to help your donors’ gifts become TRANSFORMATIONAL?

The Gift of Effective Family Governance

Most inheritance plans ultimately fail because the inheritors are not prepared for the responsibilities that come with their financial and familial inheritances.  

The most technically complex, artfully crafted Family Governance structures in the world will not keep the family and its wealth together, or help the family to achieve its vision over time. To thrive, the family must learn how to work together, and how to equip succeeding generations to deal with the responsibilities and opportunities of inherited wealth.

The ultimate goal of Family Governance is to create a high-performance, multi-generational team in which the succeeding generations are participating in decision-making, leadership activities, and hands-on money management long before their parents pass on.

A successful family governance process:

1.  Focuses on teaching the family to communicate and work together effectively; and,

2.  Mentors the children through real-world experiences under the guidance of other family members and advisors–– which equips them to succeed.

The governance process is not just a science, but an art as well. This is an important distinction because if there is any arena in which families do not want a transactional relationship, family governance is it. 

We believe that families must address the family governance issue via a flexible, tested, and proven process (whether The Heritage Process® or another process) because there is no ‘one-size-fits-all’ family governance structure solution. Pre-packaged structures should not be ‘imposed’ upon the family in lieu of a process that allows the family to discover what matters most to them. Packaged solutions won’t help the parents to gradually ‘let go,’ or guide the children to discover that it is worth it to participate and that they can actually do it.

We know from history that 90 percent of families fail to keep both their unity and their assets together for more than three generations. The reason the wealth seldom survives is that the heirs are usually not equipped to handle wealth that they had no role in creating. Nor do they have a full appreciation for the responsibilities that come with wealth.  

The purpose of family governance is to create and manage structures that will become the children’s ‘classroom’ to prepare them for the inheritance they will receive.  Here they will learn by doing. They gain hands-on experience in wealth management by working with limited amounts of money and control, guided by mentors from inside the family as well as by the family’s professional advisors.  

“Tell me and I forget. Teach me and I remember. Involve me and I learn.” - Benjamin Franklin

In this process, the children learn the importance of responsibility and high-level, peer-to-peer communication. Our experience is that this is a progression; as they learn skills and demonstrate increasing levels of competency, and as the parents become more comfortable, the children can manage larger amounts of money and take on more significant leadership roles.  The advisor’s primary goal is to facilitate this process.

When we examined what the 10 percent of families who have succeeded throughout history have in common, we discovered that they consciously prepared their heirs for their inheritance, typically through the use of ongoing family governance structures. The environment fostered by these structures allows for successful families to plan for and weather even the toughest times. Whatever may be happening in the world around them, they rely on their family governance structures as a vehicle for mentoring the next generation, for passing leadership, and for clarifying and enhancing the family’s vision for the future.

Key principles to successful family governance, include:

1.          Each family member must decide to participate for his or her own reasons.

2.          The amount of money matters.

3.          Communication is the key.

4.          The focus must first be on Process, which will lead to Performance.

Through the successful implementation of these key ingredients (typically through the facilitation of a skilled advisor), the children and grandchildren discover that they can participate in family governance in a meaningful way. 

When the succeeding generations decide that it is worth their investment of time and effort, the likelihood that their family will enjoy success across generations takes a quantum leap. And, as the parents come to realize that ‘letting go’ and passing leadership is not really about the amount of money, or about giving up too much control, they can focus on their roles as mentors. This means they can enjoy the all-too-rare luxury of seeing their hopes for their children and grandchildren begin to come to fruition while they are still alive. Through this structured learning experience, the succeeding generations will be prepared for the wealth they will receive.

This is the gift of effective family governance.

Underlying Principles of Effective Family Governance

Effective family governance often includes structures like a Family Council/Executive Committee, Family Bank, Family Philanthropy, Family University and regular Family Heritage Milestones (family meetings). The structures utilized by the family to operate and implement their governance objectives may or may not be legal entities, but they will be unique to that family’s circumstances, and they will be built upon high-level communication, active mentoring, and encouragement of individual and collective family member achievement. 

The Family Heritage Milestones are the children/grandchildren’s hands-on classrooms to prepare them for the inheritance they will receive.  Through these experiences, each succeeding generation is mentored and prepared by the previous generation. The Milestones provide a structure to accomplish the family’s objectives. While there will be some formality to the organization of the Family Heritage Milestones (i.e., agendas, minutes, committees and reports), the actual structure will vary from family to family. The first two principles that are essential for effective family governance are described below:

Principle 1: Each family member must decide to participate for his or her own reasons. Ultimately, each family member who decides to participate (or, ‘buy-into’) the family governance process makes their decision to stay the course based upon two factors: 

Is it worth it? Can I do it?

It will be "worth it" for everyone to participate if the family establishes a governance structure in which:

•  Each voice within the family is valued;

•  Each individual finds a meaningful and productive outlet within the governance structure for their core passions.

In the successful governance process, every family member finds a role where they feel valued. Simply assigning tasks or busy-work to family members around the governance process will not achieve the level of high-performance teamwork that is the hallmark of strong family governance. Finding out what is right for them in this process can be hard work.

“For family governance to be successful, the senior generation must transition from being the monarch to being a mentor.”

An Example of “Is it Worth It? Can I Do It?"

An adult daughter was a reluctant participant in family meetings because her dynamic, hard-charging parents wanted her to be a leader like them. But she was not that type of leader, and had no desire to be that way. When her parents were going through their Guided Discovery and reflecting upon the values and passions that drove their own lives, her mother asked, “When are we going to accept our daughter for her values and passions, for who she is, and not what we want her to be?”  

In fact, the daughter wanted to be the ‘safe’ Aunt to whom anyone in the family could come to share their stories, joys and problems. When her parents realized that, and helped her to assume the leadership role that most suited her, everyone in the family benefited from the decision, and everyone elected to fully participate in the Family Council.

Strong personalities should not dominate family governance. When thinking about 'who goes where' and 'who fits best' in the context of family governance responsibilities, the answers must benefit the family as a whole as well as the individual family members. In our experience, this kind of perspective and realization only comes through a skillfully conducted Guided Discovery* interviews.  

The end result is that individual family members discover what’s truly important to them, which provides the solution to the ‘Is it worth it and can I do it’ question. This, in turn, allows them to make significant, long-term contributions to the family governance process for their own reasons.

*Guided Discovery is defined as a process of learning in which you are guided by another to learn from your own experiences. Guided Discovery goes far beyond the traditional fact-finding process to capture stories, values, life lessons and other information. With the guidance of a trained advisor, this process helps clients identify and articulate what matters most to them, and then to make those ‘discoveries’ the basis for the planning and family governance activities they will undertake. Guided Discovery, as utilized during The Heritage Process, is not therapy. While there may be some instances in which the services of a family counselor may be useful to facilitate family communication, the important thing to note is that if family governance is going to work for multiple generations, it cannot be dependent on outside advisors. 

Principle 2: Communication is the key

Developing and maintaining effective patterns of communication is the key to long-term success. It is in the process of working together that the results of greatest importance and lasting benefit to the family are achieved. Part of the family governance structure is to create experiences and opportunities for communication to develop over time.

When family communication and mentoring are functioning at a high level, the performance results desired by the family will follow. This is the key to successful, multi-generational family governance.

Families who establish and maintain effective family governance structures can experience greater unity, individual family member achievement, and the accomplishment of the goals and objectives that matter most to them–for generations. 

We will discuss two more principles focused on details of the family governance structure in the next article.

Underlying Principles of Effective Family Governance - continued

The structures utilized by the family to operate and implement their governance objectives may or may not be legal entities, but they will be unique to that family’s circumstances, and they will be built upon high-level communication, active mentoring, and encouragement of individual and collective family member achievement. 

For review, the first two principles essential for effective family governance (found in an earlier article) are:

Principle 1:  Each family member must decide to participate for his or her own reasons.

Principle 2:  Communication is the key

The next two principles included in this article focus more on the logistics:

Principle 3: The amount of money matters, but not in the way you might think.

Family Fund (sometimes known as a Family Bank) is a financial structure(s) established for the purpose of helping the family to develop a healthy relationship with money through real-world money management activities. Initially, the creation and operation of the Family Fund/Family Bank is a Pre-Inheritance Experience™ designed to allow the children/ grandchildren to talk about money together, invest money together, and make decisions about money they cannot consume.  

Later, as the assets grow, these structures may be used for any purpose to support the family, including support for family vacations and reunions, education and college funding, investments, philanthropy, business start-up loans, home down payments, etc. Because the initial focus of the fund is to serve as an educational tool, the initial funding amount need only be enough to accomplish the educational objectives identified by the parents. 

Some families are surprised to discover that there is no correlation between the size of estate and the amount of money with which the parents ultimately fund family structures, including the Family Fund/Bank, which is a structure used by many families to both educate the children as well as to fund family activities. 

 *Pre-inheritance Experiences 

Pre-inheritance experiences help to prepare the children to receive both their financial inheritance (and responsibilities) and their emotional inheritance, which independent research and our own work have proven to be equally significant when it comes to the success of the family across multiple generations.

Adults and children learn differently. Adults learn through their own experiences. Pre-inheritance experiences (so called because the parents are still alive) are hands-on activities designed to:

• Develop and maintain effective patterns of communication within the family;

• Provide an opportunity for succeeding generations to experience and learn skills, values, and life lessons;

• Prepare succeeding generations for the responsibilities of life, wealth management and stewardship;

• Begin the transfer of leadership within the family; and

• Provide a forum to share and preserve the family’s unique stories, life lessons and values from one generation to the next.

“In the family governance process, the senior generation must release enough money and control to succeeding generations to empower and enroll the next generations, but not so much that the senior generation can't comfortably let go.”

Principle 4: The focus must first be on Process, which will lead to Performance.

We have found that heirs are seldom equipped to handle the wealth that will come their way. Effective family governance should focus first and foremost on creating and managing structures that give the heirs information, education, and training that is as real-world as possible.

With that in mind, it’s easy to understand how conflict can occur if the initial expectation of the parents is that the primary purpose of family governance should be results, rather than hands-on learning (i.e., what did they LEARN rather than what did they EARN). Some kind of performance objectives will typically be a part of the process, even with those activities we would consider to be mostly educational in scope. The more ‘Type A’ the patriarch and / or matriarch of the family may be, the more performance will matter. What is important to emphasize with the parents (and it will have to be addressed many times), is that the performance they wish to see will come about as a natural by-product of a successful governance process.

The amount of money with which they may fund an initial Family Fund/Bank structure, for example, is insignificant to the outcome of siblings (and cousins, nephews, nieces, grandchildren, etc.) learning to work together in a respectful, productive fashion. The ripple effect set in motion as the family works together in an increasingly unified manner will have untold impact on individual family members, the family as a group, and the goals and objectives they set for generations.

The key notion here is impact over time. Focusing on the bottom line in this context does nothing to further the transfer of leadership from one generation to the next. Nor does it create the opportunity for developing mentoring relationships and stronger family communication. But replace the ‘how much did you make?’ question with: “So, what have you learned from this experience?” and see what can happen. This kind of question opens the door to transformational conversations.

Prepare the Parents

The importance of preparing the parents in the early stages of the governance experience cannot be overemphasized. To be effective, the family must establish mechanisms by which zones of safety and trust can be created within the family governance process. The family must also create attitudes and structures where individual family members will feel empowered. There are three keys to doing this successfully.

They involve educating family members on the importance of the “3 P’s”, as described by Buchholz and Roth in their book, Creating The High-Performance Team:

• Permission. Individuals need to be given permission to assert themselves and take the first step.

• Protection. They need to feel safe in asserting themselves.

• Potency. They also need to feel that what they contribute will make a difference.

For the family, and for the trusted professional who is helping them through the setup, launch and ongoing facilitation of their family governance structures, it is important to understand that this process is both art and science. We believe that the professional must address the family governance issue via a flexible, tested and proven process (whether The Heritage Process® or another process) because there is no ‘one-size-fits-all’ family governance structure solution.  

Families who establish and maintain effective family governance structures can experience greater unity, individual family member achievement, and the accomplishment of the goals and objectives that matter most to them–for generations. 

The 3rd Component

For as long as humans have possessed physical money and property, the processes by which most people have planned for their families’ futures have utilized two traditional planning components; financial planning and estate planning. Unfortunately, pretty much since the dawn of time, nine out of ten families who completed their planning that way ended up losing just about everything their plans were supposed to protect. To be exact, in 70% of families where wealth has been created in generation one, both the assets and the family unity are demolished by the end of generation two. By the end of the third generation, more than 90% of families see both their unity and their assets disappear.

 What is responsible for the collapse of multi-generational family wealth and unity? Is it divorce, poor financial planning, substance addiction, irresponsible spending by heirs, or just bad luck?  There is no doubt that there is a direct correlation between those troubles and the chaos that can tear families apart. But until recently, the planning world wasn’t looking outside the box for solutions.

 Rod Zeeb, the CEO and founder of The Heritage Institute, was not satisfied with the ‘90% will fail’ status quo. He was passionate about helping his own clients get through what he dubbed to be a new kind of Midas Curse. Rod’s focus was here: If 90% of families fail at the task of keeping their family unity and their family assets together for more than two generations, what do the successful 10% do differently?

 Zeeb was convinced that the answer to helping families to transfer the things that mattered most to them (money being only part of that equation) from one generation to the next was out there. His objective from the outset of what was to become a two-decade journey was now crystal clear: first, he wanted to discover what the successful 10% do differently than the 90% who fail, and second, he wanted to develop practical solutions that could help families overcome the 90% failure rate and go on to thrive for generations.

 The most significant finding that came out of Zeeb’s research was this: the reason that the 10% succeed from one generation to the next was not a reflection or result of their financial or estate planning.  Most professionals deliver good planning to their clients, and they always have. Instead, the difference between the 10% who successfully keep their family unity and their assets together for multiple generations and the 90% of families who fail is that successful families add a 3rd ‘component’ to the traditional disciplines of financial and estate planning. That component is known today as Heritage Design.

 Heritage Design is a process by which the successful 10% consciously, rigorously, and continuously prepare their family for both kinds of inheritances they will receive. The first, the financial inheritance, is the one with which we are most familiar.  The second is identified in a study by the Allianz insurance company which found that leaving a legacy (which is another description for the familial inheritance) was far more important to people than leaving a financial inheritance.  In fact, 86% of both “baby boomers” and 74% of elders rated “values and life lessons” as the most important inheritance they could receive or leave.  And, another study done in 2019 by Wells Fargo Bank, found that 90% of adult children of millionaires cherish family values over wealth. The Allianz study also concluded, "What we found was the memories, the stories, the values were ten times more important to people than the money."  

 If we have learned anything from decades of experience and studies, it is that planning for the future of your money is not the same as planning for the future of your family.