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.