How does your family make decisions about wealth? Since every family is different, there’s no “right” way. But there’s a common thread among those who successfully deploy their wealth to reinforce a shared purpose and vision—strong governance.
Getting on the Same Page
Family governance is a framework for communication and decision-making among its members. Think of it as a roadmap for organizing a multi-branch, multigenerational family. It includes documents and systems to guide wealth transitions and reflect the wealth creators’ knowledge and values.
Most families recognize that wealth brings challenges along with opportunities. By creating a transparent structure to address both, governance instills a sense of meaning for all family members. The benefits? Family cohesion—especially in multigenerational families with young members—and the impetus to use assets productively.
Toward One Big Happy Family
Each family’s governance structure is unique. In theory, there could be as many different governance models as there are families. But at a high level, every family should aim for a distinct framework that evolves with the family’s needs (Display).
Systematically Promoting Alignment and Providing Structure
- sets the vision for wealth that supports the family’s purpose
- identifies and maintains the values that drive decision-making
- creates a healthy environment for clear communication and collaboration
- establishes roles and responsibilities
- celebrates individual and family milestones
- proposes conflict resolution strategies
- transfers wealth efficiently and effectively through generations
Setting a Vision Reinforces Intention. At its core, governance is about family-focused decision-making. It starts with setting a vision and defining a purpose, then deciding how wealth supports these intentions. Together, these steps will keep the family aligned and direct the use, growth, and sharing of assets while preventing unintended erosion.
Identifying Values Is Critical. Building an effective governance structure begins with a set of family values. Pinpointing these values encourages families to appreciate unifying tenets while respecting distinct differences. Often, we find shared ideals hidden beneath the surface. Sound family governance relies on both open and spoken minds, especially when connecting across generations.
Communication Is the Heart of the Family. The importance of communication goes beyond articulating values. Governance provides a forum for voices to be heard while offering strategies for working together and building trust. Sometimes, these interactions can be informal conversations, like the ones shared around the dinner table. Other families prefer formal meetings. Together, they pave the way for deeper connections and the avoidance of misunderstandings. They also create opportunities for storytelling about the past and planning for the future—fostering productive dialogue between current and future family leaders.
Establishing Roles and Responsibilities. Most wealth creators spend a significant amount of time building their wealth and want their heirs to become good stewards of it. But a governance system needs to be established early on to solve potential issues that may arise. Waiting until a consequential event—such as the death of a family member or sale of the family’s business—can be detrimental to the family’s legacy. Designating roles and responsibilities within the family lays the groundwork for effective decisions and an understanding of how the family operates and communicates before facing a pivotal event.
Celebrations Uplift Family. Governance is more than dotting the I’s and crossing the T’s. Cohesiveness is an essential goal, too. Celebrating milestones—birthdays, anniversaries, and the arrival of new family members—builds connections and acknowledges triumphs over challenges. It’s a way to show family members that they matter and that their lives have meaning. Stronger relationships encourage family unity, which leads to more successful governance.
Resolving Conflict. While families are not immune to disagreements, one of the goals of governance is to align wealth with purpose—a collective vision shared by all. This helps families make decisions that are agreed upon and respected over time, minimizing quarrels. Though families cannot entirely avoid conflict, those that lack an established decision-making framework may not be prepared to handle disputes. An effective system will reduce the chance that a disruptive disagreement will leave lasting scars.
Transferring Wealth Requires Structure. Wealth transfer is a key component of governance. It entails various legal documents and structures—trusts, contracts, prenuptial agreements, and business entities—that execute the family’s plan of moving assets between generations or to charity. While the documents and structures outline ownership, investment management, and spending decisions, the framework also guides and promotes continuity among generations with multiple entities.
KEYS TO SUCCESS
Creating a governance system takes commitment, time, and effort from the whole family. There are two keys to success—engaging an expert who can serve as an impartial facilitator and full involvement from every member. It also requires flexibility. The time spent to get it right is incredibly valuable to avoid common issues that may arise when wealth or business ownership transitions between generations.
Some families may not find a governance system necessary. The current decision-makers may be reluctant to give up control, but as a family grows, the need intensifies. In these cases, a change of perspective can be helpful. The opportunity to have input in the purpose of the wealth today and for the future, and how the family will make decisions can be a powerful tool to help prospective heirs become better stewards of the wealth. Ultimately, this improves the likelihood of preserving and passing it to future generations.
For illustrative purposes only. Bernstein does not provide tax, legal, or accounting advice.