Making Family Wealth Last With a Family Council

You’ve probably heard the phrase “shirt sleeves to shirt sleeves in three generations” to describe the pattern of how one generation earns the wealth, the next preserves or uses it, and the third loses it and starts over. A key issue for many people today is how to ensure the next generations benefit from their wealth without wasting it. People have tried many structures such as trusts, family limited partnerships, and the like. But what really works is when the generation that earned the wealth teaches following generations about wealth, how to use it, and how to increase or at least preserve it.

One solution to the problem is family governance or a family council. Most families don’t have a formal organization. But when you want to preserve wealth and pass it on, some formal structure is needed. One firm did a lot of research and concluded that informal arrangements aren’t reliable. It’s better to set up a governnace structure as early as possible and use this is include all or key family members in the education and planning process.

Most of all, “a family council or other governance structure can improve the quality of family interactions by keeping family members connected with each other and informed about the status of both the family and the family business,” the authors said. The most successful structures foster communication between members and between generations, the authors said.