Becoming a Family of Wealth

Carnegie, Rockefeller, Astor, Vanderbilt and Rothschild are all names of families with wealth – wealth held across many generations. Just hearing the names causes pictures of polished silver, wood paneling and yachts to form in our minds.

Is your family trying to become a family of wealth? What does that even mean to you, to be a family of wealth? Do you want your future family to have ‘old money’? Is old money better than new money? Is it harder to have? Is it better or worse?

Old money.

What does that phrase mean to you? Does it conjure up visions of families that have mansions with butlers, maids and scores of attentive servants? Does it bring to mind thoughts of Paris Hilton type behavior with the youngsters of the family running amok? Or does it make you think of a family’s ability to give the next generation a better start in the world, to allow children to be better off than the current generation – to get better educations or start a business in their youth (instead of waiting until they have spent their lives in them employ of others to get the resources together)?

In the musical The Unsinkable Molly Brown, Molly marries a rich Leadville, CO gold miner, who sells a claim for a fortune, allowing them to move to Denver and participate in high society. The old money in Denver makes fun of Molly and her husband because they are new money and don’t know how to behave in Denver high society. So, is old money better than new money?

New money.

Most Americans consider new money the ideal way to have wealth. Why? Most of us feel that we should earn our own way, that everyone should have an equal chance to live the American Dream, an equal opportunity to work our way up the ladder of success.

But have we ever had ‘equal’ chances to build wealth?  Do children attending a low rated, crime ridden school have equal chances when compared to a child attending a highly rated, private school with children of parents who are CEO’s, business owners or congress women?

Do we not all try to help out our kids the best way we can? Why would we not want to be able to provide our offspring or theirs with a leg up in the world, with an extra advantage to give them a good start in their life’s endeavor, with financial resources that let them help get established?  Isn’t part of our American Dream that our children have a better life than ours?

Those who have and use opportunity to move ahead become the haves, those who don’t have the opportunities or don’t take advantage of them become the have nots. Financial assets help provide opportunities.

Haves and have nots.

If it is true that the gap between the rich and the poor is getting bigger and bigger and that the middle class is disappearing, then don’t you want your kids to be on the rich side as opposed to the poor side? Don’t you want to be able to give your offspring opportunities?

Don’t you want your descendants to have family wealth available to them? I do.

Trying for a ‘Family Fortune’.

Typically each family generation is at least somewhat isolated from others, past and future. Even if one generation receives a bit of an inheritance, they are typically left to spend, save, invest or manage it through their own devices.

Most families therefore have no ‘Family Fortune’, no pool of assets to be used for the benefit of the family members of this generation, and the following ones.

There are no family funds that can be loaned to a young family member wanting to start a promising business, no funds available to sponsor a bright, but poor, family member in learning a trade, no funds available to help young members learn to manage and grow investments. There are no funds to bind the future family members together in a common enterprise.

What is a ‘Family Fortune’?

You may be saying “duh…. lots of money”, but really, it is more than that. A Family Fortune is a special kind of money. When I talk about a family fortune in this post, I am referring to a set of assets, owned in common by the family (maybe titled in the name of a long term trust), that family members (brothers, sisters, nieces, nephews, aunts, uncles and etc) jointly manage. The family members picked by the family to manage the funds may lend it to family members, invest it to make it grow or provide special distributions for agreed upon family purposes. It is separate from each individual family unit’s assets and lives on beyond their deaths. The ‘fortune’ may be even relatively small – a few thousand dollars even.

A new model for us.

Since 2009, I’ve been trying to prepare 3 generations of our family to establish a family fortune. Of course our ‘fortune’ will have to start small and build over our lifetimes and the lifetimes of our children and grandchildren.

I’ve started annual family meetings, tried activities to help us all think about our attitudes and goals about money, and attempted to initiate long term family wealth planning, including the establishment of commonly held and managed family funds.

This is a new model for our family, one no generation prior to ours has attempted. It is new to us, and perhaps quite extraordinary in the world. A family of relatively moderate means attempting to initiate long term family wealth structures, plans and fortunes.

Sure, the ultra rich folks do this, using family offices, trusts, family meetings, special advisors and teachers, but can we? Can an ordinary family get the ball rolling to start shared family funds and grow them into our own family fortune? Most wealthy families either already have their wealth as a result of very large inheritances, or they have a founding family business that provides either a liquidity event (sale of the business, going public, etc) or ongoing infusions of large amounts of cash for the family fortune.

We are a hard working, started from scratch, high middle class family who took years to pull together the assets we now have, a far cry from being an ultra wealthy family with a family fortune. From a grandfather who lost it all in the great depression, through 3 generations, we have struggled hard to save and invest money from our salaried jobs and have managed to get our noses above water. We don’t want all that hard work to go down the drain in one or two more generations.

It’s hard.

Breaking the mold and the attitudes we all have about handling money is hard. We’ve heard that money causes issues between family members, we don’t want that. We know that we have to work towards common goals with shared funds, what are those? Some of us are savers. Some like to spend. Some don’t mind deferring gratification. Others have considerable needs and wants now. How do we resolve these thnigs?

We know that fights and ill feelings between family members can blow years or generations of money accumulation. Fights over how things are distributed at death, over who is eligible to use the funds or what the funds should be used for can erupt easily if family members don’t know each other or get along with each other. How to avoid that?

Building a generational wealth plan and shared family fortune takes time and careful thought. We have trouble finding time for a 2 hour family meeting each year with everyone’s busy schedule. We have family members that aren’t yet committed to the idea. We have family members that are reluctant to get involved together in any endeavor. How do I find the time, gather the consensus and get the commitment needed from all generations?

It can be discouraging.

Sometimes I get discouraged, sometimes I feel that I may be the only person in the family wanting to give our future generations a leg up. Sometimes I wonder if I even should do any more than just pass along what we leave behind. Will it cause more harm that good? Is it even ethical?

It can be worthwhile.

Yet I feel in my heart that this will be beneficial to my grandchildren and their children. I want this to be my legacy to them. Like John D. Rockfeller, Jr., who took the oil fortune created by his father and set up the first American family office to put family structures, traditions and culture in place to ensure that the fortune stayed intact for their future family generations, I want to be known as the founder of the ‘family fortune’, as the person who started the family bank, who made it possible for future family generations to compete successfully in their world.

What are your thoughts about the drawbacks or benefits of building a ‘family fortune’? Would you spend the time and effort to attempt it in your family?

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