Building a Fortune Is In The Doing

By: Steven Abernathy and Brian Luster

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Imagine an unmoving car. Its tyres are encased in heavy mud on the side of a dirt road. Every turn of the wheel feels futile as the tyres spin, going nowhere. Frustrated, yet resigned to the situation, you manoeuvre the wheel, hit the gas lightly, turn the wheel in the other direction, and try again. Finally, you free the front wheels. No amount of backseat driving, no matter how well-intentioned, will move this car. It is only when the driver discovers the sweet spot—the combination of turning the wheel ever so slightly in one direction and hitting the gas pedal just so— that moves the car out of the mud. Experiencing the cruel havoc of the wet road is vastly different than imagining it. The driver learns through experience. This is generally how adults learn new information—the learning resides in the doing. Thick mud is an effective teacher. Heritage Planning, an aspect of Wealth Planning that is not always discussed, works similarly. It incorporates a set of pre-inheritance experiences shared over a lifetime between the older and younger generations. Intelligent investors often have a financial plan and an estate plan. The Heritage plan is the part that gives heirs the tools to manoeuvre their own way out of the proverbial mud and onto the road. When properly implemented, a heritage plan offers heirs experiential learning to hone their decision-making skills. An inheritance is not simply the bequeathing of assets. Savvy grantors with a heritage plan are aware of the emotional inheritance they bequeath as well. How heirs embody the values, ideals, and ethics of previous generations is likely to dictate how much of the family fortune—as well as family unity—will remain intact. Grantors might create specific pre-inheritance experiences for heirs to taste the waters of managing the family fortune. A simple account could serve as the heirs’ first “test” of working as a group. They may use this account as:

  1. The Bank
  2. The Charitable Fund
  3. The Educational Fund

There are of course other alternatives; however, these are fairly common—particularly if the heirs are still pursuing their educations. Grantors could limit offerings with the “tasting menu” of options that might include: 1) starting or investing in a business, 2) getting an education/certification, or 3) donating to charity. Actively making decisions on even a small percentage of the fortune heirs stand to inherit will be a learning experience. How they problem-solve, communicate, and make decisions together is at the heart of this exercise. Here, their emotional inheritance, particularly in how they communicate with one another, will become clear. Ongoing engagement can take many forms. If grantors want their heirs to learn about business, they might decide to create a family bank, and heirs who want to build a business would present a formal plan to be considered for a loan. It’s important to note, no matter what the total net worth of the grantor, the goal of setting up this separate account or accounts is not to duplicate existing investments. The amount of money is less important than the approach the heirs practise when it comes to this money. A grantor worth nearly $100 million dollars created a fund totalling $21,000 for his heirs to “play” with. While the low number may seem insignificant, the exercise had merit. For example, heirs realized that there were barriers of entry to more sophisticated opportunities that would not be open to them given the modest amount. They quickly realized there were two basic options: 1) divide the money equally so each individual would have $7,000, or 2) discuss opportunities for the total amount and allocate it accordingly. Such exercises promote communication, family unity, and working collaboratively. A key component of a successful heritage plan includes Heritage Days, a time when the family gets together, at least once per year, to have a chance to rededicate themselves to what they truly value. No two families are alike—and no two heritage days, even among the same family, will be the same. Families who have passed intergenerational wealth to the younger family members without communicating what they value are taking a significantly greater risk than those who do. Heirs who have gotten themselves into the proverbial mud, as well as those who have gotten themselves out, are significantly better equipped to manage and grow the assets they stand to inherit if they have hands-on experience in doing so.

Steven Abernathy and Brian Luster co-founded The Abernathy Group II Family Office, which counsels affluent families on multi-generational asset protection, wealth management, and estate and tax planning strategies. It is independent, employee-owned and governed by an Advisory Board comprised of thought-leading business and medical professionals. Abernathy and Luster are regular contributors to several publications and blogs.

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