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Wealth Planning

Three ways to help your wealth last for generations to come

Your path to that future starts here.


 

Many of our clients have assets they hope will grow in perpetuity.  These assets may be an operating business, pool of investments, commercial real estate, something else or some combination. Whatever form it takes—the owner wants the asset not only to live beyond them, but also to thrive for generations to come.

While this is an admirable intent, time often takes a toll on wealth as it moves across generations. Corrosive complexities can develop: There can be challenges with the legal structure holding the asset. Family dynamics and communication can get tangled. There’s also Malthus’ Law:  The sheer number of family members is likely to grow exponentially, which can create a burden unless the asset grows in tandem.

These challenges can be met, and the fruits of getting it right can be sweet. Here are some ways to get started on the path to perpetual growth for your assets. It all starts with the proper set up—which, if you are the wealth owner, is in your hands.


Four key questions to ask yourself now

In our approach to managing wealth, our goals based advice framework, we talk about buckets for liquidity, lifestyle, legacy—and perpetual growth. The purpose of the “perpetual growth bucket” is unique in that, unlike the others, you do not want its assets to be consumed during either your lifetime or your heirs’.

We recommend that, first, you fund the two “buckets” to be used during your lifetime: liquidity and lifestyle.  Next, you will want to decide whether you want a separate “legacy bucket”— to set aside some assets that can be used by the next generation.

Then you can turn your attention to “growing your forever money.” Before taking concrete actions, we recommend you ask yourself four questions that are critical to shaping your plans and helping them succeed:

  • Purpose—What do you want the wealth to be used for?
  • Stewards—Who will be tasked with owning and monitoring the assets beyond your lifetime?
  • Form—How will the assets be held?
  • Horizon—How long do you want these assets to grow?


How to find the answers that are right for you

Answering these questions is a process. You can jot down your best ideas right away, then revise and update them as your vision develops, circumstances change and you’ve spoken with family and trusted advisors. Your J.P. Morgan team can help inform your decisions by sharing best practices as well as our observations of what other clients in your circumstances have done and why.  

Purpose

Perhaps you want, most of all, for your wealth to create a safety net or opportunities for generations well into the future. Maybe you’d like to create an enduring family business that provides career options for your progeny and community. Additionally, some wealth owners want to advance medical knowledge, support their communities or save the environment.

Whatever your vision may be, perpetual wealth gives you the opportunity to influence the destinies of the people you love and everything you’ve built. Involving your family members in these discussions will encourage a shared family vision and purpose for the wealth. This will enhance the likelihood of longer term success for your perpetual growth plans.

Stewards

You’ll also want to decide who will be responsible for the assets over time. Do you have family members who’ll be capable of fulfilling your vision? Or might your family be better served by outsourcing wealth management responsibilities to professionals?

Many families opt for a co-stewardship arrangement: a mix of family and professional management. But whenever you choose family stewards, we encourage you to consider how you might engage them to fully live up to this responsibility. Research finds that people tend to feel, and act, differently about money they’ve earned versus money they were given.

You’ll also want to consider what systems you can put in place to facilitate family stewards’ effective  collaboration. How are family members staying engaged, particularly if professional stewards are helping manage the wealth?  How are they agreeing on risk? Studies have shown that the appetite to take risk decreases as the wealth level increases, so how is the family going to be intentional about risk taken to fulfill the purpose of the wealth?

Before you make a final decision, though, we recommend speaking with your family members to find out whether each agrees with your vision, and will help you make it a reality.

Form

Do you intend for your assets’ current form to remain the same, or similar, forever?  That is, do you want to keep your family business intact, in perpetuity? Or is it your desire to maintain a concentration in real estate generally or certain properties in particular?

And do you envision allowing that form to shift over time? If you do want to permit change, what triggers do you wish to allow? Consider circumstances, such as investment environment or consumer demand, or lack of family members capable or desirous of running and operating business.

Horizon

How long do you want these assets to grow? Is it truly forever? Or are there natural decision points (transitioning between generations, for example) when a different path might be more beneficial to your family?

Also, consider: some wealth owners want their beneficiaries to take the reins at some point, and to take complete ownership—free to redefine the wealth’s mission based on their own values or choices.


3 areas where you can make a difference

Once you’ve found your answers, it’ll be easier for you to prepare for this future taking action in three key areas where some concrete plans will help ensure your plan’s success:

  1. Investments
    Because the “perpetual growth bucket” has such a long time horizon, wealth owners tend to allow these assets to have a heavier exposure to private/opportunistic investments, business ventures, concentrated holdings and leveraged solutions.

    Also, with more stakeholders, it’s critical to be explicit about how investment decisions will be made over time.

  2. Estate Planning
    A “forever plan” for wealth often entails careful use of entities to ensure coordinated management of the assets and smooth succession of wealth through generations. It can also enable funds to be set aside for liabilities that might arise for payments for emergency family and business needs, including possible transfer taxes depending on your jurisdiction.

    For example: Putting the assets in trust and other wealth transfer techniques can ensure continuity of ownership for many decades. Also, if the core asset is illiquid (business, real estate), ensuring adequate liquidity for emergency needs through another source (perhaps, a life insurance policy) might be key to allowing the family enterprise to continue over multiple generations.

  3. Family Governance
    Good decision making and communication will be essential for your plan to succeed—and you can get these started now by establishing periodic family meetings, guidelines about what information is shared by whom and when, and/or a family council, for instance. A collaborative approach to setting up the family governance framework will encourage the likelihood of family buy-in to the processes over the longer term.

    Fair process can help create a positive family culture that supports wealth. Once you decide how decisions on charitable distribution, investments and distributions to family members are to be made, communicating this ahead of time can go a long way to instill a sense of procedural fairness and reduce family conflict.

    While it can be challenging to keep family members engaged, there is much you can do to set the stage for subsequent generations if you invest now in your family’s human capital, intellectual capital, and social capital—offering leadership tracks according to members’ skills and interests.


Your family’s future is being built now

Planning for what will happen when we are gone gives us a glimpse at mortality that most of us would rather not have. No wonder many wealth owners wait so long to develop their plans that some fail to do what’s needed in their lifetimes to assure the success of their visions beyond it.

Instead, we recommend taking charge now and focusing on the clarity and peace of mind that comes with knowing you are working to make your vision a reality.

It also can be good to know that you are not alone in this endeavor. Your J.P. Morgan team is here to help you build the future that you envision for generations to come.

So, what do you want the future of your family to look like?

 

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