FAMILY MISSION STATEMENTS: WHAT ESTATE ADVISORS NEED TO KNOW

Published in Estate Planning magazine March 2008

With the eldest baby boomers reaching age 62 in 2008, private wealth managers are worrying that wealthy boomers won’t be satisfied with traditional high-end financial services. There’s growing boomer angst about the potentially corrupting influence of money:

Medieval alchemists failed to turn lead into gold. Wealthy twenty-first century parents fear a reverse alchemy. Will their privileged children transmute inherited gold into leaden lives – hollow, shallow, self-absorbed, addicted, indolent, meaningless, wasted?¹

A high boomer priority is healthy wealth – positive reinforcement between financial good fortune and family dynamics. Previously, wealth managers have steered clear of client family dynamics for fear of being fired or sued – or fired and sued. But no longer. However reluctantly, wealth managers are rolling out new healthy wealth resources and resource persons. Some have hired in-house psychologists.

Inevitably, boomers will enlist other estate planning advisors to support healthy wealth objectives, to recommend or evaluate a myriad of healthy wealth resources and resource persons – some helpful, many superficial, a few potentially harmful. As a first step toward healthy wealth, wealthy families are counseled to draft a “family mission statement”. What is the estate advisor’s role in the drafting process?

The relational estate

Conventional wisdom urges privileged families to organize themselves around their wealth. But that puts the cart before the horse; organizing should begin with the family’s relational estate, its most valuable nonfinancial asset. The relational estate rests on three fundamental building blocks: genetics, family history and family heritage, all connected by relationships that reach back across generations.²

Shared genetics. Completion of the human genome project in 2003 generated a flurry of genetic inquiry. Using magnetic resonance imaging (“MRI”) and other tools, neuroscientists are exploring the human brain’s interaction with environmental factors (“epigenetics”), including social interactions with other people. The current view is that genetics don’t control our destiny but rather “set us up” to react in certain ways should certain situations arise. A new science of “social epigenetics” will generate new understanding about how genetics influence family interactions.³

The role of genetics can be overplayed in the family mission statement. Those who share the founder’s wealth also share numerous other gene pools. A sixth-generation Rockefeller had 31 other grandparents in John D’s generation.⁴

Shared history. There are as many recollections of family history as there are family members. (I’m struck by how differently our middle-aged children remember family experiences.) As I mediate family disputes about money and business, I hear varying and often conflicting perceptions of family events.

Bitter family battles rage around whose perception of family history is the authentic version, or who may be trying to rewrite it. Who deserves the credit; who takes the blame? This is particularly dicey in a family business context. “Our success was a team effort” is infinitely more diplomatic (and accurate) than assigning praise or blame.

Shared heritage. Two elements, values and meaning, comprise family heritage. “What does our family deem worthy?” “What does our family connection mean to us?” As with family history, there can be as many perceptions of family heritage as there are family members. As with family history, there’s potential discord about one “authentic version” of family heritage. Be prepared for adamant insistence on the work ethic as a creed and cornerstone in the family mission statement, along with other moneymaking character traits, such as intelligence, tenacity, imagination, boldness, shrewdness, and creativity.

Shared genetics may be too mysterious, and family history too individual and personal to summarize in a mission statement. But wide-ranging discussions of family heritage – values and meaning – are likely to elicit important points of surprising commonality. Families usually find heritage sessions to be fun and stimulating. Unresolved heritage items can be placed on the unfinished business agenda for future meetings or future generations.

Connected relationships. Relational estates are built on genetics, history and heritage, but it’s relationships that truly connect families. These include continuing relationships with deceased family members; as lyricist Stephen Sondheim wryly observed, “They die but they don’t.” Deep within us is a primal instinct to stay connected with our clan. When we lived in caves, separation from the clan meant almost certain death. Emotionally, we haven’t evolved beyond our primal need for family. The challenge for modern families is to civilize that primal need.

Drafting family mission statements

Some day, I want to receive a holiday letter that reads, “This year was a bummer; we really blew it”. And some day, I want to read a family mission statement that says, “So far so good, but this family has serious work to do and here’s our working agenda for the future.”

In a recent column,⁵ Wall Street Journal reporter Robert Frank characterized family mission statements as the “new status symbols” for the wealthy.

The goal of mission statements is to help keep the peace in affluent families. By agreeing on a basic set of principles, families hope to avoid lawsuits between relatives about money. They also hope to draw up moral guides for future generations, so that kids and grandkids will inherit values as well as wealth. Yet, some advisors caution that getting family members to agree on a mission statement can create the very tensions they are supposed to diffuse.

The utility of family mission statements can be a mixed bag. If their objective is to “paper up” elders’ opinions without significant family discussion, such a “sign here” process may well backfire. But if a mission statement summarizes extensive family soul-searching, it may be a worthy work product.

The family advisor world is awash with stenciled stuff: “Stencil my canned mission statement on your family curbstone and all will be well.” Stenciled statements rarely stick, rarely solve problems, and frequently disappoint. Short-circuited by advisor stencils, the family misses a real opportunity to discover and navigate its deeper cohesive self.

Though family mission stencils sound lofty and positive, they rarely reflect a true picture of the signatory family. Stenciled statements can mask unresolved family differences and nagging inadequacies, and conceal important unfinished family business. Too often, they postulate ideal family relationships that are contrary to experience, like Pollyanna holiday letters that omit gritty details.

A healthy family is always engaged in family-building. In my experience, the most useful mission statements contain a clear-eyed agenda for the perpetual unfinished business of family-building – declaring where the family needs to go, carefully avoiding suggestions that the family has “arrived”. The very process of creating a mission statement should be a healthy exercise in family-building.

Honoring the Past. “Honor the past, better the future.” That’s the essence of most family mission statements. “Where have we come from and where should we be going?”

Trying to capture an “authentic” version of family history in a mission statement is elusive at best, divisive at worst. It may be enough to state: “Whatever has happened, and however we individually perceive it, we honor our past with each other and honor those who brought us to this point.”

Bettering the Future. “It’s our wealth that connects us – we are joined at the wallet.” That’s a dominant, if unstated, assumption in many wealthy families. The most common complaint I hear following family meetings is: “All we talked about was money!” And that’s unfortunate.

Terms like human capital, social capital, and intellectual capital have crept into family mission statements. “Human capital” connotes fulfilling a family member’s personal potential, “social capital” refers to the family’s community involvement and philanthropy, “intellectual capital” is family learning and academic achievement. Family “stewardship” is how these various pools of capital are invested. This very vocabulary hints that the family is fundamentally an economic organism.⁶

Indeed, some wealthy families see themselves as primarily joined at the wallet. Necessarily, their initial family mission statements will be economic documents. Later on, perhaps, they can focus on their relational estate.

More often, it’s advisors who influence wealthy families to focus first on wealth instead of their relational estates. Repeatedly reminded of their economic uniqueness, wealthy families shortchange their relational estates. Yes, the wealthy are different, but they are not that different!

If they can, it’s best for wealthy families first to organize themselves around their relational estates. First, draft a family mission statement that focuses on healthy family relationships. Honor the past, better the future. Thereafter, and from the perspective of a sound relational mission statement, address shared financial concerns. That sequence – relational estate first, then financial concerns – is more likely to promote and undergird healthy wealth. Here are some other suggestions for family mission statements:

• Express genuine gratitude to those family members who created and continue to sustain the family fortune. Highlight their accomplishments. Detail their admirable character traits.
• Express genuine gratitude to those who have nurtured precious family relationships across the generations.
• Acknowledge the family’s indebtedness to loyal nonfamily members whose hard work has generated family prosperity.
• If religious, acknowledge the blessings of a Higher Power.
• Address stewardship and its concomitant obligations: Encourage each family member to reach his or her full potential; to become all they can become as persons; affirm the family’s role to nurture, support, challenge, educate, love and discipline. Describe the family’s obligation to improve the lives of others outside the family through community service and wise philanthropy. Affirm each member’s undertaking to preserve and grow the family financial wealth and to use it prudently.

As to unfinished family business, consider the following suggestions:

• Search for continuing opportunities to enjoy each other.
• Establish a permanent family council as a safe and open forum to discuss issues of family concern and to mediate family differences.
• Maintain clear boundaries between personal independence and family interdependence.
• Manage jealousies and rivalries.
• Improve tolerance and accept individual differences.
• Create capacities to differentiate between thinking and feeling, and a vocabulary for both.
• Encourage a willingness to forgive.
• Seek healthy emotional engagement.
• Listen without judging,.
• Encourage individuals to speak their truth, but discourage attempts to speak the truth of others.
• Continually refine family genealogy and family history.

The estate advisor’s stake.

Estate advisors have always had a financial stake in the healthy wealth of their clients. Wealthy families who manage their relational estates well tend to retain their advisors, while those whose relational estates are in disarray, who go public with their unresolved disputes in the press or in litigation, tend to change advisors – often several times. Thus, estate advisors have a financial stake in their clients’ efforts to generate strong mission statements. This is particularly true of long-term advisors and wealth managers who hope to serve younger generation family members some day.

Too often, younger generation members feel left out of the estate planning process. Estate planning in secret is still the norm, and intergenerational estate planning the exception. Younger generation inheritors frequently feel taken for granted or by surprise. Their legacy is not what they wanted but rather what the older generation thought they wanted, or at least ought to have wanted. We support that which we help create; we resist what’s forced upon us. No wonder inheritors so often clash with their parents’ fiduciaries and go elsewhere for advice.

Advisors who want long-term relationships with younger generation inheritors need to reach them early on. Perhaps the parents can’t be coaxed into intergenerational planning – disclosing what they have, what it’s worth, and asking for younger generation input into their estate planning decisions. However, a well-crafted family mission statement can significantly affect how the estate plan eventually plays out in the lives of inheritors. Inheritors given no role in the creation of the estate plan may yet influence the way the plan operates via the family mission statement. Merely papering up the elders’ views and values, without more, risks deepening younger generation sullenness and hastening the advisor’s exit. Expect no better outcome from a stenciled mission statement. On the other hand, thoughtful family discussions that provide inheritors a safe forum for their candid (if not always welcome) views can produce positive results all the way around.

According to Robert Frank’s research (noted earlier), the current cost of hiring an advisor to help create a family mission statement can range from $15,000 to $100,000. A $15,000 stenciled mission statement is definitely overpriced. But $100,000 could be a reasonable fee for guiding a wealthy family through extensive and searching discussions about their relational estate and (later on) their shared financial concerns – producing a family mission statement that charts a careful and comprehensive course for healthy wealth in current and future generations.