A family dynasty is when the wealth in the form of buying power coupled with core family values continues for at least five generations. In a survey of 164 ultra-wealthy C-level family business owners, more than two out of five found the idea of a family dynasty very appealing. The attraction of a family dynasty is a worldwide phenomenon. Across the globe, a solid percentage of ultra-wealthy families are thinking multi-generationally.
There is always a slew of complications as families seek to transfer liquid and illiquid wealth, such as operating companies down the generations. Branching family trees will tend to disperse family wealth rapidly. Therefore, many families must significantly grow their fortunes, proving each family member's power comparable to what they have today.
According to Homer Smith, founder of Konvergent Wealth Partners, and co-author of Making Smart Decisions: How Ultra-Wealthy Families Get Superior Wealth Planning Results, “When discussing this matter with family members, we find that it is useful to project out how long the family fortune as is will last if it did not increase or decrease due to investing. For perspective, spending $1,000 daily would take about 2,740 years to spend $1 billion. When we make financial projections with a family, we incorporate their current expenses and what they might do with the monies, which can include, as in one case, buying an island and building a castle on it. We also include some increase in the number of inheritors. This exercise only intends to help family members think about the family fortune and whether it needs to grow.”
The result of exercises such as this one is that to create a family dynasty, for most successful families to stay at an even plain may require 10% to 25% annual compounding. This is a high benchmark for most successful families to maintain over the generations. However, astute investment and sophisticated tax management can produce the requisite returns.
The need to transfer core values to future generations is also essential to have a family dynasty. These shared moral standards and objectives give family members a solid ongoing commitment to the family. For a family dynasty to exist, each generation must transfer the family fortune in one form or another, along with their core belief system, to subsequent generations.
“The formalization of family meetings and family constitutions can be instrumental in helping to solidify core family values across the generations,” says Brad Tedrick, President of Vantedge Wealth Management. “The establishment of family banks and family foundations can also play a major role in helping ensure family cohesiveness. Learning and working together for a good cause can play a major role in keeping the family tougher and looking in the same direction.”
When successful families create a family dynasty, one of the most critical decisions is who to put on their team. “Unfortunately, it’s more the norm than not for even the most accomplished entrepreneurs and leading visionaries to not work with the best of the best,” explains Smith, “Therefore, if the family aims to build a family dynasty, it only makes sense to take the time and effort to evaluate the quality of the professionals they engage critically.”
There is no question that a substantial and likely increasing percentage of successful entrepreneurs will choose to build family dynasties. While the outcome of their efforts, because they are thinking five generations into the future, is unknown, what can be accomplished today is to put a solid foundation for the family’s future in place today.
Russ Alan Prince is a strategist for family offices and the ultra-wealthy. He has co-authored 70 books in the field, including Making Smart Decisions: How Ultra-Wealthy Families Get Superior Wealth Planning Results.