What It Takes To Create A Family Dynasty

A family dynasty is defined as a cohesive economic entity where the perpetuation of family wealth, values and objectives lasts for five or more generations. About 60% of ultra-wealthy families (net worth = US $30 million or more) find the concept of a family dynasty appealing. 

The interest in creating a family dynasty is strongest among ultra-wealthy families with single-family offices. Nearly three-quarters of them think along these lines according to senior management at these single-family offices. Percentage wise, the founders of the single-family offices find the prospect of a family dynasty more appealing. At the same time two out of five C-level ultra-wealthy business owners are very interested in potentially creating a family dynasty. In these cases more inheritors than founders find the idea of a family dynasty appealing.

The Appeal Of A Family Dynasty

N = 403 family enterprise respondents; Source: Family Fortunes: How Family Enterprises Thrive Across Generations

As the research is based on a worldwide sample, we find the appeal of family dynasties is extensive and widespread. For example…“In working with families from Singapore, China, and Korea, who have wealth with family inside and outside their home countries, we find that many of them are interested in the concept and want to know what steps they can possibly take to pass on their legacies across multiple generations,” says Aaron Yen, Senior Partner, Ascendent LLP. “For many of theses families, creating a family dynasty is a high agenda concern.”

It is important to keep in mind that in family dynasties, ultra-wealthy families share more than financial interests across generations; they also share values and goals. According to Cliff Oberlin, Chairman and CEO of Oberlin Wealth Partners and co-author of Family Fortunes: How Family Enterprises Thrive Across Generations,“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. Having a well-formulated succession plan is essential to achieving both of these aims.” 

Transferring Wealth
A major problem with creating a family dynasty is the ability to maintain or increase the family’s buying power across generations. As most families grow in size and establish multiple branches, the amount of wealth required can possibly escalate exponentially. According to Vince Annable, CEO and Founder of VFO Advisory Group and author of The Household Endowment Model: Wealth Planning for Affluent Families, “We find wealthy families, who are thinking generationally, first have to understand what it’s going to take to ensure the level of wealth they want for their heirs and their heirs of heirs. Producing some—admittedly rudimentary—projections is generally very helpful. Only then can we focus on developing the best investment strategy as well as determine the optimal ways they can potentially mitigate current and future taxes.”

Without question, one of the major obstacles to creating family dynasties are inheritance taxes. While an obstacle, it is often surmountable. According to Jeb Burton, the Managing Principal of The Burton Law Firm, “With the aim of transferring wealth across multiple generations, we have to think creatively. We regularly will come up with innovative ways for the heirs to inherit wealth while mitigating or eliminating inheritance taxes. Depending on the jurisdictions involved, and the time available for implementation, there are more or fewer tools available. Only after we have exhausted all possible legal strategies do we fill in the gaps with life insurance. When it comes to life insurance for very wealthy dynastic-oriented families, the best solution is many times private placement as it provides both an estate and income tax solution.”

When it comes to levering the power of private placement life insurance (PPLI), it is important to understand there are different variations. According to Frank Seneco, President of the advanced life insurance planning boutique, Seneco Global Advisors and one of the foremost experts on PPLI, “There are many advantages to using PPLI by families looking to build and protect wealth across generations. Certain strategies prove very effective such as PPLI arbitrage where a basic form of PPLI is used. Also, certain type of PPLI policies, such as Generational PPLI, may more precisely fit those families who are taking steps to transfer or even multiply the buying power of their wealth to their great-great-great grandchildren and take into account a rapidly growing number of branches of the family tree.”

Transferring Values
As noted, family dynasties are more than just transferring the wealth. They are also about transferring values. According to PJ DiNuzzo, Founder and President of DiNuzzo Middle-Market Family Office™ and author of The DiNuzzo “Middle-Market Family Office™” Breakthrough: Creating Strategic Tax, Risk Cash-Flow and Lifestyle Options for Successful Privately-Held Business Owners and Affluent Families, “Families can use many tools to help them transfer their values to future generations. Examples of these include family meetings, vision and mission statements, family constitutions, and family banks. What often proves very effective is—if the family is philanthropic—setting up a private foundation.”

Private foundations can be instrumental in helping wealth families stay together and aligned while benefiting others. “Aside from being great charitable vehicles, private foundations can be used to help ensure the family stays and works together to make a difference,” says Homer Smith, Private Wealth Advisor and Founder of Konvergent Wealth Partners and Director of the Integrated Business Owners Solutions team. “What’s usually essential is for the wealthy family to be clear about their charitable goals and how they will be able to continue doing good generation after generation. This usually involves bringing family members into the giving process early and providing the resources—including educational resources—to help them grow as people and as philanthropists.” 

Choosing The Right Team
Probably the most critical decision ultra-wealthy families have to make if they want to create a family dynasty is selecting the appropriate professionals. “All too often, the ultra-wealthy as well as a great many successful entrepreneurs and leading visionaries end up satisfying instead of maximizing when it comes to the professionals they engage,” explains Justin Breen, the driving force behind the exclusive BrEpic Network and co-author of Superior Results: Maximizing the Value of Your High-Performing Multi-Family Office. “The difference is astronomical outcomes when the right professionals are used as opposed to those who are second rate. That’s why ultra-wealthy families and everyone—for that matter—should make the effort to make certain they are indeed working with the best of the best.”

There are certain criteria that ultra-wealthy families interested in creating family dynasties need to consider when they choose the professionals to assist them. “A key factor is their specialized knowledge and the experience of themselves and their teams,” says Anthony Glomski, President and Founder of AG Asset Advisory Family Office and author of Liquidity and You: A Personal Guide for Tech and Business Entrepreneurs Approaching an Exit. “Knowing what to do and having experience with establishing a family dynasty is crucial. From helping the wealthy family to mitigate taxes on selling company assets to how to most cleverly use Private Placement or other strategies to helping them structure their domestic and international holdings can make all the difference.”

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