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Family Governance Basics (Part 1)

Family meeting in cafe

Why Governance?

Over the next 25 years, we will experience one of the largest transitions of wealth – as much as $68 trillion will pass to various generations.[1]  Value is typically measured by a family’s total assets and net worth, whether in the form of a family operating business, real estate, or a liquid portfolio.  As a general rule, when wealth passes to the next generation the number of family members exponentially increases.  Consequently, the management and control over family assets can easily go from one primary decision maker to four, ten, twenty, etc.  Or at least until the wealth is dissipated due to infighting, conflicts, and lack of common vision among family stakeholders.  By the time a family reaches this stage, they are effectively a tribe necessitating rules, procedures, practices, policies and a defined shared purpose if they want to remain together in a harmonious way. 

A simple definition of governance is the act or process of overseeing the control and direction of something.[2]  Applied in the family context, it is the act or process to oversee the control and direction of family wealth in all its forms.  If family wealth consists of multiple family members, trusts for beneficiaries, and privately held family entities, who or what will take on this role?  With nothing in place family members will simply default to their own personal agendas, needs, desires, goals and interests.  While there is nothing inherently wrong with this (we are humans after all), without clear policies, practices and procedures – established for the good of all – there is a severe lack of accountability and direction.  One can easily see how this almost always leads to distrust and damaged relationships.  With $68 trillion set to transfer, family cohesion in decision making has never been more important.

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