Family wealth keeping it in the family, 2nd edition

Table of Contents Praise ATTENTION CORPORATIONS Title Page Copyright Page Dedication Acknowledgements Introduction PART ONE - My Philosophy Chapter One - Long-Term Wealth Preservation as a Question of Family Governance I The Question II The Problem III The Theory IV The Solution V The Practice PART TWO - Family Practices Chapter Two - The Family Mission Statement Chapter Three - Ritual Chapter Four - The Family Balance Sheet and Family Income Statement The Family Balance Sheet The Income Statement Chapter Five - Investor Allocation Chapter Six - Two Important Practices Hat Work Grandchild/Grandparent Philanthropy Chapter Seven - The Family Bank Chapter Eight - Protectors, Advisers, Mentors, and Hommes d’Affaires Protectors Advisers Mentors Hommes d’Affaires PART THREE - Roles and Responsibilities Chapter Nine - Control Without Ownership Chapter Ten - Beneficiaries Chapter Eleven - Trustees Administration of the Trust Investment of the Trust Distribution of the Trust Chapter Twelve - Family Philanthropy Chapter Thirteen - Evaluating the Next Generation Chapter Fourteen - Peer Review Chapter Fifteen - The Private Trust Company PART FOUR - Reflections Chapter Sixteen - The Role of Aunts and Uncles Chapter Seventeen - The Art and Practice of Mentorship What Mentorship Is Not The Six Functions of a Mentor In Closing Chapter Eighteen - The Role of Elders Chapter Nineteen - The Trustee as Mentor In Conclusion Chapter Twenty - The Trustee as Regent Chapter Twenty-One - Unexpected Consequences of a Perpetual Trust The Law of Unexpected Consequences Society and the Perpetual Trust The Law of Entropy EPILOGUE BIBLIOGRAPHY INDEX About the Author About Bloomberg PRAISE FOR THIS EDITION OF Family Wealth—Keeping It in the Family: How Family Members and Their Advisers Preserve Human, Intellectual, and Financial Assets for Generations BY JAMES E HUGHES JR “Dr Maslow taught us that once we took care of the basics, we could concentrate on higher callings in our lives James Hughes teaches us that most families, once they have achieved the pinnacle of success, are faced with the threat of not preserving their wealth What can be done to break this unending cycle of rags to riches to rags? Any family member or adviser to them should read this landmark work We therefore give it to every family we educate, as a gift to them and their future generations.” —THOMAS R LIVERGOOD, CFP President, Family Office Management CEO and Founder, The Family Wealth Alliance “What is most transformational about Jay Hughes’s message in Family Wealth is his emphasis on the value of ‘human capital’ and his insight that within wealthy families, the real wealth lies in the individuals who make up the family, not in their balance sheet as it is conventionally understood The self-evident truth of Hughes’s analysis, borne out time and time again, should not be revelatory, but sadly, for too many families, those with wealth and those of more moderate means, it is Family Wealth is a brilliant case statement for the importance of the nurturing of character, of self-confidence, and of respect for the value of work This book broadens our understanding of the many different forms of capital, intellectual, emotional, and social It is a must read for all those who care deeply about their families.” —H PETER KAROFF Founder and Chairman, The Philanthropic Initiative, Inc “A very important work” —GEORGE D KINDER, CFP Author of The Seven Stages of Money Maturity Founder of the Kinder Institute of Life Planning “Family Wealth—Keeping It in the Family is a masterpiece No one is more astute than Jay Hughes about the topics of family wealth and family life.” —CHARLES W COLLIER Senior Philanthropic Adviser, Harvard University “Jay Hughes’s reflections have dramatically changed the way exceptional families view their assets His views on family governance, the family balance sheet, and control without ownership are essential reading for insightful families hoping to preserve their most important capital Jay’s contributions to the industry are immeasurable and much appreciated.” —SARA S HAMILTON Founder and CEO, Family Office Exchange, LLC “‘Those who not learn from history are doomed to repeat it.’ Jay Hughes, a passionate student of history, believes this more than most His work with families, including his own, gave him the gift of learning the history of many, many families Within that context he has written a book that illuminates previously only dimly lit concepts For example, how can grandparents be the catalyst for the next generation’s success? How should a family measure its own success as a family? Within IPI are many families indebted to Jay Hughes He has shared with them the history of families and even more importantly, a blueprint for their own family’s success.” —CHARLOTTE B BEYER Founder and CEO, Institute for Private Investors (IPI) “This is the best book on family wealth preservation yet written I would rate this book a ‘10’ on a scale of to 10 Jay Hughes helps people re-examine and redefine what their true family wealth is (hint: it’s not money) Well if it’s not the money, what is it, and how you use the money to define, protect, and grow true family wealth for generations to come? “That is the question Jay encourages families to explore and answer in this book Regardless of your level of financial wealth, if you desire to use your resources to plant and grow a healthy family and create an environment from which its members can thrive on their own, this is a great book for you.” —THOMAS C ROGERSON Senior Director of Wealth Management, Mellon Private Wealth Management “Jay Hughes has taken his classic on family wealth to a new level of maturity and relevancy It is a smart and sophisticated book offering both philosophical and practical insights on wealth stewardship The sections on mentors, elders, and other key family members expand upon sage advice from the original edition “Family Wealth is a must read for family members, their advisers, and all those interested in deepening their understanding of how the affluent family can grow and sustain its most important asset—the human lives of the family and their connection to each other “Family Wealth is, as was true of the original edition, an impressive piece of work that is a foundational resource for wealthy families as well as the professionals of wealth consultation.” —DR STEPHEN GOLDBART AND JOAN DIFURIA Co-Directors, Money, Meaning, & Choices Institute “Jay Hughes has given his distinguished career to the service of family legacy He takes an approach to wealth preservation that values not only money but people He shows us in Family Wealth—Keeping It in the Family why that approach matters and how it works for the family that wants a better future for itself and the world at large.” —PETER WHITE Managing Director, Family Advisory Practice, Citigroup Private Bank “All of us in the wealth management field have benefited by Jay Hughes’s return to advising families on the responsibilities of having money His unique background bridging law, religion, history, and philosophy provides a number of valuable anecdotes that are truly priceless lessons—not only for those who have money, but also for those who are servicing this sector in wealth management “Family Wealth—Keeping It in the Family is truly an ageless document that would have been as relevant in the 1820s as it will be in 2020 Mr Hughes’s writings and presentations have become the ‘bible’ in family governance and estate planning, spawning a number of disciples lecturing about his concepts of human, intellectual, and financial capital We thank Mr Hughes for his priceless gift of Family Wealth,which simplifies the understanding of the privilege of creating, inheriting, or owning money.” —TONY GUERNSEY President, Wilmington Trust FSB New York “Jay Hughes has been able to take his rich and extensive experience in the field of wealth preservation and distill it into an essential guide for the creation of legacy families Family Wealth provides family members and their advisory teams invaluable direction as they develop a strategic plan for utilizing wealth for the purpose of creating generations of successful, productive families.” —LEE HAUSNER, PH.D Author of Children of Paradise: Successful Parenting for Prosperous Families Partner of IFF Advisors, LLC “In this book, Mr Hughes literally brings to bear the wisdom of the ages in guiding the reader through the maze of stumbling blocks thwarting successful wealth preservation His focus is healthy and holistic, centered on the preeminence of the family’s human capital rather than the size of its coffers As such, it is not a how-to book for those looking to hoard their wealth To the contrary, this is an incredibly provocative, thoughtful (some might even say spiritual) guide Its chapters light the pathway toward the responsible shepherding both of the people and the assets that, when properly aligned, make up a family’s true ‘wealth.’ It is a must read for those we call patriarchs and matriarchs, their key intermediaries, all trustees and beneficiaries, and everyone who aspires to earn the title ‘trusted adviser.’ “We who have dedicated our careers to the responsible use and constructive redeployment of wealth are privileged to have someone of Jay’s caliber leading the way.” —MICHAEL J A SMITH Head of Wealth with Responsibility Program, U.S Private Wealth Management, Deutsche Bank ATTENTION CORPORATIONS This book is available for bulk purchase at special discount Special editions or chapter reprints can also be customized to specifications For information, please e-mail Bloomberg Press, press@bloomberg.com, Attention: Director of Special Markets, or phone 212-617-7966 Bronfman, Joanie Buffett, Warren Campbell, Joseph Canterbury Tales (Chaucer) capital See financial capital; human capital; intellectual capital; social capital Carnegie, Andrew Carret, Philip Chaucer, Geoffrey Children of Paradise: Successful Parenting for Prosperous Families(Hausner) coaches/coaching confidentiality Constitution of the United States control without ownership copper beech tree metaphor cousins Creating Effective Boards for Family Enterprises (Ward) creation process Dante death, as a ritual decision-making, joint elders and hommes d’affaires and philanthropy and trustees and beneficiaries together Declaration of Independence dissipation process Dodds, Ara donor advised fund Doud, Ernest Dulaney, Peggy dynastic trusts Economic Growth and Tax Relief Reconciliation Act (2001) elder(s) creation of new role of eldering Ellis, Charles D enhancement loans entropy family stories, role of governance and law of law of physics peer review and estate taxes executive branch family assembly descriptions history individuals as assets meetings, rules for conducting stories, role of use of term family balance sheets contents of example of managing liabilities philanthropy and qualitative versus quantitative time horizons for family bank benefits from guidelines for setting up loans and the Rothschild example Family Capital Institute family income statements family members as assets making diagrams of relationships family members, rituals and aunts, uncles, and elders, role of birth of death of introduction of outside marriage of Family Office Exchange Farnham, George fiduciary role fiducie financial capital defined impact of human and intellectual capital on next generation evaluation and time frames for financial competence of third generation, evaluation of Founding Fathers Frost, Robert Gardner, Howard Gardner, John Garvey, Dan Gary, Tracy Gates, Bill generation-skipping transfer taxation gifts governance amendments, allowing for beneficiaries and checks and balances formal process for reaffirming mission of mission statement and trustees and types of Graham, Robert Graham, Wendy grandchild/grandparent philanthropy Hamilton, Sara hat exercise Hats Off to You (Doud and Hausner) Hausner, Lee Homer hommes d’affaires Homo Ludens: A Study of the Play-Element in Culture (Huizinga) horizontal social compact Huizinga, Johan human behavior, role of human capital defined description of enhancement loans governance and guidelines impact on financial capital next generation evaluation and philanthropy and qualitative assessment of remittance dependency time frames for income beneficiaries income statements, annual business Inferno, The (Dante) information, dissemination of Institute for Private Investors intellectual capital defined description of enhancement loans governance and guidelines impact on financial capital next generation evaluation and qualitative assessment of remittance dependency time frames for investor allocation asset allocation versus defined estate taxes example of loans for tips on Iroquois, wisdom of John, king of England judicial branch Jung G Karoff, Peter Kataysis and Namaste Kelly, Walt Krupp family law of entropy law of physics law of unexpected consequences learning, joint legislative branch liabilities control without ownership importance of managing limited-purpose trust company loans for enhancement for investment for investor allocation rules of business Locke, John long-term, use of term Louis XV Lyautey, Marshal Maimonides Malthus’s Law marrying-in meetings problems with annual trustee’s rules for conducting family Mentor, in The Odyssey mentors aunts and uncles as ending relationship with functions of locating trustees as mentorship, what it isn’t minutes, at meetings mission statement contents of family contents of personal defined family bank and investor allocation guidelines in obtaining updated philanthropy and steps for preparing Mitsubishi family Napoleon next generation, evaluation of Nichomachean Ethics (Aristotle) Northern Trust Co Odyssey, The (Homer) O’Neil, John outsiders, introduction of ownership, control without Paradox of Success, The (O’Neil) peer review pèlerinage perpetual trusts historical evolution of historical lessons law of entropy law of unexpected consequences realities of reasons for society and philanthropic families Philanthropic Initiative philanthropy benefits of defined governance structure and grandchild/grandparent Philippe II Phipps family physics, law of Politics, The (Aristotle) Polybius preserve, use of term Princeton University private trust company (PTC) advantages of charter requirements costs of disadvantages of historical development of reasons for creating use of term protectors pursuit of happiness regents (regency) characteristics of successful historical examples trustees as relationships beneficiary/trustee diagramming triangling remaindermen remittance addiction republican form of family governance beneficiary education and elders, role of trustee/beneficiary relationship and trustees and republican form of government Resourceful Women résumés Richard the Lion-Hearted Rise of the Roman Empire, The (Polybius) Rites of Passage(Van Gennep) rituals purpose of role of aunts, uncles, and elders types of Rockefeller, John Davison, Jr Rockefeller, John Davison, Sr Rothschild, Mayer Amschel Santayana, George Second Treatise of Government (Locke) secrets self-awareness “shirtsleeves to shirtsleeves” proverb control without ownership description of evaluation of next generation siblings Smith family social capital competence of third generation, evaluation of social compact Soong family spirituality spiritual learning stasis process succession planning, importance of long-term Synergos Tata family taxes estate generation-skipping transfer reducing, too much focus on teachers/teaching time frames family balance sheets and for successful wealth preservation triangling tribes trust See also perpetual trusts simple versus discretionary/ complex trustee/ beneficiary relationship protectors unexpected consequences trustees administration of trust distribution of trust exercise of distribution family bank and governance and invasion of principal investment of trust investor allocation and as mentors partial termination peer review performance of, assessing reaffirmation of as regents roles and responsibilities of uncles unexpected consequences, law of U.S Constitution United States Trust Co Vail, Peter values, sharing of Van Gennep, Arnold visions, common Ward, John wealth, use of term wealth preservation can it be done for at least four generations practice problem questions for measuring effectiveness of solution theory time frames for successful universal cultural problem Westminster family Windsor family Winning the Loser’s Game—Timeless Strategies for Successful Investing (Ellis) Women Donors Network, The yogi, learning Zen About the Author JAMES E “JAY” HUGHES JR., ESQ., a sixth-generation counselor-at-law, was the founder of Hughes and Whitaker, a law partnership in New York, where he focused on the representation of private clients throughout the world Now retired from active practice, he frequently facilitates multigenerational family meetings, with an emphasis on governance issues He serves on the boards of various private trust companies and is an adviser to numerous investment institutions Before starting his own practice, Hughes was a partner of the law firms of Coudert Brothers LLP and Jones, Day, Reavis & Pogue (now Jones Day), both in New York Hughes’s articles on family governance and wealth preservation appear in professional journals, and his series of reflections on related issues are featured on his Web site He is the author of Family: The Compact Among Generations(Bloomberg Press, 2007) and a member of the editorial boards of various professional journals A widely recognized speaker, Hughes is frequently called on to address international and domestic symposia on helping families to avoid the fate of the shirtsleeves-to-shirtsleeves proverb and to instead flourish through the growth of their human, intellectual, and financial capital Hughes is an emeritus member of the Board of the Philanthropic Initiative, a counselor to the Family Office Exchange, an emeritus faculty member of the Institute for Private Investors, a retired member of the Board of the Albert and Mary Lasker Foundation, and former adviser to New Ventures in Philanthropy He is also a member of the Friends of the Institute of Noetic Sciences, a member of the Roundtable of the Hastings Institute, a former member of the board of the Spiritual Paths Foundation, and a former member of the board of the Rocky Mountain Institute Educated at the Far Brook School, Hughes is a graduate of the Pingry School, Princeton University, and the Columbia School of Law Readers may contact the author and learn more about his ideas at www.jamesehughes.com About Bloomberg BLOOMBERG L.P., founded in 1981, is a global information services, news, and media company Headquartered in New York, the company has sales and news operations worldwide Serving customers on six continents, Bloomberg, through its wholly-owned subsidiary Bloomberg Finance L.P., holds a unique position within the financial services industry by providing an unparalleled range of features in a single package known as the Bloomberg Professional® service By addressing the demand for investment performance and efficiency through an exceptional combination of information, analytic, electronic trading, and Straight Through Processing tools, Bloomberg has built a worldwide customer base of corporations, issuers, financial intermediaries, and institutional investors Bloomberg News®, founded in 1990, provides stories and columns on business, general news, politics, and sports to leading newspapers and magazines throughout the world Bloomberg Television®, a 24-hour business and financial news network, is produced and distributed globally in seven languages Bloomberg RadioSM is an international radio network anchored by flagship station Bloomberg® 1130 (WBBR-AM) in New York In addition to the Bloomberg Press® line of books, Bloomberg publishes Bloomberg Markets® magazine To learn more about Bloomberg, call a sales representative at: London: +44-20-7330-7500 New York: +1-212-318-2000 Tokyo: +81-3-3201-8900 SUBSCRIBE TO BLOOMBERG MARKETS & GET A FREE ISSUE The magazine for and about people who move markets • Free issue plus 12 more for $19.95 • Save more with two years for $29.95 To subscribe to Bloomberg Markets, go to: www.bloomberg.com/news/marketsmag/ More answers and insights from a lifetime of helping families flourish The successor volume—and intellectual prequel—to Family Wealth Why some families thrive for generations? What accounts for the sad deterioration that others experience? This book builds on the now widely accepted practices presented in Hughes’s signature w or k Family Wealth and offers families and the professionals who serve them a view of his panoramic insights into what makes families flourish and fail It lays out the basis for the vision of family governance the author has developed through his work and research His advice addresses not only what to but how to think about the complex issues of family governance, growth, and stability and the ongoing challenge of nurturing the happiness of each family member Available in stores or visit www.bloomberg.com/books a Special thanks to Charlotte Beyer and The Institute for Private Investors for their invaluable assistance in the creation of this work ... message in Family Wealth is his emphasis on the value of ‘human capital’ and his insight that within wealthy families, the real wealth lies in the individuals who make up the family, not in their... Philanthropic Initiative, Inc “A very important work” —GEORGE D KINDER, CFP Author of The Seven Stages of Money Maturity Founder of the Kinder Institute of Life Planning Family Wealth Keeping It in the Family. .. preserve its wealth long into the future To those of you (pilgrims on the road to Compostella) who read the first edition of Family Wealth: Keeping It in the Family, welcome back to the journey