The Importance of Heritage Organization
For a wealth creator, one of the main concerns is how to preserve the family’s well-being and the value of the heritage for future generations.
Managing a family’s wealth can be very complex, as they have companies, properties, land, shares in different entities, bank accounts, among others. This makes it difficult to prepare the transmission of assets and values. Generally, one or two members have the hard responsibility of managing the family’s needs, which is a challenging task because they must manage the assets, maintain the scheme, preserve the harmony of the family and ensure the preservation of the group’s interests; while meeting their professional and personal obligations.
This uneasiness is not new. Since the 17th century, wealthy families began to be concerned about the organization of their assets by appointing managers, and it was not until the early 19th century that the first legal structures began to appear. The concept and understanding of the need for an entity to manage wealth came about in 1838, when the J.P. Morgan family founded the Morgan House; and then in 1882, when the Rockefeller family founded their office, which still exists today.
One of the first concerns of these families was the transmission of the assets to future generations. This aspect of inheritance is relevant, since figures indicate that assets dissolve over time due to the different behaviors, attitudes and practices of the members of each generation. In fact, in almost 60% of the cases, the money of a family is exhausted with the children of the person who has created the wealth; and in 90% of the cases, the family’s money has disappeared completely at the end of the third generation.
The example of the Vanderbilt family is worth noting. Cornelius Vanderbilt (1794 – 1877), patriarch of the Vanderbilt family, was an American businessman who made his fortune in the transportation industry through ships and railroads. By the 1850s, Vanderbilt was the second richest American in the country. Unfortunately, his children and then his grandchildren did not know how to preserve the fortune. Today, there is not a single millionaire among his heirs.
One of the reasons for this generational loss of wealth is the family’s lack of knowledge in asset management. The fortune of a family is not only reflected in the economic-financial values, but also in the human-emotional capital (family welfare), and in the cultural-intellectual tradition possessed by each and every member of the clan.
Another of the main reasons for the loss of family wealth is that generally the descendants do not understand that maintaining the patrimony is a constant work, full of difficulties and adaptation to changes.
In 1982, Forbes Magazine published its first list of the 400 richest people at the time. In 2002, 20 years after its first publication, they reviewed that compendium and found that only 61 of those 400 people were still on the list.
Even more surprising, in 2012 only 36 of the initial 400 members remained on the list, or only 9 percent. This demonstrates the need for efficient organization and wealth management, as evidenced by the Rockefeller family mentioned above, who after seven generations maintain the family union that allows them to safeguard their immense wealth.
Families of great wealth must organize their assets by establishing rules and duties that grant control to their descendants. The solution may be to divide the money equally. This step seems simple, but is risky for many. In practice, preserving a fortune requires communication and cooperation, which is difficult to achieve in any organization and especially in a family.
The creator of the resources should give guidelines, clear instructions, about how to manage the money during your life and after you have gone, trying to keep the integrity of the estate as much as possible.
In view of the complexity of the goals, it is necessary to involve an external entity that organizes and helps to manage such patrimony. This is where the role of the family office comes into play. It simplifies the organization and management of assets as it is a specialized entity and also has an internal team of experts in each area, leaving time and space to the key people for their own and family businesses.
A family office is primarily designed to assist families in making decisions and allows:
– Create corporate and family structures that promote adequate and organized growth
– Maximize yields and reduce taxes
– Take care of the human and intellectual assets that the family possesses
– Spreading and agreeing on a family mission
– Acting on distinctive family values and traditions
– Preparing for succession in advance
Starting work with a family office is done in several stages:
– The first step is to make an inventory of the family’s belongings (real estate, assets, and bank accounts). Information is sought on who handles payments, accounting, reports of such assets, among others.
– Once the global evaluation of the family’s assets is done, it is determined if there are discrepancies, overloads or conflicts in the decision making process of the management of the family’s assets.
– Then, the needs of the family are analyzed through meetings with the different members to determine the aspirations and difficulties of each one.
Transparency and confidentiality are the key words that define the work of a family office. It is essential to establish a relationship of trust between both, providing the client with the information that is useful to him.
From this moment on, a strategic plan for the common good can be designed, taking into account the current situation of the family and its short, medium and long term objectives. Consequently, decisions are made to meet these objectives.
The participation of a family office, with its respective tools, expedites the daily management of the family’s assets and provides improvements to their quality of life.
There are multiple benefits that a family office brings to the management of a family’s wealth, among them
It simplifies the reorganization of real estate, the management of financial, real estate and private capital assets.
It integrates various expert professionals (bankers, real estate agents, management companies, etc.) to guarantee a coordination of decisions and ensure the fulfillment of the defined objectives.
It structures the legal and fiscal part of the assets, having lawyers, notaries and asset engineers to identify the best configurations and then maintain an optimal organization in the changing environment.
It helps to plan the future relationships of the family, supporting them in their corporate governance.
It develops an investment plan, after an analysis of the situation and profile of the client, to try to achieve the financial and vital objectives, thus achieving the balance of their resources and future needs.
It allows access to alternative investments such as private equity and alternative funds.
It is evident that there are numerous advantages in safeguarding your assets and family ties, counting at all times with the support of an integral entity, constituted with the purpose of offering clients an independent, personalized service and with the main objective of ensuring the security of the assets of those who trust in it.
Client Relationship Manager – Founding Partner
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