How to Create a Successful Family Dynasty

DIY Estate Planning for Family

Why is it that some families are successful for multiple generations? They maintain their health, wealth, and property from one generation to another. Their children are not spoiled, but are industrious. The parents and grandparents are respected. Why does the family grow in number and power and continue to contribute generation after generation to business and society?

Below are some of the characteristics of families that are successful for multiple generations.

  1. Dynasty Families Operate a Business Within the Family and Are Their Own Bosses. For long-range survival, Dynasty Families operate a family business that produces income and provides jobs for family members. The family business is the boat in which the family sails through the winds and waves of economic changes. In our practice, we have found that, whenever a family sold the family business or family farm, they usually regretted it in the end. Only a small percent of our clients who have sold their family business was happier after the sale. Two families repurchased their businesses at a higher price when they realized that the hard work of the family business was more fun than the feelings of insecurity and lack of purpose that arose after its sale. The Dynasty Family is its own boss!

 

  1. Dynasty Families Own Their Own Business Property and Residential Property and Are Their Own Bosses. The property occupied by the family business should be owned by the family inside of Family Limited Partnerships and Family Limited Liability Companies to avoid paying rent to outsiders and being subject to the caprice of an outside landlord. Further, such ownership allows the family to enjoy the rental income and the appreciation of the property. Recently, wealthy Dynasty Families have also been buying residential property that will be used by their children and grandchildren—realizing that suitable real estate is appreciating to the point where future generations of young married couples may be financially unable to buy their own homes. This way, all members of the family are assured a life style without landlords. The Dynasty Family is its own landlord!
  1. Dynasty Families Develop Their Own Cache of Safe Liquid Funds Used as a Family Bank. The survival-oriented Dynasty Family establishes and maintains (a) safe Irrevocable Trusts for children, grandchildren, and great-grandchild-ren; and (b) Family Limited Partnerships and Family Limited Liability Companies. These entities generate liquid funds in low income tax brackets. These funds are available to lend to the family business and to the family members in need. The family business, therefore, does not have to depend on the caprice of banks and financial institutions. Instead, the family business borrows from the Family Banks. This family lending arrangement also allows the family trusts, Family Limited Partnerships, Family Limited Liability Companies, and other lending entities to receive high interest rates with the corresponding interest income in the safe legal receptacles taxed at low rates. In turn, the family business gets to deduct the high interest expense from its tax returns. Even though most large families try to finance their businesses within the family, they still maintain good relations with their bankers and once a year fix a line of credit, even if they do not need to use it. The Dynasty Family is its own best bank!

 

  1. Dynasty Families Have a Family Leader and a System of Succession. Like Indian tribes, successful families that are prepared for survival all have a leader (matriarch or patriarch) who makes the ultimate decisions for the family. A characteristic of Indian tribes was that every tribe had a chief and a system of knowing who was the next chief in line if the current chief was killed in battle. The chief always counseled with the elders, but if the elders could not arrive at a consensus, there was no doubt as to who made the ultimate decision. In some modern families, the brothers and sisters are equally educated and experienced. The siblings act as co-leaders of the family on the death of the parents, functioning in the same way as a corporate board of directors who select “officers and managers” of the family holdings. These officers and managers may be either family or non-family with appointments being either long-term or on a rotational basis for a certain period of time. Even when families run their business affairs with a group of members acting as a “board of directors,” they usually try to concur unanimously on all major decisions. For example, if they run into a 2-to-1 vote, they will bring in advisors to arbitrate and mediate rather than to push the majority decision and risk a family breach. The king is dead. Long live the new king!

 

  1. Dynasty Families Have a Simple, Private System for Settling Family Disputes. The “chief” establishes a method for settling disputes so that family disputes do not end up as serious family fights. Sometimes, the leader of the family or an advisory group offers itself as a mediator or arbitration committee. In any event, all family members agree to settle their disputes in accordance with family procedures. We use an alternative dispute resolution agreement that everyone in the family is required to sign to become a beneficiary of any trusts and to participate in the family’s financial affairs.

 

  1. Dynasty Families Have a Confidentiality Agreement to Keep Secrets and Confidential Matters Inside the Family. Successful families deal with many people every day. Such families can require anyone dealing with the family to sign a Confidentiality Agreement in which the signer agrees not to disclose the secrets and private matters of the family and not to bad mouth the family. The signer further agrees to allow disputes over breach of this Agreement to be resolved quickly under the alternative dispute resolution agreement mentioned in the previous paragraph. We can think of many Presidents who have wished they had a Confidentiality Agreement signed by everyone who worked in the White House.

 

  1. Dynasty Families Have Well-Chosen Professional Family Advisors Who Serve the Family over the Long Haul. Dynasty Families that are surviving successfully have a group of long-standing outside professional advisors: an attorney, accountant, life insurance agent, property and casualty insurance agent, financial planner, investment advisor, doctor, banker, and possibly a public relations advisor and technology advisor. These professionals are available to the family to provide objective, specialized advice for hybridization with the ideas developed within the family. The family meets at least annually with the advisors so that their own ideas and procedures do not become obsolete or too in-bred. The professional advisors give the family intellectual vitamins!

 

  1. Dynasty Families Own a Family Farm or Ranch. To enable a family to survive in the “ultimate national disaster,” it is beneficial for them to own a farm or ranch that is capable of providing sustenance for all the members of the family for a prolonged period of time. Ownership of a farm or ranch also keeps the family close to the land so that they understand self-sufficiency. The farm or ranch may be sharecropped or managed by someone else if family members are not willing to operate it themselves. With long-range investments in animal breeding and orchard crops, the family farm or ranch also provides some outstanding tax shelters and tax deferrals for high income in peak years and postpones it to retirement years. The family farm or ranch is an educational playground for grandchildren.

 

  1. Dynasty Families Insist on Maximum Education of Offspring. Dynasty Families make available and set aside funds sufficient for the maximum education of all children, grandchildren, and great-grandchildren. The family tries to steer the children and grandchildren into fields that do not conflict so that eventually the family will have within its own structure persons capable of providing professional advice in law, accounting, medicine, art, public relations, computer technology, business management, and other key areas. Care must be taken so that too many family members do not educate themselves for the same position or specialty within the family.

 

  1. Dynasty Families Have Regular Family Meetings and Ceremonies. Dynasty Families schedule times to meet on a regular basis to celebrate family traditions, discuss business, network ideas, and maintain relationships. These meetings and ceremonies must be carefully planned and orchestrated so that the children, grandchildren, and great-grandchildren will enjoy and remember these festive and interesting occasions. Many of these family meetings may be organized so that they may be income tax deductible! The play is the thing that will grasp the soul of the family!

 

  1. Dynasty Families Have Objectives, Vision Statements, Value Statements, Budgets, and Strategic Plans. Frequently, and at least annually, Dynasty Families meet to discuss the family mission, vision statements, budgets, strategic plans, and the objectives of the family so that a consensus will be reached and so that the family culture is always clear to all family members. The objectives of the various branches and individuals of the family also are discussed so that other family members will be able to assist reciprocally all branches and individuals in reaching their respective personal objectives. Businesses have been incorporating these soul-creating techniques for decades with success.

 

  1. Dynasty Families Encourage Arm’s Length Transactions between Family Members and Family Business. Dynasty Families insist that all salaries, rents, loans, management agreements, and other arrangements among Dynasty Family members and family entities are set up on an arm’s length basis, using the current market rates at that particular time for the compensation. The agreements among the family members are documented legally and precisely to avoid misunderstandings and to permit an objective evaluation without mixing gifting with business. If family members need gifts or other financial help, the transactions are clearly marked as gifts or loans rather than as sweetheart deals in salary, rent managements, and other legal relationships. By doing so, reality does not become distorted. Nor do non-family individuals who work for the family business become discouraged by seeing unrealistic economic relationships and accounting numbers when the business deals with a family member. Business is business! Gifting is gifting!

 

  1. Dynasty Families Insist on High Standards Among Its Members. Dynasty Families set certain minimum standards of honesty, integrity, personal habits, and physical fitness. Regardless of the amount of love of one family member for another, the family members must meet certain minimum standards. Even with loving support and counsel, the remiss member may be temporarily excluded from the family group at large. Someone within the family may be appointed to monitor the family members “in exile,” assisting them to change their ways, to re-establish themselves back into the family. Forgiveness is always encouraged, as exemplified in the parable of the prodigal son. Bad apples must be taken out of the box and put in the refrigerator!

 

  1. Dynasty Families Have a System for Indoctrination and Integration of “Blood Brothers” – Non-Family Employees of Family Enterprises. Many Indian tribes included skilled, non-blood warriors who fought with the tribe and whom the tribe integrated as “blood brothers.” Many family businesses have trusted executives and other loyal employees who are treated like members of their extended family. On occasion, children of the employees even join the family business. The family cannot prosper on blood alone!

 

  1. Dynasty Families Will Not Tolerate Negative Gossip. One of the fastest ways to break down a family or impair the image among its members is to tolerate gossip — that is, talking derogatively about certain family members to outsiders or to other family members. The family must have an agreement not to gossip, even though such gossip sometimes provides an easy, relaxed subject of conversation. If any family member is critical of another family member, he or she must agree to convey his or her discomfort in private to the family member concerned. When this rule is violated, the gossip intensifies by reciprocity as one family member “gets even” with another. Gossip destroys families!

 

  1. Dynasty Families Have a Comprehensive Risk Management Master Plan. Large families usually engage one life insurance advisor and one property and casualty insurance advisor to serve as their agents of record. These insurance experts determine all likely risks to the extended family and recommend whatever insurance is needed to minimize every insurable catastrophic loss. Because all insurance is purchased through the same sources, the family has greater bargaining power with its rates, coverage, and recoveries.

 

  1. Dynasty Families Are Segmented Into Separate Legal Entities to Prevent “Domino” Destruction. Large successful families do not operate as “general partners,” exposing all branches to a disastrous lawsuit if a catastrophe occurs. If any family member were to run into a bus load of brain surgeons while driving, the entire dynasty wealth could disappear. To avoid this, we will often restructure each branch with its own limited partnership, limited liability company, revocable trust, and Asset Vault Trust with a grouping of legal fortresses — a Family “Zaibatsu” — with arm’s length contracts between branches and individuals for employment, management, leasing, loans, and sales. This process is called “segmenting the family.”

 

  1. Dynasty Families Have Family Foundations. Members of families that operate Family Foundations for some reason live 10 years longer on the average then those who don’t. The Family Foundations allow the families to end up with more personal cash flow, more wealth, more prestige and more power—for generations.  Foundations lift the family “out of the peasant class.”  They will always be esteemed in their communities.  By strategically using a Family Foundation with life insurance a family will be able to “disinherit the IRS” (i.e., avoid estate taxes) and expand their beneficial influence in every generation. 
  1. Dynasty Families Have Well-Organized Multi-Generation Wealth Protection and Enhancement Plans. These plans consist of protective trusts in all generations, businesses and investment interests in protective corporations, limited partnerships and limited liability companies, and smooth transition plans from one generation to another.  These comprehensive plans covering all generations of the family are updated annually with the families’ professional team.

In many respects, the families of this country are like clumps of “bunch grass” on a desert hillside. Its deep roots, expansive clumps, and tight and tangled roots allow it to survive the worst of drought, flooding, and overgrazing. The many tight-knit families of our culture hold and will continue to hold the rest of our society together in the same way that the bunch grass safeguards the soil of the desert hillside from erosion.

To create these protective structures, we must analyze the Dynasty Family’s circumstances with a preventive law approach — like an international chess player examines all likely areas where financial checkmate may occur — and prevent checkmate by following the guidelines of this article and expert estate, business, legal, and accounting advice.

Disclaimer 

This memorandum is general in nature and is meant to be used for informational purposes only. Due to possible changes in the law and its interpretation as well as the uniqueness of each individual’s situation, this memorandum should not be relied upon as an expression of legal advice. Before any action is taken by the reader, it is imperative that legal counsel or professional advisors be consulted.

ABOUT THE AUTHOR

Founding attorney Paul Deloughery has been an attorney since 1998, became a Certified Family Wealth Advisor. He is also the founder of Sudden Wealth Protection Law.

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