A Parable About a Family Business – Pt. I

It all started out as an idea….

In the beginning there was a great business idea.  When the business started out it was small.  The owner was determined, diligent and talented.  The business grew.

After some time it was a much larger business and had many employees under its roof.    The owner’s children were now grown and some decided to work in the business.  The other children did not, choosing to find their own paths in life.

Soon there were issues, mainly disagreements over what to do with the profits.  The inactive owners wanted to be paid dividends… now!  The active owners saw the need to reinvest profits back into the business for future growth.

The founder was ready to retire.  But there was little savings or liquidity outside the business.  The founder wanted to be conservative and protect the cash flow for himself.  The sons and daughters working in the business wanted to be more aggressive and grow the business to remain competitive.

There was no way for the inactive owners to sell their ownership.  They wanted high dividends to make up for the lack of liquidity.

Without warning one of the owners died suddenly from a unforeseen medical condition.  The owner’s grieving spouse wanted to be bought out immediately.  The business had to borrow money from the bank to repurchase the outstanding shares.

The tensions of keeping the business afloat continued to increase and one of the owners kept bringing the stress home.  Soon there was a divorce.  This event caused a small financial emergency for the business.  Soon there was a demand for more money.  A loan was made to the divorced owner.

Another owner had a gambling problem.  But it was discovered and addressed too late; there were too many credit card bills.  A bankruptcy was filed.  More money was need.  Another loan was made.

The family members stopped taking to each other; there were too many hurt feelings and too much mistrust.

The inactive owners still wanted their dividends, now!  They didn’t understand the internal operations of the business.  No one had explained to them the need to leave the money in the business for it to be competitive in the market.

The founder had never decided who was going to take his place.  It was left up to a committee when he died.  The estate tax bill arrived in the mail.  There had been no planning.  There was no cash or lines of credit available.

There was an auction.  The assets were sold.  The business is gone.  The End.

This is a sad, sad story.  But unfortunately it happens… over and over again.  Does any of this story sound similar or familiar to events or conditions within your family business?  Please don’t let this happen to your family.  We have many tools and procedures to prevent this parable’s effect taking hold within your family business.

*****

Donald L. West, Jr., JD, CTLP,  serves as the Associate Director of Education to the Legacy Institute, is a Chartered Legacy & Trusts Planner, a Personne De Confiance, the Creator of the Legacy Pyramid and co-author of A Step-By-Step Guide To Crafting Personal Legacy Statements.

The Legacy Institute, (A.I.L.E.P.), is an organization devoted to empowering families and closely-held business entities cultivate multi-generational connectedness, growth and prosperity.

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What is a Family of Affinity?

Shirt sleeves to shirt sleeves in three generations“

is the American version of a Lancashire proverb, “there’s nobbut three generations atween a clog and clog.

Many have attributed Andrew Carnegie, the famed 19th century industrialist from Scottland, with bringing the proverb’s message to America. Investigation shows that the adage is ancient and not unique to any one country or culture. In Italian it is “dalle stalle alle stelle alle stalle” (“from stalls to stars to stalls”). The Spanish say, “quien no lo tiene, lo hance; y quien lo tiene, lo deshance” (“who doesn’t have it, does it, and who has it, misuses it”). Even non-western cultures, including the Chinese, have a similar proverb, “rice paddy to rice paddy.” Shirt sleeves to shirt sleeves is a proverb that describes human behavior’s natural tendency in terms of creating long-term families as financial failures.

The theory of the proverb is that the first generation starts off in a rice paddy, meaning that two people with an affinity for one another came together and worked from the bottom to create a financial fortune.  The original generation usually builds their wealth without making significant changes to their values, customs, or lifestyle.  The second generation moves to the city, embraces the hottest fashions, patronizes the opera, runs large organizations and the fortune plateaus.  The third generation, with no experience in building or maintaining wealth, consumes the financial fortune, and the fourth generation goes back to the rice paddy.  This is the classic formulation of the shirtsleeves proverb, which remains as true today as it has proven to be throughout documented human history.

When considering long-term legacy planning, what is often referred to as seventh-generational thinking comes into play.  Seventh generational thinking can be illustrated by an antidote from an old Iroquois tribal elder, who begins the tribal council meeting by saying,

“Let us begin our work here today with the hope that the decisions we make will be honored by our tribal members seven generations from today.”

James E. Hughes, Jr., an attorney, author and multi-generational family advisor, defines a family as two or more people who by either genetic lineage or bonds of affinity consider themselves related to each other.  The core of his philosophy is the belief that a family that sees itself as linked not only by blood but by affinity and acts from that philosophical base has the greatest chance of successfully enhancing the individual development and growth of its members and thus of dynamically preserving the family as a whole for at least five generations.  A family of affinity maintains open systems that welcome new members, giving the family a better chance of survival.  These outsiders represent the new energy the family needs to overcome what it will lose through natural attrition.

Note that Attorney Hughes suggest that relying solely on the biological constituents of a family will lead to attrition and a weakening of the family unit and wealth over time.  Creating an open-source family unit enthusiastically embracing new members through marriage and other bonds of affinity are vital.  When counting a family’s assets they are represented by the individual members of the family of affinity:

• The family’s human capital
• The family’s intellectual capital
• The family’s financial capital
• The family’s social capital

A family with long-term seventh generational thinking will have a 100-Year Plan to manage and capitalize on the family’s core assets listed above.

If you feel your family is a family of affinity:

Have you crafted a written Family Mission Statement as the guiding expression of the vision, values and goals of the family? and

Have you embraced seventh-generational thinking and begun to work on a 100-Year Plan?

*****

Donald L. West, Jr., JD, CTLP,  serves as the Associate Director of Education to the Legacy Institute, is a Chartered Legacy & Trusts Planner, a Personne De Confiance, the Creator of the Legacy Pyramid and co-author of A Step-By-Step Guide To Crafting Personal Legacy Statements.

The Legacy Institute, (A.I.L.E.P.), is an organization devoted to empowering families and closely-held business entities cultivate multi-generational connectedness, growth and prosperity.

The Four Basic Building Blocks of Legacy

The Four Basic Building Blocks of Legacy

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Legacy Wisdom – Jeff Goins

“[T]here is a greater lesson to be learned by this man’s life and from any hero who falls. The lesson is this: You cannot delegate influence. You cannot defer your story to another. It is yours and yours alone.”. — Jeff Goins

Source:  On Joe Paterno, Life, Art, & Legacy | Goins, Writer
http://ow.ly/1EIDBQ

Not Just For Baby Boomers – Legacy & Estate Planning Basics

Take a few moments and ponder this: If you could open a portal and ask three questions of a deceased ancestor, what three questions would you ask? Why were these questions the ones that you choose? If you were visited by one your future decedents what three questions do you think they would ask you? The success of sites like Ancestry.com and MyHeritage.com proofs our culture’s desire to understand their relationship to their ancestors – but the question remains, are people just looking for names and pictures? When you discover a few short news headlines and census records will all your questions have been answered, will your quest be complete?

Through conversations with advisors, clients and observations throughout history I have learned that the stories are what people cherish. Every person has a story – therefore every person has a legacy. Still don’t believe you have a legacy to share?

Merriam-Webster online states that the word Legacy is a noun and means: something transmitted by or received from an ancestor or predecessor or from the past. So we know that you have a story and we also now know that if you pass that story on – you are passing on Your Legacy. Quite simply, Legacy Planning is the thoughtful process that organizes and preserves you and your stories for future generations. Those that are seeking to live purposeful lives will find Legacy Planning and Estate Planning can be combined to guide and direct future generations while also helping you preserve your hard-earned assets and ensure that they go where you want them to go after you pass on.

By purposefully plotting your generational impact you can save your family and heirs considerable time, expense and potential grief by eliminating uncertainty about inheritance and sharing valuable life lesson. In the legacy planning process you are given an opportunity to teach and offer hard-earned life experiences that helped shape your life and guide your destiny. The old saying, “If you give a person a fish you feed them for a day, but if you teach a person to fish they can eat for a lifetime,” is a common theme drawn upon daily by many successful clients who worry about the well-being and preparedness of their future generations.

There are numerous studies that show those who have written plans outperform those who do not. Take a moment and contemplate the effect this principle can have when applied across generations. Planning and productivity leader Michael Hyatt astutely observes, “I have met few people who have a plan for their lives.” How many families do you know who have a written 100-Year Plan agreed too and actively in place? Fifty-seven percent of Americans do not have a will. Unless you would like to potentially donate a substantial portion of your estate to Uncle Sam, it is time to join the forty-one percent who do. Though writing a will, or the appropriate instrument recommended by your advisor, may not be fun to think about, a little foresight now will save your heirs and loved ones enormous hassles down the road. The planning process of collecting thoughts, stories, ideas and traditions together will prove rewarding and inspire many new thoughts and possibilities.

In this series on Legacy & Estate Planning Basics you will learn to:

o Identify Generativity in yourself and other and steps to increase it;
o Implement the 4 Basic Building Blocks of a Strategic Legacy Plan;
o Understand the basics of wills, trusts, probate, legacy statements, and charitable giving;
o Set up a power of attorney, a living will, and long-term care arrangement; and
o Minimize the impact of estate and inheritance taxes on your heirs.

Warren Buffet, famed investor and head of Berkshire-Hathaway has drawn much attention and praise for his comments regarding his own children’s inheritance, “The perfect amount of money to leave children is enough money so that they would feel they could do anything, but not so much that they could do nothing.” In Buffet’s case that amount has been reportedly, $10 million. Buffet’s attitude of empowering the next generation without stifling their drive to create, contribute and self-direct has been embraced by the middle class, young professionals and baby boomers alike. The objective is to avoid the ancient adage, “shirtsleeves to shirtsleeves in three generations.” Only by planning your legacy and your estate now can you be sure that all your wishes will be known and respected when you pass away.  *****

Respectfully submitted by: Donald L. West, Jr., J.D., CLTP
Assoc. Dir. of Education / Chartered Legacy & Trust Planner
The American Institute of Legacy & Estate Planning

Don is available to assist with your Legacy & Estate Planning journey, have a question or need assistance – just ask.

dlw@Legacy-Institute.org
http://www.Legacy-Institute.org

About the Author: Don West, Jr. serves as a Personne De Confiance and counsels families, individuals and entities on the principles of generational legacy and wealth transfer as the Associate Director of Education at The American Institute of Legacy & Estate Planning. Don utilizes a planning philosophy of teaching “Healthy & Sustained Multi-Generational Family Prosperity” focused on increasing Generativity – guiding the next generation and building strong Families of Affinity. Don is the creator of ‘The Legacy Pyramid’ and teaches that “Every Life Is A Legacy”.

Legacy Wisdom – Sheree Bykofsky

“No amount of external validation can force an unhappy person to be happy.  By the same token, if you choose to follow your own path, and create your own criteria for happiness, no amount of external adversity can “force” you to become unhappy.” ~ Sheree Bykofsky – “Me Five Years From Now”

Don West Jr.’s – Legacy Pyramid

This is our first release of the Legacy Pyramid, as with all creations it remains a work in progress. Your comments and feedback are greatly appreciated and all are utilized to help improve future editions. Thank you in advance for sharing your insights on our blog. — A.I.L.E.P.

The Legacy Pyramid is a visual model depicting the core principles that underline the course CREATING YOUR STRATEGIC LEGACY PLAN – A Step-by-Step Course for Impacting Multi-Generational Success and Prosperity.

The methodology incorporates the lessons of numerous scholars, coaches, leaders, researchers and teachers, including: Coach John Wooden and his legendary Pyramid of Success, Benjamin Franklin, Napoleon Hill, Prentice Mulford, Carl Jung, John Kotre, John Butler Bowdon, Michael Hyatt and James E. Hughes, Jr. to name a few.

The Legacy Pyramid completely incorporates Wooden’s Pyramid of Success and adds principles of Generativity and Families of Affinity.

The Legacy Pyramid is distributed as a service of The American Institute of Legacy & Estate Planning where Don West, Jr. serves as the Associate Director of Education. All Rights Reserved.

Don West Jr.'s – Legacy Pyramid

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