Why do some families successfully sustain their net worth and levels of accomplishment across successive generations, while many do not?

While this is a globally-relevant question, we have been particularly interested in answering this question for Bermuda and after working one-on-one with clients for five years as an independent advisory firm, one issue continues to arise.

While this one issue is not always the root cause of dissipation of wealth over time, it certainly is contributing to it.

In a nutshell, families need to shift their perspectives from that of ownership to stewardship.

What is Stewardship?

The Merriam-Webster dictionary includes the following in its definition: "the conducting, supervising, or managing of something; especially: the careful and responsible management of something entrusted to one's care". Traditionally, this definition has been interpreted to mean the accumulation of wealth as measured by a consolidated balance sheet.

However, as a result of learning from successful multigenerational businesses, society now understands that when attention and careful management is solely on the financial capital of the family other important aspects are often neglected or seen as less important. So stewardship in the family wealth context has grown to include the careful and responsible management of financial capital, intellectual capital and human capital.

For families who seek to transition both wealth and values to future generations, in our opinion stewardship should include the following components:

• A commitment to articulate family values and philosophies

l A consensus on the role and future of the family business

l Investment policies that support each generation's financial needs

l Applying appropriate time frames in financial modeling

l Governance structures that address important practical matters

l A clear understanding of how the estate planning expresses the values of the family (including how much wealth future generations are to receive and how and when they will receive it)

l Policies for in-laws, blended families and others

l Succession planning and grooming of the next family leaders via mentoring and other initiatives

l A shared commitment to philanthropy, along with the flexibility to address the personal philanthropic interests of future generations

l An understanding that each generation of the family contributes in some way to the continuation of the family assets. Why is status quo acceptable?

l If a family member does not want to continue in the family business but is an entrepreneur in a different industry, why doesn't the family support this?

l All family members should be taught basic financial management. It is no longer sufficient to state that only certain family members require this training.

The focal point of this model is a plan that seeks to integrate virtually all financial and family governance objectives-financial planning, estate and tax planning, portfolio management, business and succession planning, philanthropy, family governance and next-generation education-in a disciplined and holistic manner.

Without this level of planning and a commitment to the concept of stewardship, future generations tend to dissipate wealth and move away from the values that provided the family with its initial dynamism and sense of meaning.

Patterson Partners Ltd. specialises in the provision of tax, estate, investment and strategic planning services to dual citizens of the USA and Bermuda, their families and businesses. For more information, visit www.patterson-partners.com or contact Jennifer Patterson, CFP®(US), CIMC™, CIMA®, TEP via email at info@patterson-partners.com or phone 296-3528.

Asgill Post Ltd. provides assistance with Business Valuation, Financial Strategy and the Purchase and Sale of Companies. For comments or queries, contact Kumi Bradshaw MBA, CBA, BVAL via email at kumi@asgillpost.com or phone at 295-3301.