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Passing inheritants Original Source Link: (May no longer be active)
http://www.bradenton.com/mld/bradenton/business/9398030.htmhttp://www.bradenton.com/mld/bradenton/business/9398030.htm
Posted on Sun, Aug. 15, 2004
Blowing the inheritance
If you want your legacy to last, take steps now
ROBERT POWELL
CBS MarketWatch.com
BOSTON - Where there's a will, there are many ways.
Seniors who want to leave a legacy often think in terms of cold hard cash, for good reason. An estimated $41 trillion to $136 trillion will pass from one generation to the next between now and this century's mid-point.
But anyone who wants to create a legacy that lasts ought to broaden the definition of inheritance to address human, intellectual and social capital.
"It's a peculiar reality of all cultures," said Jay Hughes, author of "Family Wealth - Keeping It in the Family." "Wealth tends to disappear within three generations. It's deep in the human condition."
Hughes said there are four reasons why a sum of money left to heirs is often squandered, and suggests ways to avoid that.
First, money follows the second law of thermodynamics. The law of entropy suggests that everything (including a family's money) is proceeding back to a state of disorder or dissipation. One generation creates the wealth, another spends it, and by the third generation, the money is gone.
"Too many families define themselves by their money," Hughes said. "If, however, you think of your intellectual and human capital along with financial capital as a group of assets on a balance sheet, you have a better chance of it going past the third generation."
The second reason is that most heirs use an "if-you-do-this-for-us, we'll-do-this-for-you" approach to distributing their family's wealth. Attached strings tend to have a bad outcome.
Third, families that view life as a series of transactions tend to have trouble transferring wealth. By contrast, those who've succeeded in passing down their wealth, such as the Rockefellers and Rothschilds, viewed life as a series of long-linked transitions.
"Many families that don't do well operate on a short-term time horizon," Hughes said. Seniors who want to create legacies built to last should adopt a long-term view.
The perfect gift for a grandparent to give a grandchild is a "learning assessment," Hughes said. The grandparent will get useful and practical information that could lead to the creation of intellectual capital. Grandparents could provide the assessment results to a child's teacher, who could tailor their instruction to the child's learning style.
"If you really want to leave a legacy, help those who are doing well, do it even better," Hughes said. "If you can help them become even more productive, it will give them an edge in the world."
What's more, helping children learn how to absorb information now could also benefit society as a whole later. "There's infinite leverage when a family provides enhancements to an individual's journey."
Fourth, most families tend to view themselves as families of blood rather than families of affinity. Families of blood often create closed systems that produce negative energy. By contrast, families of affinity create open-architecture systems that produce positive energy.
"The strange thing is that no family begins as a family of blood, but somehow it loses its way," Hughes said. And by that time, it has no chance of passing down family wealth beyond the third generation.
Grandparents can help create an open-1 architecture system and establish a role in the family governance system by working with their grandchildren on philanthropic causes, Hughes said. "This technique has changed many family relationships."
The basic idea: The grandparent puts money into a donor-advised fund or a community fund. He or she works with the grandchildren to create an investment, administrative and grants committee. The grandchildren create a process for how a grant is requested and voted upon. Each grandchild then makes a grant request, the older of whom makes the request in writing. Only those that pass muster with the grants committee get funded.
What happens in the process is that children develop a number of skills, Hughes said. "When each child comes forward and makes his or her request, then he or she is learning the life skills of public speaking and learning in addition to learning to passionately advocate and ask for something for others."
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