U.S. Trust® Family Office Profile: Building A Family Legacy — 50 Questions To Answer

A family business defines the family's role in the community and ultimately its legacy. How it conducts business and the ways in which it supports the greater community will frequently establish its values and culture. It also tends to be the glue that binds the family together. If or when the business is sold, the family business legacy begins to fade and new ways have to emerge to bind the family together and preserve the family's place in its community. Frequently, philanthropy can take over as it did for the Rockefellers and Carnegies. However, a family's legacy and values can also be shaped by its governance, investment profile, the individual members' professions, and future entrepreneurship and wealth creation. Some families today have begun to embrace the concept of establishing a legacy plan or family constitution so as to document the aspirations of the founder and to guide future generations. Before building your family legacy plan, you may want to pause to consider the answers to the following 50 questions. 

Family Culture and Governance

1. What do we really want to do with our family's money? How much do we invest in financial assets, in the community and in the family members themselves? This is the top-of-the-house asset allocation decision.
2. Do we wish to continue a culture of entrepreneurship, and, if so, how do we develop that? In what ways can we establish mechanisms to encourage entrepreneurship so as to rejuvenate wealth in successive generations?
3. How do we effectively communicate our desire to perpetuate a culture of work over consumption, stressing the importance of accomplishments?
4. Is it fair to establish standards in order for family members to gain access to trust funds, or are negative covenants such as criminal activity or legal challenges to the terms of trusts sufficient?
5. How can we protect our descendants from the problems that could be brought on by wealth, and how can we guard against wealth becoming a divisive element in the family?
6. How do we keep our children and grandchildren interested in the governance and stewardship of the family wealth? Should we establish a family council?
7. What are the different roles family members can play in managing the wealth, and how do we define the roles of managers, directors and shareholders? Moreover, at what age do we bring along the upcoming generation, realizing the ramifications of doing so too late or too early?
8. Is financial literacy important, and, if so, how do we build a continuous program to deliver it?
9. Do we need a family office, and, if so, who will run it? What services should it provide and how much money are we willing to invest in it? Would any governance group oversee it?
10. Should we have regular annual family meetings, and, if so, what should be on the agendas? More broadly, how should the family structure its communications to keep members advised on important issues and to discuss policies?
11. How would we preserve the history of the family business should it be sold? Additionally, how will we preserve the values and principles of the founders?
12. Should the family try to guide the career paths of its younger members, and, if so, how should it become engaged?
13. Does the family want a low profile or active public image? If active, how will it be managed?

Philanthropy

1. What is the mission of our philanthropy? Should it be perpetual or should future generations be able to modify it to address emerging causes and needs?
2. Should we allow and encourage individual carve-outs, so as to enable family members to direct funds to their own preferred charities even if different from the family's principal philanthropic fund?
3. Do we wish to define our grant making preferences in terms of capital support, direct programs, new ventures, endowments, emergency support and capacity building?
4. Do we also favor certain methods of giving such as matching gifts, multiyear grants or program-related investments? Are we willing to provide unrestricted funds?
5. Consistent with the family's desire to see accomplishments, should we have a strong due diligence process for assessing the impact of our contributions? Should we use specific metrics to evaluate philanthropic endeavors?
6. How should we encourage volunteering among family members, beyond financial support?
7. Who should be on the family's foundation board? Should it be solely family members or include nonfamily members as well?
8. Should the family fund educational trips for its members, such as family tours of Europe, Africa or Asia? Additionally, should the family conduct annual retreats on philanthropy, including site visits?
9. Would the family promote and fund internships at charities or nonprofits for the younger members so they can gain a better knowledge of the field and prepare them to carry on the family's legacy of giving back?

Wealth Transfer & Distribution Policies

1. How does the family balance saving estate taxes versus enabling future generations to gain access to funds when properly needed?
2. Should there be overall distribution limitations in the family trusts and should there be sublimits per individual? If a trust provides for at-death distributions, would the family permit pre-death advances to be offset later?
3. Would loans be offset with after-death distributions?
4. When formulating distribution policies, what priorities does the family place on funding home purchases, education and other needs? Does the family view education more broadly to include trade schools, performing arts, etc.?
5. Should we employ family funds to help individuals pursue interests beyond business such as setting up a summer camp for disadvantaged youth or a child care center?
6. In which forms should we transfer our wealth? How much should be gifted annually, how much at death (testamentary) and how much via asset freeze techniques (GRATs, Charitable Lead Trusts, etc.)?
7. As a component of, or an extension to, its philanthropic strategy, would the family consider challenge grants to family members who pursue lower-paying professions in the social and human service fields? For example, would it match a dollar of earnings up to some defined threshold such as $100,000? Alternatively, would it also consider an accelerated match of two-to-one up to a similar threshold?
8. What is the purpose of the family trusts and what is the role of the trustees? How can we make family members responsible beneficiaries? What education and on-going communications will be necessary?

Investment Governance and Risk Taking

1. What will be the decision-making process for investing family trust and/or partnership assets?
2. What advisory network will be needed to manage the wealth, and how will the costs be monitored?
3. Is there a minimum return needed to sustain the family wealth beyond its spending policy and taxes?
4. What is the family's investment risk profile? How does it visualize the distribution among the various risk pools such as liquidity and safety, business assets, real properties, financial market securities and hedge funds?
5. If the family business is sold or partially monetized, how will the family approach investing in illiquid versus liquid, marketable assets?
6. Should the business be sold for stock, what will the family's position be regarding a significant equity concentration in a public security?
7. To what extent will the family encourage individual risk-taking and in what forms? Will the family be willing to fund investments or the new business ventures of individual members with family trust assets, either in the form of direct capital or loans? What will be the rules, and will there be limits per family member?
8. Should the family encourage collective investing such as pooling funds to purchase real estate or structured entities for co-investing?
9. What is the family's attitude toward debt, distinguishing between lifestyle and investing? Moreover, should the family leverage the family's balance sheet to grow the family enterprise?
10. How important is technology and financial reporting and does the family encourage some investment into it?

The Family's Advisors

1. What external advisors are essential to support the family's governance structure?
2. How do we distinguish among product and service, tactical and strategic advisors?
3. Collectively, what disciplines and skill sets does the family need to cover to run the family enterprise?
4. When engaging advisors, what due diligence is prudent, such as evaluating the skills of the people, their processes, operating philosophy, services offered and pricing?
5. Should we have succession plans for key advisors and/or maintain adequate bench strength?

Business Continuity

1. Do we wish to maintain the family business for many more years, or are we willing to consider a near-term sale at the right price?
2. What is the plan for family members entering or joining the business? What are the rules for employing family members in the business?
3. How do we prepare family members not employed in the business to become effective directors or shareholders
4. What is our policy toward having outside directors and senior managers? How do we attract top talent to fill those roles?
5. What are the appropriate redemption and dividend policies — especially for family shareholders who do not work in the business?