Many super-rich want to perpetuate their fortunes, business interests, stature and family cohesiveness across the generations. The definition we use when working with the super-rich to establish family dynasties is a cohesive economic entity where the perpetuation of family wealth, values and objectives lasts for five or more generations. Both wealth and values are passed down through the generations. For example, having a large pool of money without a shared vision usually results in family members splitting the funds and going their own ways.
“Because they go out generations, there are likely to be multiple family branches that complicate sustaining the dynasty. Therefore, mechanisms must be established to foster family cohesiveness and, preferably, family harmony,” says Homer Smith, founder of Konvergent Wealth Partners and co-author of Making Smart Decisions: How Ultra-Wealth Families Get Superior Wealth Planning Results. “When it comes to facilitating dynastic wealth, the idea is for the family fortune, the advantages of wealth and a shared worldview to reach at least the great-great-grandchildren of the founders. The intent is that although the founders are no longer alive, their legacy in the form of financial, human and social capital continues.”
According to Angelo Robles, founder and CEO of Family Office Masterclass, “Among many wealthy families, single-family offices are seen as instrumental in creating and perpetuating their family dynasties. One core benefit of the single-family office is that it leverages the power of the family’s aggregate wealth. The ability to use the family’s combined wealth gives it a distinct and powerful advantage in several ways, including accessing and negotiating with professionals and other providers to get exceptional services and products very cost-effectively, leveraging the aggregate financial capital of the family to build a larger fortune, and receiving preferential treatment, which usually entails moving to the head of the line.”
Critically, the single-family office can ensure that the family’s values and objectives persist. In dynastic families, the single-family office is a family business intended to be transferred from generation to generation.
A relatively small percentage of successful families thinking of family dynasties build their values and objectives into their single-family offices, further locking them in using legal strategies and structures. This can be very effective in the right circumstances. It can also prove disadvantageous when family members, usually a generation or so out, find the legal strategies and structure unduly constraining. In these situations, family members are known to go to court to eliminate or circumvent the restrictions imposed on them.
It is quite telling that if the family thinks about a dynasty, it is regularly evident in their actions. Family members will likely think through issues and develop action plans that will affect future generations. This is often seen in how the family fortunes are structured and managed. According to Frank Seneco, president of the advanced life insurance planning boutique Seneco Global Advisors, “The ability to create shelf money, which is a pool of funds that will, unless times are desperate, not be touched for at least a generation is common. Often, this shelf money is structured for growth to enhance these funds with a focus on investing in a tax efficient manner.”
What is clear is that more and more of the super-rich are thinking in terms of generations. They are strongly interested in establishing family dynasties. For many of these families, their single-family offices will be the cornerstone of this endeavor.
Russ Alan Prince is the executive director of Private Wealth magazine and chief content officer for High-Net-Worth Genius. He is a strategist for family offices and the ultra-wealthy.