I recently spent some time talking with my colleague Joe Cohen, of HoyleCohen about the lack of basic financial literacy amongst teenagers, college students and beneficiaries under the ages of 30. We concluded that this is an issue on the minds of many of our high net worth clients especially when it comes to advanced estate planning. How could they “give away” their assets today hoping that they would see the fruits of their gifting paying off tomorrow?
Joe uses a technique with his grandchildren around philanthropic giving. Around certain life events and holidays he provides a gift to a donor advised fund and has the grandchildren put it to work. Some struggle and others know exactly what they want to do. It is all in a life’s lesson.
This conversation brought me back to the “Family Bank”, a topic that Jay Hughes wrote about in his book Family Wealth, Keeping it in the Family and the great work that the Heritage Institute is doing with advisors and families in this area.
Our children lack the financial literacy to apply for a home loan, auto loan, credit card, or business loan. Most schools do not teach these basic financial elements. Jay Hughes writes, “It is the creation of the family bank that fosters such and education.”
He goes on to say, “Family banks are useful for providing
- Financial education
- Sense of community
- Character building
- Financial mistake – making in a safe environment
all while increasing the family’s financial, intellectual and human balance sheets through cumulative successes of the individual borrower.”
The Heritage Institute uses a process to encourage the “testing and monitoring” of financial literacy for the next generation of beneficiaries before they are given any gifts or loans. Our colleague, Johnne Syverson of Syverson Strege & Company, uses this process along with the InKnowVision Process in his high net worth client engagements and has had tremendous success engaging the family and helping them to make wise choices in planning decisions.
Thankfully, Jay Hughes provides us with some guidance for setting up a family bank and the Heritage process is excellent in helping to implement it.
- The Family Bank should not be a formal institution as in the corporate sense. Its activities should remain private and create a system of governance so that it meets the unique circumstances of the family that creates it.
- Rules for meetings. It must have officers, directors and if need be advisory boards. Procedures for processing loans.
- Create a Mission Statement explaining its philosophy and reason for being.
- Trusts are potential lenders and borrowers. Trustees should understand and agree to participate in the family bank.
- Concurrence of all family members with the terms of the mission statement.
- All family members who participate are given copies of all loan applications including the intellectual capital portions and omitting the personal data.
The next time you sit down with your high net worth client and suggest that they take advantage of advanced estate planning or the current tax law before it’s to late, think about the value of a family bank. Your leadership could help to strengthen a family’s balance sheet and values and provide badly needed financial education for its participants and benefactors all by encouraging the use of a family bank and a little bit of philanthropy.
Filed under: Advanced Estate Planning | Tagged: Advanced Estate Planning, Business Succession Planning, Family Bank, high net worth, InKnowVision, Legacy Planning | Leave a Comment »