Every family has long-term wealth preservation as a goal on some level.
Yes. And it is a matter of biology as well as sociology. Human beings do, on some primal level, hope to advance their genes into the next generation.

In terms of sociology, we sense that family has a continuity that reflects our own values and systems. All families begin with an affinity between two people. And when that affinity creates children, there is a deep abiding feeling between the parents that their initial affinity will continue through those children and hopefully on into the future.

Essentially I believe this long-term process is driven by a desire on the part of the family to develop its own intellectual capital, with financial capital being a tool with which it is grown. There is also the desire to maintain money, but families whose only desire is to maintain money do not make long-term goals because they fail to appreciate the two more important capitals: human and intellectual.

Historically most families have been unsuccessful at preserving what they have built.
That is true. The universal cultural proverb that says "shirtsleeves to shirt sleeves in three generations," is as old as writing itself. And when I say universal, I mean that it appears in every culture I have studied. Clogs to clogs, kimono to kimono, rice paddy to rice paddy, shirtsleeves to shirt sleeves. And it is a proverb that describes human behavior in terms of creating long-term families as failure.

The theory of the proverb is that the first generation starts off in a rice paddy, meaning two people with an affinity for one another come together and create a financial fortune. They usually do it without making significant changes to their values, customs or lifestyle. The second generation moves to the city, puts on beautiful clothes, joins the opera board, runs big organizations, and the fortune plateaus. The third generation, with no experience of work, consumes the financial fortune, and the fourth generation goes back in the rice paddy. This is the classic formulation of the shirtsleeves proverb, which is as true today as it has been throughout evolved human history.

By and large, inheritors of wealth have no appreciation of what is required to build it.
Yes. That is true in two senses. First, while many programs are available to teach second and later generations how to be great managers, there are no programs to teach them how to be great owners. Long-term wealth preservation is a question of ownership, not management. It is a series of long-term strategic decisions, which then link in short-term tactical decisions. Ownership is about strategic issues, and management is about tactical ones.

Second, families with financial wealth, particularly in America, create a plethora of complex structures, including trusts, family limited partnerships, LLCs, LLPs, family corporations and family philanthropies. Traditionally, there have been no programs to teach subsequent generations the skills and practices to manage these structures and relationships. As a result, structures that are created by excellent consultants become weakened by subsequent family members who lack the skills necessary to make them work. Instead of being useful, they become entropic energy drainers, because no one knows how to make them work.

But the greater problem that plagues wealthy families is a failure to create an intellectual community within the family that is based on learning, sharing the learning, and then making the learning useful to the whole family. Parents must grow thriving human beings who are intellectually curious creatures, people who are pursuing individual journeys of happiness, so that the management of the financial capital falls to interesting, competent, creative people. So, the greater dysfunction—let us call it entropy—that can bring a family down is the inability to grow great human beings.

In order to cultivate their independence and initiative, second- and third-generation family members should not be informed of their inheritance until they are well established in careers.
I disagree because of the issue of keeping secrets. A family may hold certain information as confidential, recognizing age-specific abilities to handle information. However, I have never seen a case where a family could keep the secret of significant financial capital from their children. But, in trying to do so, huge creative time can be wasted as the children spend their time trying to discover the "secret." This process results in time wasted in the family’s development. In the end, the discovery of the secret is a huge drain on the family’s human and intellectual capital.

Secondly, the career and opportunity development of the younger members of the family is best when they are encouraged to explore as many possibilities for work as they can. And I mean work with a capital W—Work as a calling. If we indicate that we have no resources to permit a child to become a world-class ski racer or an excellent violinist, everybody is lying to everybody. Instead of the family being a bank with assets that are available to be lent or granted to grow a family’s human and intellectual capital, those assets are hidden away and not made useful.

At the end of the movie, Hello Dolly, Dolly Levy is trying to decide whether to marry Mr. Vandergelder. She keeps asking her deceased husband to send a sign as to whether she should marry her suitor. Finally, Mr. Vandergelder said, "You know, Dolly, money is like fertilizer. It’s only good if it’s spread around." And Dolly says, "Oh, good. That’s what Mr. Levy said, so I can marry you." I paraphrased it, but the point is that all the great families I have studied operate without keeping their wealth a secret from their children. They operate on the principal that capital should be available to grow and meet the interests of the next generations. And they do quite well.

In most families there is rarely more than one true wealth creator.
Ah, that is a wonderful statement. Here we have a very interesting dichotomy. If we define the wealth creator as a financial wealth creator, then, yes, there is usually just one. But if we read the term "wealth" to include the creation of human and intellectual capital—the values that grow a person who can pursue happiness and be useful—then the answer is no.

In his biography of John Adams, David McCullough quotes Adams as saying, and I paraphrase, that he had to study war and politics (he being, for the moment, the wealth creator) so that his sons (in 18th- century terms) could study navigation and agriculture and useful business skills, so that in turn his grandsons could study sculpture and music and painting.
In a number of the world’s cultural groups (the Jewish culture being perhaps the most well known, although it is also true in Chinese culture), the role of the person creating the financial wealth is to provide a means for the next generation to be even more useful. In these cases, the persons creating the wealth perceives the growth of wealth in terms of enabling their children to follow skills and careers that will be not only more beneficial to themselves, but also more beneficial to the societies of which they are a part.

So in answer to the question of whether most families have only one financial wealth creator, it may be true, because wealth creation is a calling. It is what that person came into this life to do. But if financial wealth is not the only important wealth that is being created, then we fail to appreciate the multiple profound callings people can have in terms of their human development and their ability to be useful within the larger society.

Look at the Rockefellers. In the second generation, John D. Rockefeller Jr. not only maintained the great fortune that his father left him, but expanded it and further created, through his interests in philanthropy, enormous wealth for society as a whole. What would New York City be without the Rockefeller gifts? Would Los Angeles be the city it is today without the gifts from J. Paul Getty and Walt Disney? We have to ask, what is true wealth creation? And I believe it is a question of creativity.

The key to the preservation of wealth is the careful and conservative stewardship of financial capital.
Again, I will say yes; that is true in relation to financial capital. Success in the second and future generations, where the fortune is not being created de facto, but being grown by people who inherit it, is a matter of careful stewardship.

I would add, however, in keeping with my theme, that the true stewardship of wealth is the growth of each generation, which includes those who are members of the family of affinity, or who join it by birth or marriage, or by invitation, at later stages. The critical stewarding is the growth of this human and intellectual capital as the generations unfold. The family stewardship of financial capital toward the growth of these human beings is the true act of stewardship. Why? Because it produces more and more people who are useful to the family and useful to the society of which they are a part.

What makes a great family in cultural anthropological terms? My definition of a great family is one that reaches the fifth generation in good shape and goes on from there. In cultural anthropology, in the third generation you pass from family to clan. Around the fifth or the sixth generation, you become a tribe. The most successful families that we can study are thousand-year-old tribes. And they are all families of affinity—two people who got together years and years and years ago, created children and passed though them a set of values and ideas that caused future generations of their family to be highly attractive to other people joining them. Financial stewardship is important, but what is more important to long-term family success is a group of people who are interested in the human development of each of its members, which is what I call its human and intellectual capital. So stewardship needs to be broader than just the stewardship of financial wealth. It really needs to be a stewardship model from the second generation on that seeks to attract wonderful, additional human and intellectual capital into the family, so that you make that fifth generation and go on from there.

Most families tend to regard preservation of wealth in terms of transfer to a single generation.
No. The Chinese model is that the grandparents and grandchildren are the natural enemies of the children. And therefore the question is about transferring to grandchildren on the assumption that the children have had the benefit and use of substantial wealth during their lifetimes.

There is a very important distinction between transfers and gifts. Transfers are high risk to the recipient, because they do not carry with them any real love and joy from the person making the transfer. I am convinced that most of the problems of entitlement that occur among families of great wealth—and they are legion in this country—are because of transfers, something moving from one person to another, but without any direction or real caring. A transfer is just an obligation of duty.

A gift, on the other hand, by definition has donative intent. Such an action states that I intend with generosity to do something that will benefit the other person. When I act from a place of generosity, I am acting responsibly rather than dutifully. And when we act responsibly, we are saying I will not do harm before I do good with this gift. This is a very, very different human act than the act of a transfer.
 
When families with significant financial capital lose their way, one of the major factors is thoughtlessness as to the consequences to the receivers, which are often negative. This is due to the absence of the conscious act of the donor to give with love and generosity in the hope that the gift will, in fact, improve the quality of the recipients’ lives. This is a very, very important distinction, and one that is lost on many people who make these decisions every year in America. It is a major factor in family entropy (the process of degradation or running down) and a major factor in why families disappear.

With the average life span statistically increasing, preservation of wealth and maintenance of a certain standard of living from one generation to the next will become increasingly challenging, in some cases straining the trusts and other assets of families, especially in the third and fourth generations.
Yes. The demography of life extension is going to have a great impact on this field. If parents are going to live to be 90, and children are going to live to be 100—which is very possible for people being born today—the financial assets will not be transferred until the children are way past the point at which the money could be of use to that second generation. Stewards are going to have to ask, "What is our real responsibility?"

The only antidote to the longevity situation is for the family to adopt the practice of consciously and conscientiously (these are two distinct philosophies, the first being a state of profound wakefulness and the second a state of consistent positive process), looking at each generation as it emerges, and addressing the issues of growing its human and intellectual capital. Without creating highly capable and curious people, the stewardship work will not be able to achieve the growth necessary to meet the new demography. Of course, even that does not guarantee sufficient growth, but you have at least increased the probability of doing so.

A family that wishes to successfully reach and go beyond its third generation and attain its fifth generation and become a great family, must examine each decision for its long-term impact. After all, with the new demography it will take 100 years to find out how successful you were with the third generation, because it takes a hundred years for the third generation to be born and die.

Achieving long-term preservation is a dynamic process, that requires making decisions linked over a very long period of time. And yet I consistently see stewards making short-term decisions, bouncing between managers, bouncing between strategies. While this process may satisfy the steward’s intellectual curiosity, it lessens the long-term probabilities of success. So, first you allocate resources to grow thoughtful, thriving, intelligent human beings in each generation, and then you look at the probabilities of the decisions that you make against that model.

Differences in values and interests between generations represent a significant barrier to long-term preservation of wealth.
Oh, gosh, no. The environment in which the family is managing
its five-generation process is always changing; it is no different than the changing personalities or health circumstances or political views of the human beings that make up the family. Changes in values and views are a reflection of the changes in the social, political, religious and economic environment in which each generation is nurtured.

If we require each of the five generations that I am using as a metaphor for greatness to have exactly the same values and views as the original one, the system would lack the flexibility needed to meet the new challenges of the changing environment.

One has to make a very clear distinction between values, which change with the environment, and virtues, which do not change. Two unchanging virtues are important to long-term family success. The first is the Eastern idea of beauty as harmony rather than as individuality. Now that does not mean that each tile in the mosaic is not individual and beautiful, but all of those tiles must together create the beautiful mosaic. There can be discordant voices, but in the end, everyone must see the beauty of the possibility of reaching the fifth generation with many, many new tiles being added to our mosaic, which becomes a dynamic, almost pulsing, picture.

The second virtue is the truth that each individual human being is more likely to have a journey of personal happiness by having a community of people—the family—who are interested in nurturing his or her journey in return for the growth of the larger community’s success. From an individual’s point of view, each person is seeking to find a community of people who will encourage individual journeys of happiness, and in return we will choose to help theirs, as well. These two virtues are very different from values.

The most talented family members in each generation will naturally emerge as the family leaders.
That is a hard one, but I am going to say yes. And I will say talent must be measured by emotional intelligence in family leadership rather than quantitative intelligence. Talent in family leadership is usually leadership from behind, by consensus-building and by the movement each day of each person’s happiness meter, so to speak. Successful family leadership is, in my experience, rarely out-front leadership. Why? Because when you get into the third generation, you are dealing with first cousins, and the only way you can lead a family in this and later generations is by finding consensus. Talent for family leadership translates, then, to the emergence of leaders with the emotional intelligence to lead such a flat consensus-building organization. 

Oddly enough, people who have a talent for making money are actually not the people who emerge as family leaders. In fact, I will add this point, that in my experience, if a family that owned a business was seeking a trustee from within the family for a later generation, one of the greatest mistakes they could make is to ask the person who will be the chair of the business’s board to also be the trustee of the trust.

Often the gifts that one has for managing an enterprise are very different leadership gifts than those needed to find consensus among a group of equal owners. The metaphor I use is that when children—let us say there are four children in a family—are trying to decide who is going to take the message to Mom and Dad, almost never is it the child in front who has leadership skills. It is almost always another child who actually has emotional intelligence and who the kids trust to go with the message. And that is the person who ought to be the trustee. So, when you think about family leadership, you find that there are different people needed for different tasks.

Philanthropy, though an important part of a family’s social life, does not really contribute to the preservation of wealth.
No. Family philanthropy, that is a family’s employment of its social capital, makes a distinct contribution to the preservation of its wealth by offering to the larger civil society evidence of its usefulness to that society.

Back in the 1870s and 1880s, during the robber baron period of American history, many of the boarding schools in New England, California and Virginia came into being not as places for second- and third-generation family members to go to be secure, but were in fact founded by the great robber baron families as a means of teaching their second- and third-generation members how to be of service to the larger society. Why? Because the very wise men and women of that generation realized that American society was not likely to tolerate people who had lots of money and were not useful to the civil society. They saw philanthropy in terms of educational institutions, hospitals and operas, taking care of the poor—all the different pieces of a civil society. Their children went into the foreign service and the various parts of government. These families saw philanthropy as being tremendously important to their survival, because they could be seen to be providing useful social capital. This is something that is not well known, but it is a fact.

A great deal of excellent philanthropy has a security element to it, securing of the lives and property of the family through its clear demonstration to civil society that it is useful. That’s a misunderstood and mischaracterized aspect of life in America, but a very important one. In terms of family wealth preservation, as requiring the growth of a family’s human and intellectual capital, philanthropy can contribute to the growth of a family’s wealth by offering careers in socially useful enterprises to family members, and through that work, make significant contributions to the larger societies of which they are a part.

I do not think philanthropy is just a social activity. It resonates much deeper, penetrating into the family’s basic secur-ity concerns regarding their usefulness within society, and on to the opportunities for multigenerational growth of the family’s human and intellectual capital in its individual members.

Photograph by Nora Feller