Managing Sibling Wealth Disparity pt. 2

Without common values and mutual respect, siblings may lack a common language to talk about the use and purpose of money.

Part 2 of a 2-part series
by Continuity Managing Partners Doug Baumoel and Blair Trippe

Steps for handling sibling wealth disparity

The starting point for dealing with wealth disparity is having a common understanding of what family means for this generation and developing a shared vision for how to be a family in the future. This shared vision, based on the identification of shared values and expectations, should provide insight into the following questions:

• What does it mean to be a close, multi-branch family?
• How close to or involved with each other do we want to be?
• To what extent should we be able to rely on each other emotionally, financially and socially?
• What is our shared mission as a multi-branch family?
• Do we have one?

How might we each deal with differences in our life-styles, values and behavior? If siblings can answer these questions in ways that are compatible with each other, they will have a strong foundation to manage the challenges of wealth disparity. Beyond identification of a shared vision and commitment to that vision, there are practical steps that can be taken to manage sibling wealth disparity.

1. Try to forge a common understanding of the reasons underlying the wealth disparity as well as the relative financial needs of each sibling. These discussions are likely to touch on issues of respect, entitlement, values congruence, differing perceptions of history and a host of other difficult topics. It is often useful to have a facilitator experienced in family wealth advising to help the siblings, and their branches, find a way to understand and accommodate the inevitable differences among them.
2. Create a shared understanding for (or an agreement to disagree about) how wealth should be used, preserved, borrowed and shared for the purpose of achieving the shared family vision. Find opportunities for purposeful dialogue around these topics. Individual branches may want to first discuss this among themselves in order to clarify their own values concerning wealth. Inter-branch loans should be carefully considered and managed by a third party if possible.
3. Institutionalize decision making regarding items that reflect shared family values and the family mission regarding wealth. For example, if education is a family value, the wealthier siblings might create a shared education fund to benefit the children of the less well-off siblings. Similarly, if entrepreneurism is valued, a family venture fund might be created. These and other similar funds could be defined and their objectives articulated in a family charter. A family council might be created to manage and govern the application of these benefits through succeeding generations. There are many models that families have used to manage shared wealth, such as family foundations and family offices.
4. Parents can help by making their intentions clear and by seeking proper advice concerning their estate plans. So often, the futile search for what is “fair” ends up creating an even more difficult situation for the next generation. Parents should have the courage to tell their children why they have made specific decisions and allow them to share their thoughts. In addition, parents must understand that there is a limit to what they can do to make things “fair.” They must also instill in their children the responsibility to treat each other fairly.
5. Create guidelines for situations like shared vacations, use of shared vacation properties and holiday gift giving. The guidelines should enable each branch to participate in a manner that is affordable and reflects the family’s shared vision.
6. Create standards for wealth preservation, including estate planning, insurance, investment management, inter-branch loans, prenuptial agreement requirements and social behavior (e.g., sobriety, risk taking). Provide access to appropriate professionals for all branches.
7. When a family business lies at the heart of the family wealth, it is important to professionalize the business. Create a proper, independent board and have well-articulated policies governing executive compensation, dividend distribution, family employment and conflict management.
8. Understand that it is not necessarily the wealth disparity that causes conflict; rather, the values, history and behavior related to the wealth are at issue.

A foundation for the future

The adult siblings’ relationship will serve as a model for the next generation (the generation of cousins). An incentive for this work is that it will, hopefully, build a stronger and more cohesive next generation. Working and owning assets together is challenging, but sibling wealth disparity does not have to separate families. Developing a shared understanding and vision for the family, forging a common understanding of the causes of the wealth disparity, understanding both shared and individual values concerning wealth, and developing clearly defined goals and processes go a long way toward managing conflict over generations. If well managed, potential conflicts related to wealth can be opportunities for making the family business more successful and the family stronger.

Article originally published in Family Business Magazine

Read Part One of ‘Managing Sibling Wealth Disparity’ here.