Houston: Family Wealth And Financial Entropy

The numbers also show that roughly one in three businesses pass to the next generation.  Just about 10% of family businesses pass to the grandchildren’s generation.  Still fewer make it to the subsequent generation.  Regardless of the reasons, family money seems to move away from that which created it.  Among wealth advisors, there is a saying: the first generation makes it, the second generation spends it, and the third generation blows it.

Family wealth created through a family business can be a wonderful blessing for a family. The trick is keeping it through the generations. Far too few families make proper plans to keep the family business going between generations. That is where the real work needs to be done.

Only the big family names (think “Rockefeller”) lead us to believe that family wealth is perpetual. In reality, family wealth left unchecked has a tendency to follow the laws of entropy as it devolves into chaos and greater and greater breakdown or division. This phenomenon, along with some constructive advice, is featured in a two-part Forbes article titled “How The Wealthiest Families Make And Lose Their Money.”

The article offers a solid point about the power of solidarity. The family that sticks together stays together, and so it is with the family business and the family wealth. As a whole, the family assets get a single voice, a larger capacity, and even attracts the attention of professional management.  Absent that solidarity, the basic estate laws can effectively and efficiently work to pull apart the assets, the business, and potentially the family’s financial health.

As you read the original article, think about your own family assets. How do you want to pass along your family wealth, whether you have a little or a lot?

For additional information on topics such as estate planning and family business succession in Houston, please visit my website.

Reference: Forbes (February 5, 2014) “How The Wealthiest Families Make And Lose Their Money”