The wise inheritors guide to freedom from wealth making family wealth work for you

Idraw on the experience and wisdom of the more than a century that my family has been working forwealth creators and inheritors, explore some of the solutions to the issues wealth inheri

The Wise Inheritor’s Guide to Freedom from

Wealth Making Family Wealth Work for You

Charles A Lowenhaupt

Copyright © 2018 by Charles A Lowenhaupt

All rights reserved No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, except for the inclusion of brief quotations in a review, without prior permission in writing from the publisher.

Library of Congress Cataloging-in-Publication Data

Names: Lowenhaupt, Charles A., author.

Title: The wise inheritor’s guide to freedom from wealth : making family wealth work for you / Charles A Lowenhaupt.

Description: Santa Barbara : Praeger, [2018]

Identifiers: LCCN 2018015340 (print) | LCCN 2018022827 (ebook) | ISBN 9781440865534 (ebook) | ISBN 9781440865527 (hardcopy : alk paper)

Subjects: LCSH: Inheritance and succession | Wealth | Parent and child | Intergenerational relations.

Classification: LCC HB715 (ebook) | LCC HB715 L68 2018 (print) | DDC 332.024—dc23

LC record available at https://lccn.loc.gov/2018015340

130 Cremona Drive, P.O Box 1911

Santa Barbara, California 93116-1911

www.abc-clio.com

This book is printed on acid-free paper

Manufactured in the United States of America

Preface

Acknowledgments

Introduction

Chapter 1        Putting Money in Its Place

Chapter 2        Trusting Others

Chapter 3        Family Wealth Secrets

Chapter 4        Knowing Yourself

Chapter 5        Saying It Directly

Chapter 6        Helping Love Conquer All

Chapter 7        Confronting Issues of Fairness and Equality

Chapter 8        Engaging in Your Community

Chapter 9        Taking the Long View

Chapter 10      Chasing the Dream

Conclusion

Notes

Index

In my conversations with wealth inheritors, wealth creators, and wealth professionals around theworld, I have found recurring themes that arise regardless of gender, age, nationality, religion, andother factors Concerns about one’s wealth regularly lead to anxiety Questions about the purpose ofwealth and how it should rule personal goals, familial relationships, and general happiness and well-being seem never-ending

In truth, being a wealth inheritor—which can be a very distinct advantage in life—creates avariety of challenges that can be difficult to understand and deal with, none of which engender thesympathy of friends and colleagues It is difficult to discuss these challenges with most people,especially those who have not grown up in similar financial circumstances Conversations withparents, grandparents, and other family members about the unique issues faced with wealth can beeven more uncomfortable and less satisfying Those parents and grandparents are most typically theinitial source of the wealth and discussions that can be misconstrued as complaints may come off as alack of gratitude for being born into a family others would be blessed to be part of Many times, thesetalks come to an end without any productive result

So, where can a person turn for help in dealing with the challenges of inheriting wealth, and wherecan parents turn to help their children handle those challenges?

That’s why I wrote this book—to help wealth inheritors better manage the challenges that comewith the significant wealth they have now or will have in their lifetime My goal is to provide thewealth inheritor the tools and wisdom to manage the inevitable difficulties of wealth and achieve theultimate goal: freedom from the burdens of wealth At the same time, I wanted to give the wealthinheritor’s parents and grandparents an appreciation of the struggles many wealth inheritors arefacing In other words, this book is intended to give the wealth inheritor the understanding andvocabulary to address wealth challenges and the capacity to openly communicate them withunderstanding parents and grandparents

Working through the dilemma faced by the wealth inheritor is a crucial part of his or her growing

up Although volumes have been written about how to “manage wealth” and how to “create familyharmony in multigenerational wealth,” little is written directly for the wealth inheritor The wealthindustry is fed by revenue paid by wealth owners Too often, the purpose of “next generationeducation” is the transmission of values and standards encouraged by the older generation

As a third generation financial advisor, I, along with my family, have observed and helped wealthcreators and inheritors for over 100 years In that time, we have seen many complex personal andfamily issues arise and, more often than not, we have seen wealth lead to unhappiness, misery, familydysfunction, and addiction Nobody believes that wealth should be poison, but few people actually

have the knowledge and experience to figure out the purpose of wealth and set it on its course.

In my first book, Freedom from Wealth , I presented the thesis that self-actualization should be the

true goal for anyone, with or without wealth I explained that wealthy individuals must start their lifejourney of finding harmony with wealth by figuring out what the wealth is for I then examined thevarious elements of “wealth management”—from investment process to governance, analytics tophilanthropy, and from socially responsive investing to “next generation” education My goal was,and remains, to help individuals and families understand what wealth is intended to do and ensurethat wealth is always kept in its place Wealth should never consume or imprison the wealth holder

If you want to test where you are—in or out of that prison—you might start by asking yourselfthese questions:

Do you feel that you have your wealth under control?

Is your wealth a source of happiness or anxiety?

Is your wealth supporting your personal goals and helping you become the person you have always aspired to be?

Are you and your family closer or further apart due to your wealth?

Do you sometimes wish you didn’t have your wealth?

As I have traveled around the world speaking about freedom from wealth, it’s clear that manywealth creators and inheritors have not achieved a state of balance and self-actualization Somerecognize their unhappiness but don’t know what to do about it Others claim that they will start tochase their dreams, but if these are older generation folks, it may be hard for them to learn new tricks.Those who come to me with the most enthusiasm about freedom from wealth, however, are generallyyounger wealthy people Some of them are creating wealth and are aligning their lifestyle andattitudes to reach their goals Others are wealth inheritors or children of wealth waiting for theinheritance Many are struggling with individuality and freedom and feel enslaved by theircircumstances

These wealth inheritors find themselves restrained in a number of ways They find it hard tounderstand how money and life intersect They have difficulty trusting others They often feeloverwhelmed by the family’s wealth and its mysteries and their own lack of self-awareness Theyhave difficulty “fitting into” family and community They need help taking the long view, figuring outtheir goals in life and then marshaling wealth in order to chase their dreams

As I meet with wealth inheritors, I often hear deep unhappiness I have spent time listening toimpassioned pleas from wealth inheritors and their anguished descriptions of their situations I haveheard tearful complaints about the pain their family is causing or the stifling control over their livesthat is destroying their quality of life Many complain that money is the problem, not the facilitator ofambition and dreams that most people would assume The visits are poignant and emotional Theseinheritors may have wealth and health, but they are desperate for happiness and self-actualization

I have written this book for those of you trying to live life to its fullest with a wealth inheritance inhand or on its way I want to share the wisdom I have been able to glean from knowing many peoplelike you—in youth and in old age—as I’ve watched some families allow children to prosper andothers keep them from becoming what they want I know how difficult parents and legacy can be, but Ialso know that a wealth inheritor able to recognize challenges and meet them, often alone, can soarand live a life fully satisfied

Whatever wisdom I have found and shared to help inheritors gain freedom from wealth comes fromexperience, observation, patience, and, most important, the examples, teaching, support, andcollaboration of others Although it would be impossible to list all the people who have served asmodels, teachers, supporters, and collaborators, let me mention a few

Abraham Lowenhaupt, my grandfather, and Henry Lowenhaupt, my father, opened the road to myexperience Each in his way supported and taught me, my grandfather through his writing and myfather through our partnership over many years Both introduced me to ways of thinking and observingand counseling that I draw on daily

My partners at Lowenhaupt Global Advisors and Lowenhaupt & Chasnoff have been trulysupportive and great collaborators in helping our clients become all they can become

Our clients have willingly opened their hearts and minds, trusting us to help them overcomeobstacles to their becoming all they can become

Many great minds have helped me develop my own worldview Their inspiration and influenceenrich my perspective each day and have informed and animated this book Most are quoted in thisvolume, but others might include Michael Hutchinson, Tim Barron, Lee Thistlethwaite, RobertMcCuaig, and Charlotte Beyer

Ideas and advice are worthless without clear articulation and publication I have been extremelyfortunate to have the assistance of Greg Berardi over many years and through many thoughts; ZachGajewski, who has served as my editorial advisor for both of my books; my wife, Rosalyn, who hasread the manuscript carefully and made fine suggestions; and Maryann Karinch, who helped place thebook, and the excellent team at Praeger

Whenever I write about family, I count myself particularly blessed by my own: my parents, mywife, my daughters, their husbands, and their children You will find places in the book where Imention their teaching and my experiences with them Their support and love give me the freedom toexperience, observe, strive for patience, and learn from others

Some 20 years ago, I moderated one of the first sessions for wealth inheritors offered by a preeminentglobal membership network for families of substantial wealth The group offers programs, advice,and educational services in a private, collaborative setting, to help people of all ages understand,wisely invest, and build a healthy relationship with their wealth Fifteen people between the ages of

21 and 30 attended the event They were given the task of choosing a topic of conversation related towealth inheritance, and then I was to lead and guide the discussion

Although I’d given many talks and led countless discussions in my then 25 years as a wealthadvisor to ultrahigh net worth families around the globe, what happened in that room gave me newinsights into the challenges faced by wealth inheritors The experiences of these 15 people taught methat growing up with wealth is not easy

I looked to one young man to get the ball rolling, and, without hesitation, he said, “It is muchharder to grow up rich than poor.”

I bit my tongue and decided to let that comment roll for a while The theme went around the room.One person after the other talked about the difficulties he had had growing up with wealth Here are afew of the comments I heard that day:

“I had a friend from school to my house to spend the night He arrived and saw the size of my house, all the rooms we had, and our maids, and his eyes widened From that day on, I knew that the only reason he wanted to be my friend was that he thought it was neat our family had so much money.”

“My grandfather lived with us and had a chauffeur and a Rolls-Royce Whenever my friends came over, I was embarrassed because

we had so much money So I really never invited anyone to my house That made it easier.”

“I wanted to sign up for a soccer team with some of my friends from school The club met on Saturday morning and my father told me that our bank was going to have classes for me and others in how to manage money I was only 14 and didn’t really care about managing money, but my father told me learning how to manage my money was more important than playing soccer.”

“My parents put me through this charade of pretending we were poor When I was 10 or 11, I had to get a $10 weekly allowance and had to budget how to spend it and how much to give to charity My parents told me I had to be frugal and try to save for college Meanwhile, they had their own private plane and we had a household staff of five or six My father had a chauffeur take him to Wall Street every day It all seemed like nonsense to me as I knew we were what the world called ‘rich.’ ”

“My parents had so much money that they traveled all the time and never stayed home with my sister and me Flying here and there and the next place on their own plane, we were cared for by nannies and others What kind of home life was that?”

“ ‘You will always have whatever you need or want,’ said my grandfather to me when I was 15 ‘Someday, all of the money I have earned will be yours and all you have to do is keep it well invested and not lose it to the crooks out there always looking for rich people

to bilk.’ When I told him I wanted to go to engineering school and become a computer engineer, he told me: ‘No need! You will go to Princeton as I did and you can hire other people to fix your computer.’ He never understood.”

After a half hour of hearing their complaints and their unhappiness, I asked whether a person from

a lower-income background would understand that growing up “rich” is more difficult than growing

up “poor.” “Maybe not,” said one, “but they would never understand.” We discussed the idea withoutconclusion, but I saw an obvious pattern emerging.

Those 15 confirmed everything most adults suspect about young people: Adolescents can betremendously unhappy, and when they are, they look to someone to blame Who else to denouncebesides their parents? More importantly, they confirmed a fundamental truth I had not completelyunderstood before that session Although most every young person, regardless of their socioeconomicbackground, has experienced similar feelings toward their parents or upbringing, the difference forthose who have grown up in a seeming “lap of luxury” is that they face a serious issue that manypeople aren’t willing to talk about: they are trapped by the burdens of wealth

Growing up in families of $100 million or $250 million or $500 million or more presents formany this fundamental issue: How can a wealth inheritor lead a life unencumbered by the burdens offamily wealth? How can individuals achieve self-actualization and a feeling of fulfillment? In otherwords, how can they grow up to become fully realized individuals, seeing their wealth not as animpediment, nor a crutch, but as something that might help them succeed?

It was clear that the young people in that room were raised by parents and grandparents whosewealth was the defining character of their personal identities As they grew up, those young peoplelived in the shadow of their parents and their parents’ wealth When looking for the reason foradolescent unhappiness, they pointed to their wealth They lacked the perspective that can come withindependence over time They needed experience they could only gain as productive people making

their own way through the world with direction and freedom.

When we’re young, perspective is often absent When I was teaching English at an elite Easternboarding school, many years ago, I tutored the teenaged son of a wealthy and prominent name in allthe social circles He was a likeable boy, but very lazy I spent hours trying to teach him how to writewith proper punctuation and grammar One day, in frustration, I said: “You just have to learn how towrite; you cannot grow up without that ability!”

“Mr Lowenhaupt,” he replied, “You and I both know that all I have to know how to write is myname on a check.” That stopped me in my tracks A successful life is much more than simply signingchecks, a fact that young man learned over time as he became a Phi Beta graduate of a good collegeand went on to a successful career, entirely on his own

As stated in a March 6, 2015, article for Reuters, “Baby boomers will leave more than an

estimated $30 trillion to younger generations over the next 30 years.”1 With such a large amount ofmoney comes an even larger amount of responsibility, but “wealth alone” should not define aperson’s life (even if it defines the life of one’s parent) If you grow up with wealth, if you are awealth inheritor, if you are one of those inheriting a piece of that $30 trillion, how do you get on withlife?

So how do you chase the American Dream or the Chinese, Indian, or Australian Dream, the dream

of the human soul to become all you can be? You start by figuring out what that wealth is for; youconsider that you want to live in a world of peace, beauty, and health; you consider community Tosucceed and become one’s true self, it’s imperative to create a healthy relationship with wealth at ayoung age and continue that relationship until it’s time to pass that wealth, and knowledge, onto thenext generation

At the heart of the many challenges wealth inheritors face is the ability to take control of their ownlives Control always requires two sides: the person exercising control and the person being

controlled Many times, this struggle exists between parents and their children In this book, you willfind many stories of people who break that dynamic in one way or another, but one that I want toshare with you at the outset is that of an only child who was born into the wealthiest family inMalaysia His father used family wealth to try to control his son’s actions and decisions, leaving theson miserable and unfulfilled When he was in his early twenties, however, the son found a highercalling, joined a Buddhist monastery, and took a vow of poverty This, of course, infuriated the father,but gave the son independence that led to happiness and contentment Unless you can develop suchindependence, you will never experience true freedom.

In the chapters that follow, I identify 10 specific challenges facing young, wealthy people today Idraw on the experience and wisdom of the more than a century that my family has been working forwealth creators and inheritors, explore some of the solutions to the issues wealth inheritors face, anddiscover the many opportunities they have to lead inspired lives of self-actualization and freedom.When you finish this book, I hope you will be motivated to pursue a life of self-actualization withfreedom from wealth, and you will be committed to helping your children and grandchildren chasetheir dreams Whether you are an inheritor of wealth or the parent of an inheritor, I hope you willhave the wisdom and capabilities to have a healthy relationship with your wealth and your family I

am here to help you

Now, let’s begin!

CHAPTER ONE

Putting Money in Its Place

A self-made, Wall Street billionaire investment banker was on vacation at a Mexican resort There hesaw a fisherman docking and removing his fish at lunchtime “Will you go out again after lunch?”asked the billionaire

“No,” said the fisherman “I go home for lunch with my family and have a bottle of wine In theafternoon, I rest and then play with my children on the beach Tomorrow morning is plenty of time formore fishing.”

The billionaire then explained that the fisherman could go out in the afternoon and double his take

“With the money from two harvests of fish, you can buy a second boat.”

“Then what?” asked the fisherman

“Then you can send both boats out twice a day and soon you will have a fleet.”

“Then what?” asked the fisherman

“Then you can open wholesale operations in San Diego and sell to all the restaurants there.”

“Then what?” asked the fisherman

“You can sell your business for hundreds of millions of dollars.”

“Then what?” asked the fisherman

“Then you can retire in a small fishing village and spend your mornings catching fish for fun, gohome for lunch with your family, have a bottle of wine, rest, and then play with your children!”

This wonderful story gets straight to the heart of money and its true worth This fisherman, who

leads a simple life, figured out that money is there to serve his purposes, which, to him, are really the

hours to spend and enjoy with his family He controls his life—money does not

Too often, children of wealth, as well as the wealth creators themselves (i.e., parents or

grandparents), don’t consider the purpose for their wealth They do not ask and answer the first

question they should consider: What is my wealth for? Instead, they let money—its creation andpreservation—become all consuming and all encompassing: Wealth owns them The result is a

“burden of significant wealth.”

The fisherman, however, doesn’t suffer from such a burden He keeps asking “then what” to showwhy he is content to live with less, but in a comfortable and satisfying way—something the billionairejust can’t fathom The billionaire doesn’t understand that the foundation of the fisherman’s happiness

is not a storehouse of wealth—that the fisherman would rather catch fish than chase wealth Themoral of this story is that money must be put in its place The end goal for the fisherman—relaxingand spending time with his family—does not require money The fisherman would conclude that the

very stages of creating great wealth keeps that from happening This concept, although a seeminglysimple one, can often be overlooked by wealth holders.

Putting money in its place means deciding what role money—your wealth—should play in youroverall life You need to start by looking at what money can, and cannot, do for you You need tomake sure money is providing comfort rather than discomfort and that it is not controlling you orbeing used to control you It is necessary to decide how you will achieve the freedom to be all youcan be, and how your wealth plays a role in that process

Figuring out how your wealth can help you lead the kind of life you want requires personalreflection and consideration Ultimately, you will have to find your own road There may be modelsand stories, some in your own family, but your life needs to be entirely yours Just like the 15 wealthinheritors in the Introduction, every wealth inheritor is raised by parents, and others, whose modelsand advice are formative throughout different stages of life Looking at your parents, where theirwealth came from, and how they view the relationship of their wealth to you, will help you buildperspective as you analyze what you want out of your wealth and out of your life

There are five distinct profiles of parents who have wealth, either created by them or inherited.Looking at how each relates to that wealth and how each might raise children can help you put theirexperience and your wealth into perspective

Wealth toilers are those who have lived through the sweat and tears of creating fortunes They have experienced some level of

insecurity and hardship and want to leave their children the fruits of their labors and their experience.

Accidental wealth holders are those who came into wealth by chance, either by pursuing a passion that made them wealthy, or,

rarer, by investing in a friend’s business that led to financial success.

Wealth stewards are the inheritors who were raised to believe that their responsibility was to ensure that future generations would

inherit the “family” wealth.

Wealth spoilers are those parents who have accumulated or inherited wealth but have decided to spend their money on themselves

or give it away to someone, or some institution, rather than to their children, grandchildren, or other family members.

Wealth masters are the parents or other wealth creators who understood how to put money in its place and have raised their children

and grandchildren with the same knowledge and values.

Take a moment to examine if your parents match any of the specific profiles above or somecombination of them Do they sound familiar? How do they differ from your parents or grandparents?How do you think the frame of reference they provided for you may have influenced your life andrelationship with wealth? Keep these questions in mind as we take a look at all five categories,starting with the wealth toilers

Wealth Toilers

Wealth toilers cannot take financial security for granted, starting in a position where they have tobuild their wealth from the ground up For them, the creation of wealth is a goal in itself, and oncethey’ve reached this goal, they retrospectively value the experiences that helped them attain it Theywant their children to have a similar experience, to develop an understanding of the insecurity andhard work they faced by bootstrapping themselves to their current status

Wealth toilers are likely to feel torn between using money as an incentive—possibly a tool tocreate insecurity—and simply as a way to allow their children to live a life of comfort They may useallowances to “teach” their children to save what they can, or they may state that unless their children

are earning a “living,” they should not have access to the spoils—that is, they cannot have any trustincome It’s easy for wealth toilers to tell stories of how hard they worked to support their family and

to remind their children how lucky they are to have such money and wealth

Some very interesting wealth toilers are refugees, whether from the Holocaust, South Africa, India,

or China They have generally suffered and left their home countries, often without wealth and theemotional support of family They have seen a world their own children cannot imagine, butfundamentally, they believe that their children should understand their migrant parents’ experience

I once met an older refugee who, when he was much younger, escaped from the Holocaust inGermany through the forests of Russia From there, he traveled to China and then on to Canada beforesettling in the United States Over time in the United States, he built a global business withmanufacturing throughout Asia and retail stores both there and in North America His fundamentalbelief was that money would give him the freedom to live wherever he could in peace, regardless ofthe world’s hostility So he had money and real estate invested everywhere, diversifying geography,asset class, and management Even in his nineties, he traveled constantly to oversee and check hisglobal empire He trusted no one and prepared always for another Holocaust

He raised his two children in the United States, sending them to private schools and good colleges

As they settled with spouses and children, he demanded that they devote themselves, and ultimatelytheir children, to helping him manage the family money while living lives in which they were alwaysprepared to flee the United States The demands and the expectations he imposed made his childrenmiserable and, ultimately, they became estranged from him They were unwilling to live his life andunwilling to expect their own children to live his life As he became less and less capable ofmanaging the complexity of his business and wealth, they refused to help him He was unhappy Theynever understood why they should live a life of fear, insecurity, and distrust

That wealth toiler was stuck Although he could answer the question what his wealth was for—security—he could not answer that question in a way that was going to transcend his own refugeeexperience He could not make his reasoning and purposes relevant for his children or grandchildren.His story is repeated over and over in refugee families around the world Holocaust survivors live inthe United States, Canada, Australia, the United Kingdom, and Latin America, but wherever they are,they are likely trying to enforce their own insecurities and experiences on their children

Perhaps the refugee is ahead of many wealth toilers Many cannot answer the question what theirwealth is for Without an answer, they use money as a tool to raise their children An older wealthtoiler once said to me: “Let us get to the nitty gritty At the end of the day, if I love my children, I givethem money, so, really money is love and love is money.” He was only half joking These wealthtoilers have not put money in its place Their children cannot look to them for guidance

Accidental Wealth Holders

Accidental wealth holders often look like wealth toilers The difference, however, is that they

never said to themselves that they had to make money Instead, they pursued their particular passion

and, in doing so, became wealthy In fact, surprisingly few very wealthy creators are pure wealthtoilers, and most of the wealth toilers I have met really started by pursuing passions or visions whichresulted in great wealth, almost incidentally

Artists and entertainers frequently become very wealthy pursuing their passions The singer,songwriter, and musician Sting, formerly of The Police, is a great example of an accidental wealth

holder He gave a revealing interview in the Daily Mail, in June 2014,1 in which he talked about hiscareer, his life, and his money He said he was pursuing “his dream.” If you had asked the youngmusician why he took that career path, he would have told you, “Because I have to be a musician.”His wealth came with that pursuit but was not the cause of the pursuit.

In that interview, Sting discussed his philosophy about passing wealth to his children—he plans togive them nothing As he told the interviewer, “I certainly don’t want to leave them trust funds that arealbatrosses round their necks … They have to work All my kids know that and they rarely ask me foranything, which I really respect and appreciate.”

Sting’s commercial success made him wealthy He, or someone in a similar position, could lookback at his life and retrospectively consider himself a wealth toiler (in fact, in that interview, hepoints to an early fancy he had to be rich like the Queen Mother) Of course, it took him just as muchhard work, persistence, and effort as many wealth creators in search of money alone In castinghimself in such a light, he may face the same predicament in dealing with his children orgrandchildren as the wealth toilers do In reality, money is merely incidental to passion for suchaccidental wealth holders, but they may end up deciding that making money was the primary reasonthey developed this passion

This point is an important one to stress: If you come from a wealthy family where you see yourparents as either wealth toilers or accidental wealth holders, consider what place money had in theirinitial pursuit of their passion Maybe you see them as wealth toilers now, but they could haveoriginally been accidental wealth holders Either way, keep in mind that without pursuing your owninterests (or passions), you will never fully understand yourself, nor have a positive relationship withwealth, and you will never be able to put money in its place Money can, of course, help in pursuit ofyour personal goals and passions, but is not necessarily imperative

Another type of accidental wealth holder is the kind of person who may have invested in a friend’s

or associate’s company, without realizing it would result in massive financial success For example, Ionce had a new client tell me that he had put several hundred thousand dollars in a friend’s business

in the early 1980s At the time, they weren’t sure how it would all pan out, so he moved along to otherventures He led a life with enough money for his own needs, but by no means would he have beenconsidered “rich.”

When he came to see me, however, his interest in his friend’s business was about to be liquidatedfor $800 million He came with his 25-year-old son, who was himself in the financial servicesindustry

“I am here to save taxes,” said the father

I told him I understood and we could help him save taxes “But first, before you tell me what you

don’t want your money used for—taxes—tell me what you do want it used for What is your wealth

for?” I asked

He looked at me and said, “What are my choices?” I thought that was a good question, but his sonsquirmed and looked embarrassed by the whole conversation It was clear that neither of them hadever considered the purposes for their wealth

More often than not, the accidental wealth holder, whether a musician like Sting or the man whoinvested in a friend’s business, has never answered the question: “What is my wealth for?” Withoutknowing the answer, it’s impossible to put money in its place And as it is difficult for that accidentalwealth holder to answer the question for himself, it is even harder to try to help a child answer it

That is why the son reacted with discomfort to the question.

Wealth Stewards

By contrast, the wealth steward is likely to have put money in a place, but it may not be a very

satisfying one Wealth stewards spend their lives preserving the family’s financial assets, socialassets, and legacy, but they are not called on to create these things Indeed, rather than pursuingdreams, they bottle and pass on the dreams of others

A wealth steward parent may well try to impose a terrible burden on their children, or other familymembers, to do the same thing The wealth steward will spend time managing investments, monitoringtrusts, and caring for everyone financially, and they often assume that when they are gone, a childshould take on that role Wealth stewards’ children may, therefore, end up seeing money as its owngoal, thinking that preserving the wealth is “what it is for.” In fact, wealth is not for preservation; it ispreserved only so it can be utilized in some positive way

If the wealth creator is a passionate “collector,” chasing dreams and collecting satisfaction ormoney, the wealth steward is indeed the “curator” of that wealth, building its inventory, managing itsrisks, and keeping it nicely polished The wealth steward sees that role as fundamental, but how manychildren will actually have the passion to play that role?

One of the most illustrative stories about a wealth steward I know is in regard to the son of awealth creator, an early-20th-century baron of industry The son worked with his father in the familybusiness The business was as successful as any in its community and, when the son was in his earlyforties, his father decided the time had come to sell it The fortune paid was huge and the father toldhis son that it was now his turn to manage the family wealth for the benefit of himself, his father, hismother, sister, children, nieces, nephews, and all future generations The father looked to the son totake care of those individuals, all untutored in business and some with various difficulties of healthand functionality

The father died and, over the next 50 years, the son cared for everyone He served as trustee ofvarious family trusts, attended meetings with investment counselors, paid bills, dealt with medicalemergencies, and served as counselor to all of his children and nieces and nephews as they grew up

He performed his role well but, as they aged, five of his children moved away, both geographicallyand emotionally None had substantial careers and many had financial needs always ready to be met.His niece married a businessman who felt he could manage the family money much better than hiswife’s uncle, particularly after that businessman retired at age 50 And soon, he and others in thefamily were squabbling about how to handle various trusts and accounts

This family wealth steward lived through it all He actively began seeking charitable boardpositions and engagement in community, which gave him some satisfaction, although left the familycomplaining that he was pursuing his own interests using their money and the support of his “familyoffice”—a support system to help invest and manage the family’s wealth As he aged and began toshow signs of dementia, the family fell further into anger and disarray until finally, without anysensitivity to his feelings or any sentimentality for his years of service, they took away histrusteeships, his family office, and his self-respect through a series of legal proceedings leaving himconfused and unhappy “We had to take these actions to preserve the family money,” said one of them

For that steward, the role proved not particularly satisfying In fact, it was tragic For his childrenand other beneficiaries, he represented the principle that preservation of wealth was for its own

purpose They felt preservation was more important than any personal consideration Clearly,although he may have tried, he did not help any of them put money in its place.

This is not to say that wealth stewards all fail to teach their children how to put wealth in its place.Wealth stewards are regularly of great value to their community due to their caring natures and theircapacity to help community institutions preserve their wealth To ensure that the family wealth willallow the family to live in a community of peace, beauty, and health, along with a legacy tying them tothat community, the family wealth steward can take on civic causes and engagement The beststewards of wealth care about community—which goes well beyond family and money Theyvolunteer their time, advice, and resources; give financial support to important philanthropic causes;and serve primary functions in their towns, neighborhoods, cities, or states By doing so, they canshow their children and grandchildren what wealth is for and help them understand how to contribute

to the world around them We wish that more wealth stewards could lead their children that way

Wealth Spoilers

Children who have wealth spoilers as parents may have the easiest time of all putting money in its

place, but they may also have the most difficult time putting their parents in their place There is a

currency to the concept that inheritance is bad for children Warren Buffett’s famous quote is repeatedover and over: The perfect amount to leave children is “enough money so that they feel they can doanything but not so much that they could do nothing.”2 I hear many wealth holders quoting this in theUnited States, China, Europe, and everywhere else Making this statement to friends and colleaguessounds good, but in my experience, it is actually more “cocktail talk” than truth

There are many self-proclaimed wealth spoilers out there, but even fewer true spoilers There arereasons it is tough to be a wealth spoiler If you are rich enough, spending it all during your lifetimemay be impossible no matter how hard you try It is difficult to figure out what to do with wealth ifyou don’t give it to your children and grandchildren As much as you may want to keep the moneyaway from your children, it is hard to find a charity you can completely trust

The self-proclaimed spoiler may well be seen by their children and grandchildren as using wealth

to manipulate others Heirs are often left feeling that if they can please the spoiler they will berewarded for their behavior They may believe that the spoiler is spoiling because they do not lovethem and so they may fight for their love The heirs of a spoiler who is “giving it all to charity” maybelieve that bonding with the charity will encourage the spoiler to give to the charity through theheirs Many of the most mixed-up inheritors I know are descendants of wealth spoilers

If you are the child or grandchild of a spoiler, you will be coming from a wealthy background, butfacing the prospect of having your support system torn out from under you With advance notice, youcan build a life without dependence on, or expectation of, inheritance, although that is difficult.Without notice, you may find yourself without financial support and left wondering what to do Ineither event, self-actualization will be difficult

A friend of mine had a fabulously rich grandfather, who owned an empire of great publicrecognition The young man was raised in luxury and in the public eye, and his family was seen asprominent and rich The young man basked in this public recognition Both he and his parents weregiven whatever they needed by the grandfather of the family, but the grandfather never provided themwith any access to, or understanding of, the family’s wealth Building on what he saw as the family

engagement with community, early on, the boy became involved in helping others In college, heengaged with philanthropic causes and socially responsible business ventures He realized he hadlived a “blessed life,” so he saw it as his duty to give back to the community around him, helpingthose who were less fortunate He started his own small foundation, through which he beganfundraising for some of the worthwhile charities he had come to know.

His grandfather had a professionally run family foundation, and as the young man started to puttogether a fundraising benefit for one of his favorite charities, he asked the foundation to help bysponsoring the event The professionals said that would be possible only if the family foundation ranthe event and took full credit; they explained that the young man could not be seen as involved “Yourgrandfather wants this foundation free of the influence of people like you,” he was effectively told

That experience should have prepared him for what happened next, but it unfortunately did not Hisgrandfather died The same professionals who ran the foundation called the family together, this time

as trustees They told the young man’s parents that the grandfather had decided to leave all but smallamounts of his estate to the family foundation, and the professionals would run that foundation toensure that the grandfather’s legacy would be preserved They planned to welcome grant suggestionsfrom family members, but on equal footing with those from nonfamily members One of their mostsignificant gifts was for a building to be named after one of the professionals!

Only then and there did the young man realize that his plans, all conceived around his love offamily and his grandfather, were not possible His grandfather was a classic spoiler and had blockedhis grandson’s most obvious path to self-actualization

Wealth Masters

Wealth masters, those people who have put money in its place, may have started as toilers oraccidental holders They could have been raised in wealth or they could have come up from poverty.How they ended up with their wealth, however, is much less important than how they’ve handled it.They’ve mastered the role that money plays in their lives and they’ve developed a healthyrelationship with it They’ve also passed these values that they’ve developed down to their children,hoping they will, in turn, pass them down throughout the future generations These wealth creators aretypically well adjusted, having reached a point of self-actualization and having found success in otherareas of life aside from “becoming, and staying, rich.”

Wealth masters who know how to put money in its place can be great parents They can teach andmodel that money is a tool to be used appropriately for younger people to become the best they can

be, as they freely pursue their passions Some of my wealthiest clients have been people who livesimply, but are passionately engaged in their interests, building businesses, helping their communities,and loving and supporting their children Sting, the musician, may well have been one of thoseparents The world is full of many others—some with money and some without Often, pursuing yourpassions will not require a great deal of money and your lifestyle can, therefore, be simple

Whether they are masters, toilers, accidental holders, stewards, or even spoilers, some parentsenable their children to put money in its place Those parents are rare so if you are a child of thoseparents, you are very fortunate

For example, I know a wise man who has built huge wealth He, his wife, and children, however,lived simply, and he engaged in community philanthropy He told his son that he would have plenty ofmoney throughout his life He explained that he made his money in a business that could succeed at a

certain time and under certain conditions and that his success was partly due to hard work and partly

to luck He then told his son, “But now you have money and that should allow you to do whatever youwant You have no need to make more or even to manage what you will have.” After graduating fromcollege, the son passionately created and ran a charity that worked with disadvantaged children andchanged the lives of thousands of people He used some of his own money and never regretted that.His father was a wise man indeed

A client of my grandfather, father, and, when she was very old, of mine, had a father who was anoil baron in the 1920s Due to her father’s success, our client was raised in wealth on a ranch inTexas Her father built a family office and with my grandfather’s help, they created trusts and otherstructures to manage the family money Perhaps he was “protecting” or perhaps he was “controlling,”but in this case, it didn’t matter

When his daughter was 90 years old, a widow, she told me her story She met a dashing youngConnecticut Yankee when she was in college She fell in love with him as he was entering a career inbusiness He was energetic, smart, and as in love with her as she was with him They were married inthe days before people thought about prenuptial agreements, and at some point early on in theirmarriage, she said to him: “My daddy manages the money and I don’t worry my pretty little headabout it.”

She said that the governance her father set up and that statement allowed them to move on with life.Her husband became a successful businessman and together they had a fine family She said that fromtime to time, they drew on her trusts for vacations, to help with a new house, and for help with privateschool tuitions But she and her husband never felt that her wealth interfered with their marriage

When she told me the story, he was long gone and her children (three daughters) were grown upwith their own grandchildren She explained with the wisdom of her “pretty little head” and theexperience of age: “Life is full of challenges, heartaches, illnesses, and other difficulties Why makeany of them worse on account of money? My husband and I did well living as we did without payingmuch attention to my money.”

I didn’t know her father, nor do I know for certain whether he put his own money “in its place,”but he surely helped her do so for herself

Financial Security and Your Future

Whether you are the child of a wealth toiler, an accidental wealth holder, a wealth steward, awealth spoiler, or a wealth master, you may need help putting money in its place, especially inharmony with your parents and their wishes It can be a challenge, but the opportunities for you to do

so exist Of course, it will be difficult, and it will require dealing with the specific attitudes of yourfamily No matter what profile your parents may fit into above, you may want to show them your love,gratitude, and understanding, while still defining your own life How you put money in its place maynot fit the “family” expectations for you and your role, but you can never put money in a place that isnot where you personally want it

Many times, parents can be of help in putting money in its place and your process of actualization if you’re open and honest with them That starts by articulating the role you want yourwealth to play in your life—what it is for That is really your unilateral decision But whether you canmake your “want” become what “is” may depend on your parents’ decisions, which may also be

Most often, the difference between what you want your wealth for and what you can make it dorelates to whether you have financial security We will prove that, but until you get there, understandthat creating financial security is necessary to put money in its place and may be foundational to yourself-actualization If money’s purpose is to make sure you can be all you can be, you need financialsecurity

How do you create financial security? Perhaps your parents are wise and thoughtful They may bewealth holders who put money in its place and want to help you do the same They should alreadyunderstand the importance of financial security, but if they do not, they should read Chapter 10:Chasing the Dream Like Warren Buffett, they may decide to give you “enough” or they may have set

up an infrastructure to manage wealth and make sure you have what you need If these are yourparents, you are certainly fortunate

But what if they don’t understand the importance of financial security and will not read Chapter 5:Saying It Directly? Suppose they are the type of parents who say: “You will get nothing from us,unless you first earn money the hard way, the way we earned it.” Suppose they are wealth spoilersand decide to leave you without enough to live on

You will answer: “If that is the case, I must go out and make money I will work hard and when Ihave enough money to feel financially secure, I will have the capacity to put money in its place.” Thatattitude can be a dangerous and slippery slope for people who grew up wealthy, but who don’t haveexperience putting money in its place The more wealth you create, the more you may need to have

“enough,” making it even more difficult to “place” it

I met a fellow who told me that 30 years earlier, he had started with nothing He had grown up in amiddle-class household and his parents had told him to make his own fortune By the time I made hisacquaintance, he was rich He told me he had actually studied music as a young man and loved it, butthat was three decades ago He also then realized that he needed money to live on He set aside hiscareer in music to make money and he had not returned—at least not “yet,” as he told me He hadchildren who were young adults with various emotional and interpersonal difficulties that werebothering him Here is what he said: “I need to help my children and I need to return to my career Butfirst, I plan to build a business and sell it for $1 billion.”

I was confused “Why do you need to build a business and sell it for $1 billion?” I asked

He said, “I sold my first business for $50 million, my second for $100 million, my third for $250million, and my last for $500 million Now I want to sell one for a billion.”

“But why?”

He repeated the mathematical progression again I told him I understood the math, but could notunderstand how the billion-dollar sale would make it easier to return to music and take care of hischildren What could he do in either case with $1 billion that he could not do with $500 million?

He had become addicted to wealth and no amount would ever be enough for him I later learnedthat, in fact, his next business, into which he invested everything, failed He was left with around $15million, started addressing the needs of his children, and returned to music (remember the fishermanand the investment banker?)

There is an alternative to going out to make money for financial security Take control of your lifeand design it in a way so that you are doing what you want and have enough to do it In this way, youare designing your financial security through a pragmatic approach to what you already have

For example, many years ago, I knew an order of Benedictine monks One was a musician and apianist whose passion was playing the piano, but who learned one day that he didn’t like playing foraudiences He had little money and the practicalities of a career would diminish the satisfaction hegot out of his passion He took a vow of poverty and joined a monastery He had complete financialsecurity and could play the piano day in and day out.

Then there was the monk who was raised as an Orthodox Jew, the son of a tailor in the Bronx.After World War II, he decided he wanted to become a monk, so he went to the monastic authorities.They told him that one precondition of joining the group would be that his parents could never depend

on him for money He figured out exactly how much would be “enough” for them, borrowed a smallamount from the monastery, and spent a year investing At the end of the year, he had enough to buyhis parents a comfortable annuity, return the loan, and enter the monastery without a penny to hisname; he later became the financial and investment officer for the order

My own daughter asked me, when leaving college, “Can I afford to be a teacher?” Believing shewas asking whether that would give her financial security, my response was simple and direct “Of

course you can afford to be a teacher, if you can live on a teacher’s salary That is, if you can live like

a teacher.” She accepted and built a simple and modest lifestyle, living and raising a family withsatisfaction

What Money Cannot Do

On the path to putting money in its place, it’s important to consider the true value of wealth Ofcourse, everyone wants to have enough money to live a comfortable life, or maybe a more thancomfortable life, but have you ever stopped to wonder what money cannot provide?

It’s important to understand that there will always be barriers in life’s journey which cannot beremoved with money, those where only fortitude of human character can keep you on the road.Compared to the human qualities of patience, strength, analytic capability, and wisdom, money may

be insignificant

Have you ever made a list of what money cannot do? Have you sat down with your parents and

asked them to help you build such a list? It may feel like a strange exercise at first, but it’s worthtrying Having your family members involved will make it all the more enlightening, and taking aninventory of what money can’t buy will help you put money in its place Here are some ideas to startyour list:

Money cannot buy sound relationships In fact, quite the opposite is true Money can get in the way of relationships For example,

consider the story in the Introduction in which one of the young people I spoke with said he feared some people had befriended him only because of the benefits provided by his family’s wealth Whether or not that was true, the young man felt that way, and therefore had difficulty forming normal, healthy relationships with others Similarly, money will never enhance a deep relationship, and can, in fact, hurt one Think of the issues raised when a couple enters into a prenuptial agreement or a divorce.

Money cannot buy good health Good health is not easily purchased and death, of course, comes to all alike For example, there are

wealthy parents in California who refuse to have their children vaccinated against disease, yet those children are being struck by the diseases despite their wealth Ironically, children growing up in poverty are being given the vaccinations and are not vulnerable to these diseases Similarly, the pain of having a child with a disability or having a child struck by terminal illness cannot be alleviated by money Autism, mental illness, and cancer can all create genuine stress and sadness in a family; if you talk to the parents of any child born with disease, it’s easy to understand the challenges and heartache money cannot fix.

Money cannot buy family support Look at aging grandparents and ask if the comfort of family and support comes with money Some

of the wealthiest old people turn away from family to their loyal retainers; when money doesn’t give them family support, they buy it from household staff and sometimes “friends” who, as it turns out, are there simply to take the money It is a rare week when we do

not read of some elderly person taken advantage of by someone “who cares” or by a salesman who shows attention when family does not.

Money Cannot Buy Happiness A wealthy client of mine was depressed She attempted to treat her depression by shopping She

bought 100 pairs of very expensive shoes, jewelry from the finest designers, clothing at astronomic prices, and extravagant meals for breakfast, lunch, and dinner She thought money, and spending it, would make her feel better; instead it did the opposite The more she spent, the more she found that she didn’t feel better The unhappier she became, the more manically she bought The cycle continued until her paid caregiver—her children were very busy and paid little attention to her—finally took her to the doctor, who sent her for a long rest in a residential treatment center That treatment gave her peace and some happiness.

After writing your own list, and discussing it with your family, it will be easy to come to theconclusion that money does not assure self-actualization Money cannot buy life lessons orexperiences, positive values, a strong work ethic, or passion Without those, the road to self-actualization is hard to find

What Adversity Can Do

Just as writing a list of what money cannot buy will help you understand your relationship with

wealth, creating a list of what adversity can do will help you put money in its place Facing down

adversity, or living with it, creates character and the sense that you can lead life on your own terms.The character-building challenges in life that money can’t fix are more significant than the issuesmoney can paper over Managing adversity by yourself can create a sense of confidence that willenable you to live a life dedicated to pursuing your passions and will help you put money in its place

As you work on your list, consider this inspirational story that may help you see what trueadversity, and a near death experience, can do to create character John O’Leary tells the story of his

life in his book On Fire: The Seven Choices to Ignite a Radically Inspired Life When he was 9

years old, O’Leary lit a match to a gasoline can and burned over 98 percent of his body His parentswere told he had a 1 percent chance of living When his mother first appeared at his hospital bed,rather than providing the secure assurances that all would be well, she asked him whether he wanted

to die When he said he did not, she said that he had to fight hard and do it himself Over months andyears, he did just that He rebuilt life around his new reality of a scarred and deformed body Hegrew into adulthood, started a business career, and ultimately turned to his own experience to become

a motivational speaker and writer, helping others self-actualize, deal with difficult realities, andovercome adversity and obstacles

Money couldn’t solve any of O’Leary’s problems His mother’s statement to him, that it was allabout character, perseverance, and overcoming fears, gave him the vision to move forward Here iswhat O’Leary writes of his own adversity:

“You see, everything beautiful and enriching in my life today was born through the tragedy of those flames Through the painful ashes of recovery as a child, I grew in character, audacity, compassion, faithfulness, and drive It led to a clear perspective on what actually matters and a bold vision for what’s possible.”3

Look at your own life so far What challenges have you faced where perseverance and similarcharacter qualities have helped you succeed? You can then look at what adversity can do to help you.Here is a brief list to get you started:

Adversity can build character.

Adversity can help you face your fears.

Adversity can make you a more secure person.

Adversity can help build self-sufficiency.

Ironically, we’re all blessed that money can’t make every problem go away or control every

situation Life’s challenges may indeed be among those things we should consider when we say, “thebest things in life are free.” Whether rich or poor, we all need to work through difficult issues in life,but facing adversity leads us to being better, more whole, people

Conclusion

Putting money in its place is a challenge As a wealth inheritor, you must start by figuring out therelationship of wealth and inheritance, where you come from, and where are you going You mustunderstand your parents and try to communicate with them about what you want of life Think aboutwhat money can and cannot do and what it is that will give you strength and satisfaction, to lead a life

of purpose and achievement Then figure out how your money can give you financial security without

it taking control of your life Once money is in its place, there are, of course, other challengesawaiting you, but the toughest may already have been met

CHAPTER TWO

Trusting Others

A boy’s father died when he was young, and he was raised by his mother and grandfather Hisgrandfather was a wealth creator in a rough-and-tumble industry and seemed to believe that no onecould be trusted He groomed his grandson to become the family wealth steward, and, in doing so,passed down the values and opinions that had made him successful

By the time the boy, Doug, became a young man, the business had been sold and the family hadmany hundreds of millions of dollars After his grandfather passed away, Doug not only inheritedmillions, but also his grandfather’s general sense of distrust in many of the people around him Dougplayed his role of family wealth steward by attending all business meetings, taking on the familyinvestments, and running all of the family’s wealth management operations for his mother, his brotherand his children, and his cousins He was the Chairman of the Board, the CEO, and the CIO, aidedonly by an elderly bookkeeper who had been his grandfather’s most trusted assistant He trusted noone with his family’s wealth other than that assistant, and still, he trusted him only to keep the booksand records, which Doug reviewed almost daily

Due to a lack of confidence in those around him, the office had a near monthly turnover insecretaries and receptionists Doug’s meetings with advisors, lawyers, bankers, and accountants wereterrible as he challenged them on every subject, raising his voice and accusing them of deception andstupidity He was skeptical of all of them and believed there was no way to know for sure if theywere “on his side”—and none of them liked him at all Meanwhile, the task of managing the familywealth all alone seemed too great He began to feel anxious, paranoid, and isolated

Indeed, Doug had no friends and spent most of his time with financial industry salesmen, eachselling him the “latest and greatest” products and services The fastest talking were most successfuland particularly scored over a dinner that consisted more of cocktails and wine and sherry than ofsolid food He approached the age of 35 smoking and drinking heavily, feeling he could trust no one

Then a transformation took place One day, he suddenly felt like it was all too much, that the wallswere closing in around him, so he confided in the elderly bookkeeper explaining his fears ofswindlers, his distrust in managers and board members, and the pressure he felt as the family wealthmanager The old man was sympathetic but also quite surprised that the “kid” was confiding in him

“You know,” he told Doug, “Your grandfather was exactly the same way That may have helpedhim build the business, but it did not help him live his life You need to figure out a betterperspective.”

The young man took this conversation to heart and truly examined himself, his life, and his

decisions He concluded that the family wealth could take care of itself if he found a few people hetrusted to manage it conservatively He did just that.

His life changed dramatically—not only was he no longer bogged down with a constant sense ofstress, but by putting responsibility into other people’s hands, he was able to approach every daydifferently He began caring sweetly for his mother and sister and nephews; he began visiting withfriends who had nothing to do with his money; he started an art collection; and within a few years, hefell in love

In the process, he made some mistakes Relying on faulty instinct and disregarding some of hiswiser advisors, he held onto the family’s legacy investment, a publicly held company, as it wentthrough tough times and lost a substantial part of its value The loss did not affect anyone’s ability tolead life as they wanted, though, and was not seen by any of the family as disastrous He once stated:

“I made a mistake trusting the management, but it would have been a worse mistake to spend years ofdistrust worrying that something might go wrong I have to get on with living.”

Doug’s upbringing was not unique, and his story is one I have seen over and over throughout theworld His transformation, however, is not common enough

Wealth inheritors are often raised by parents and grandparents—wealth toilers and wealth spoilers

—who have created great wealth in a world of shrewdness, quick-wittedness, and disappointments.These family leaders learn firsthand that the world is full of others who may be just as shrewd, butoften not as honest Such parents and grandparents therefore emphasize protection against the verytypes of behavior they have witnessed in their business activities They urge wealth inheritors to becareful and raise them not to trust others, although they typically disregard teaching the subtleties oftrust

In fact, understanding those subtleties is fundamental to living a comfortable life with soundinterpersonal relationships and long-term satisfaction Whether rich or poor, inheriting or creatingwealth, having a framework for trust is essential In this chapter, we try to look at several elements ofthat framework and confront the challenge of learning how to trust

Wealth Creators and Trust

Trust is key to building personal relationships and creating comfort within them You must learn totrust some people But the risk in this approach is implicit: Tis better to have trusted and lost thennever to have trusted at all (to borrow from Tennyson’s poem about love1) But if we take out thepoetry and disregard the true value of love and friendship in life, what about trust, which for a wealthinheritor is complicated? Your parents or grandparents may have built a business partly based ontrust (“my handshake is my word”) and partly based on understanding the risks of misplacing trust.They likely covered their backs in every professional deal, so that any damage would not be toogreat

But many parents or grandparents are not likely to have overwhelming confidence that theirchildren or grandchildren can evaluate the risks inherent in business, relationships, and wealthmanagement as successfully Parents and grandparents may believe that instead of providing somebasic guidance, they should hold the wealth inheritors’ hand with every decision they make Althoughwealth creators can provide a great deal of wisdom to their children or grandchildren based on theirown experiences, they do not have all the answers to the questions the wealth inheritor will face

This situation occurs because wealth creators, like all parents, want to try to protect their children.The protection may be reflected in the governance structure of rigid trusts, fully controlling familyoffices, or other limitations imposed on the inheritors’ access to wealth What can be seen asunwillingness to support risk-taking comes across to the children as a lack of confidence and affectstheir self-esteem and relationship with their parents.

Wealthy parents will likely want their children to sign a prenuptial agreement before marriage toensure that the child’s money is protected in the event of divorce In fact, the process of negotiatingthat prenuptial agreement can be a trying one for any younger person who sees their marriage as morethan a transaction, but an actual expression of love It may also signal to the wealth inheritor’sspouse-to-be that there could be trust issues in their relationship and may leave both parties feelingthat money is central to their relationship (We discuss prenuptials further in Chapter 6)

Wealth creators may simply be trying to help their children or grandchildren avoid being takenadvantage of in one way or another For an individual with a large amount of wealth, it’s important to

be on guard against potential theft With the potential for deception around every corner, how doresponsible wealth inheritors figure out where to place their trust?

Let us start with the most difficult rule of all: Distrust may actually be appropriate in somesituations and not in others That is to say, many of the hard and fast rules we set forth throughout thischapter may require some exceptions Distrust may not be bad in the right circumstances, but it can bepoison in others So let’s start by recognizing that indeed trust can be dangerous—your parents’ likelypredisposition

Evaluating Your Trust in Others

The perception of trustworthiness can easily be created by personal charm, public recognition, orofficial imprimatur, such as licensing (for example, licensed doctors, lawyers, and chartered financialanalysts or accountants) It’s also easy to fall under the spell of herd mentality, making decisionsbased on popular thought and assumption from people who command respect in the public eye Forwealth inheritors, misplaced trust can be disastrous

There are four clear warnings as you try to decide whom or what to trust:

Don’t rely on a “cloak” of trust

If it is “too good to be true,” don’t expect it to be true

The herd is not trustworthy

Gut feelings should stay in the gut

It’s necessary to carefully evaluate your trust in others Although you don’t want to live in fear andskepticism of everyone, you also need to make positive decisions to avoid being taken advantage of,personally or financially hurt, or otherwise fleeced Wealth inheritors must stay informed andconsider what they are basing their trust on, and whom they are placing their trust in

Don’t Rely on a “Cloak” of Trust

Fame, professional credentials, and reputation create what might be called a “cloak of trust.” Trust

is conferred on this basis due to a person’s notoriety, education, or title There are many professionsthat fall in this category: lawyers, doctors, accountants, and others held out as experts in their fields

or licensed by governmental agencies are trusted based on their institutional standings Similarly,people’s standing within a group or community seems to be a good way to gauge how much trust toplace in them But just like a person’s title, reputation can only go so far.

Let us look at one of the great swindlers of our generation, Bernie Madoff He had been theChairman of NASD, seen by many as a quasi-public office He was founder and Chairman of whatwas known as a reputable Wall Street investment firm and his clients included many of the “lions ofWall Street.” He claimed to be friends with high officials in the SEC, and he belonged to prominentcountry clubs And he was a crook and a Ponzi- scheme creator He could swindle more than $10

billion from investors because they trusted him, mostly based on his prominence.

This reminds of a situation I encountered early in my career, when a wealthy client came to mewith a terrible problem The husband of his recently married daughter had been indicted in Texas for

a crime and then released on bond The client, with his daughter, had hired the “most famous”criminal defense attorney in Texas, a man of national recognition as a successful criminal lawyer.They selected him based on his national reputation as reflected in many newspapers and magazinearticles

The lawyer explained to my client that because of his fame and constant demand, he rarely took onnew clients However, he found the case so interesting, the client’s daughter and her husband solovely, and the husband so obviously innocent, that he was willing to take the case on a $100,000retainer to be applied against the time for his services After they made the payment, the lawyer toldthe husband to go into hiding as the lawyer prepared the case and started talking to the police andprosecuting attorneys

The hiding continued for a month when the criminal attorney called my client’s daughter and saidthat his efforts were showing great progress But he said his time expended had far exceeded theplanned $100,000 and he asked for an additional $250,000, again to be charged against his services.Meanwhile, the lawyer said that the husband should stay in hiding even as the police were telling thewife that her husband was violating his bond terms and should turn himself in The client paid theadditional $250,000, but had second thoughts as soon as the check was cashed

That’s when the client contacted me We placed several calls to the lawyer but they wentunreturned When we finally spoke with someone in the lawyer’s office, they made the excuse that thelawyer was much too busy at the time, but would be in touch with us shortly We considered thesituation and concluded that his advice to ignore the strictures of the bond and to stay in hiding made

no sense

Next, we looked at court papers and filings There was no indication that the famous lawyer haddone anything in defense of the case After trying unsuccessfully to reach the lawyer for weeks, evencalling the “special number” he had given the husband, we finally reached him at home, late one night

He said he was so busy that home at night was indeed the only time and place to reach him However,our conversation was entirely one-sided, with his telling anecdotes about his great career and wisecounsel relating to many clients—none to ours

I said it was time to call another lawyer in the same town, one less famous but well-recommended

by friends of mine living there We described the situation to that lawyer and then gave the name ofthe famous lawyer It turned out that the famous lawyer was not nearly as respected as my client hadassumed In fact, he was a well-known alcoholic who was being sued by several clients formalpractice We were given the disappointing information that it was likely he was doing nothing on

the case Our hunch that the fees sent were wasted cash proved right.

We worked with this new, lesser-known lawyer on behalf of our client The prosecuting attorneywas quite lenient concerning the bond violations when he learned that the notorious lawyer hadrepresented the husband The husband turned himself into the police, entered into negotiations, andsettled on a plea bargain that kept him out of jail

Within several years, the famous lawyer died of complications related to alcoholism Our client’sdaughter, who had trusted her husband based on love, fell out of love and divorced him Our clientalways regretted the $350,000 he had wasted As a young lawyer at that time, I learned some valuablelessons; so did my client, an old wealth holder, and his daughter, a young wealth inheritor Famealone is no basis for trust The press may be more reliable than social media, but it cannot be relied

on for decisions as weighty as selection of a criminal defense attorney A law license is not muchmore reliable than fame in determining whom to trust, even though institutional systems purport toprotect the public The criminal lawyer was a well-known alcoholic facing claims of malpractice, yet

he had retained his law license

Like many lawyers, Swiss bankers have a time-honored cloak of trust For years, wealth creatorsand wealth inheritors have entrusted their fortunes to Swiss bankers, relying on their reputation forsecrecy and discretion, to protect family wealth against threats of war, political unrest, kidnappers,and taxes I am reminded of an incident long before the Swiss banks were found to be selling taxfraud to unwitting clients and long before the United States made them open their records

In the early 1980s, a client who was a substantial wealth inheritor called my father with a “greatplan” to save taxes proposed by a Swiss banker The client told us that the bank was a “very discreetprivate bank, used by the richest people in the world, owned by a wealthy family, and generallyunknown to all but the richest of the rich.” The banker instructed the client to place millions of dollars

in a briefcase and to meet him on an island in the Caribbean, where he would take the cash back toSwitzerland Once there, the banker would secretly place the money into a Swiss bank account thatthe IRS would never know about Although it wasn’t obvious to the client, my father immediately sawthe red flags popping up in such an arrangement Always strategic in his advice, my father asked theclient to come in to talk to us about the situation

The client had to come that very afternoon he had called us because he had arranged to fly to therendezvous the next day As he went over the plan with us, the words “Swiss Banker” seemed to besurrounded by the sanctity of choral music Trust exuded from the phrase as the client said it over andover—“Swiss banker.”

My father listened and then asked one question: “If the Swiss banker is willing to cheat the IRS,why would he not be willing to cheat you?” That question achieved its purpose, challenging thetrustworthiness of the banker There was a brief pause before the client looked at my father and said,

“Henry, you make a good point I am not sure I want to proceed.” In fact, he did not proceed and, Iexpect, saved millions of dollars

Thirty years later, I told that story to several wealth creators in Miami who were being sold “taxavoidance” by “Swiss bankers” from UBS In fact, the cloak of such Swiss bankers can easily belifted by contemplating their willingness to help a person cheat; underneath the cloak is probably thebody of a scoundrel

Is this Opportunity Too Good to be True?

An easy red flag is raised in considering trustworthiness when something seems almost too good to

be true; in fact, it usually is Whenever a client exclaims, “you won’t believe the deal I have foundand the opportunity it will offer me,” I look for fraud

Wealth inheritors seem particularly susceptible to investing in deals that are too good to be true.They may have watched parents or grandparents live with great wealth, but they do not have insightinto the hard work that went into creating that lifestyle Wealth inheritors may also feel pressure tohave a big “score” themselves to prove their own worth Yet, they do not have the temperament orexpertise to design and build the foundation for that “score.”

So the hucksters come knocking with business plans, extraordinary offers, and huge prospects Afriend of mine, now in his sixties, inherited wealth beyond $100 million when he was just 30 yearsold He considered himself brilliant (and was, academically), but he didn’t learn the lessons of trustuntil he had lost most of his money Instead, he chased deal after deal brought to him by a parade ofpeople he “trusted.” Each claimed that the deal he was offering would provide a huge return

So, my friend bought a piece of real estate in the middle of nowhere that was supposedly about to

be purchased by Disney for 10 times the amount Disney never showed up He invested in arevolutionary piece of technology on the cusp of being invented that would make automobiles able torun on garbage He invested in a commercial spaceship that was going to be purchased by AmericanAirlines when it was completed He even invested in a piece of nuclear fuel to be salvaged from asunken ship deep in the sea In each case, he had a different partner and in each case the partnerearned something while the chaser lost his investment He finally realized that all of these too good to

be true deals were, in fact, not true And he took his remaining $10 million and invested in aconservative portfolio of stocks and bonds If he had done his research in the first place, he wouldhave seen how this was a viable, concrete option from the beginning

Indeed, doing your own research will help you avoid the too-good-to-be-true deals that you may

be offered once you inherit a large sum of money Analyzing what seems to be too good to be true canalso lead to knowledge, which itself provides benefit

Whenever I think about this topic, I am reminded of a story my grandfather told me Long beforeWorld War II, my grandfather was an active lawyer representing a widow in St Louis whosehusband had come from once wealthy Texas family He died, leaving her destitute, with several youngchildren to care for All he had in his estate were some thousand acres of inherited unproductive land

in Texas that his widow, and my grandfather, considered worthless Barely able to make ends meet,she looked to my grandfather to try to sell the land for any price so that she could feed her children

In those days, St Louis Union Station was a hub for transportation throughout the United States.Passengers came and went It was not unusual for a visitor passing through to call my grandfather,who had an international reputation in the area of tax law, to pay a social visit or to get some taxadvice So when my grandfather received a call from a real estate agent on his way home to Texas, hewas not particularly surprised The tone and nature of the call, however, was surprising The agentwas at the station and said he was passing through town, but only had one hour to spare In that hour,

he was willing to pay $5 per acre for the widow’s real estate, but the transaction had to be completedbefore he left St Louis

Although tempted by the offer, my grandfather thought the price per acre entirely too high—heexpected the land to be worth something more like $1 an acre “That price is too good to be true,” hetold himself He told the agent that he would need to talk to his client and that he could not accomplish

the sale in the hour the agent had between trains The agent said that without immediate sale, the offerwould not remain available.

My grandfather resisted the agent’s persistence As the hour passed, he telephoned a lawyer heknew in the Texas county where the land was located Long distance calls were not immediate inthose days, so placing the call would take more than the hour allotted Nevertheless, my grandfatherfelt it prudent to place the call before selling Indeed, when he reached the Texas lawyer, mygrandfather learned that oil had been found on neighboring land in the county, that the county realestate market had boomed, and that the widow’s land was likely over a rich oil deposit

That widow and her children became wealth holders overnight as the oil from their land not onlygave them more money than they could possibly imagine, but also gave my grandfather one of his mostloyal and wealthy clients My grandfather often observed that if the agent had offered him $1 per acre,

he would have accepted within the allotted hour and the widow, and his entire client base, wouldnever have been as wealthy!

These stories are meant to illustrate that any wealth holder should know that what is too good to betrue is probably just that A wealth inheritor should not be mesmerized by the improbability ofcreating great wealth through these deals It always pays to consider the deal, analyze why it is toogood to be true, and figure out if “black gold” lies under a seemingly worthless piece of dirt

The Herd Is Not Trustworthy

Groupthink is often cited as one of the greatest challenges to sound wealth management For manywealth inheritors “groupthink”—following the herd—takes the place of due diligence Many peoplebelieve that if everyone else thinks an idea is good, then it must be This herd mentality is particularlyprevalent among wealth holders who have an implicit belief that people with money are smart andfollow principles that will work

In reality, you should not put your trust in the fact that “everyone is doing it.” Just as sheep followeach other off the cliff, wealth holders follow each other into the depths of error over and over again.For example, “Smart money” invested with Madoff; because he limited those whose money he wouldtake, the group was more eager than ever to be in his flock That so many family offices around theworld lost money to him reflects that these offices assume others are “smart” and know just what theyare doing

Some of the least successful investments are made in a group by family offices And some of thebest are made by outliers Consider Warren Buffett and value investing The successes of valueinvesting are based on the proposition that most people don’t see value where it lies Contrarians areoften most successful; and they are contrarians precisely because they are not following the herd

Here is the challenge of “networking” with “trusted professionals”: Family office conferences,investment conferences, and similar “clubs” appeal to wealth inheritors because they believe that theycan find other smart people within these groups who will invest with them or show them how toinvest wisely People come into the club based on their wealth (or their purported wealth) and thatwealth establishes common bonds, creating a “group” that can think together

For example, a group of family offices I know holds regular meetings in Singapore I attended oneand learned that the members all talk about investment ideas and investment managers As one personrecommended a brilliant new manager, everyone else jotted down notes and said they were ready tohire that manager I asked one of the members whether he would perform due diligence on the

manager, and he said that he assumed the referrer had already done so Then the referrer said thatalthough he had not personally performed due diligence, a very wealthy family in London was usingthe manager, and he assumed that family had performed due diligence This “herd” of family officeswas all prepared to hire a manager on the basis of a recommendation by one of its members who hadnot performed even the most rudimentary research Everyone was willing to rely ultimately on aBritish family they didn’t know and who had probably done no due diligence either That manager’sname was not Madoff, but it easily could have been.

Wealth inheritors are particularly susceptible to groupthink because when they are young, matesand friends are important resources easy to rely on Young wealth inheritors likely have liquid assetsand little experience Yet, often they feel pressure to prove their net worth “Networking” is a sirencall to community, friendship, and good times Together, the network travels, parties, and invests, butrelying on them, while getting wrapped up in the herd, although fun, can prove stupid

Your Gut Is Not Trustworthy

There are very rationale reasons why your gut is not reliable, and they are easy to see if youconsider the matter carefully First, guts are rarely objective They are the opposite: reactive andsubjective Your gut likes or dislikes people based on charm, eye contact, appearance, reputation, andeverything else that can be misleading Further, each of us has been inculcated with certain biases.Some of us want to believe that everyone is trustworthy and some of us want to believe no one istrustworthy

I am a good example I have decided that I would rather be disappointed by trusting someone than

be unhappy trusting no one That is a philosophically sound way to lead my personal life, but it could

be dangerous for my clients Therefore, when working for a client, I trust no one based on gutreaction And when a decision is consequential for myself, I am happy to “feel” trust, but I always testthat feeling with objective analysis What that means, practically, is that if I am bargaining with adealer at a flea market or antique store, and the top price being asked is under $25, I will trust thesellers if they say the item in question is very fine, original, and without equal anywhere in the world.Furthermore, if I like the item, I will buy it for whatever price I can negotiate If, on the other hand, I

am considering a rare print or textile, I will require objective process to decide whether and howmuch to trust the dealer before I spend $10,000 on the item

I know a bright and charming French wealth inheritor who decided he wanted to hire a number ofinvestment managers His plan was to meet each candidate at their offices before deciding to makesure “they were good and professional.” If he liked the candidates, he would hire them He told me, “Imeet them and see them and their offices, so I know whether they are good I get a good feel and thendecide.” In fact, in most cases, he had met not the investment manager, but his “business developmentdirector.”

He had hired 15 or 16 managers over a 10-year period when I met him; and he was very proud ofall the hard work he had put into his hires “I have a very good record,” he said “Only three of theseguys so far have turned into schemers, and Madoff was one of those I have only lost 20 percent tothose three.” A good record? Not really Simply put, following your gut after “seeing it yourself”does not make it a trustworthy endeavor

Another story I am reminded of is that of a sharp older accountant, one of the sharpest in thecountry, who found a tax shelter he believed was brilliant Before transferring his money, he wanted

to make sure he trusted the promoters He met with them and liked them very much—they knew theirtax law well, they dressed nicely, and they respected him as a person of great capability and wisdom.Indeed, they told him he was one of the smartest accountants they had ever met He was charmed, but

as an old eagle, he needed more reassurance before he would put his money and his client’s into thisoil deal They gave him exactly what he needed by flying him to Venezuela to see oil pumps pumpingand gushing wells After seeing the wells, he decided that was enough Even though there were ahandful of items he neglected to check, he knew in his gut that everything was on the level

He invested, he took deductions, and then invested more and more He had found the opportunity of

a lifetime in this great venture with his now good friends, the promoters One day, however, he woke

to read in the paper that the entire venture was a phony scheme, and that like many other wealthyinvestors, he had been bilked The Department of Justice arrested the promoters and the IRSannounced that it would disallow all deductions The venture had owned no oil well at all, and theirreports were pure fiction

Our accountant was horrified He was even more horrified when the Department of Justice and theIRS notified him that the records confiscated from the promoter contained a number of pieces sent tomost investors, but with notes attached not to send to him “Don’t let him see these because he mightfigure out what we are doing.” And to add insult to injury, it turned out that the oil fields he had seengushing were the property of Standard Oil of New Jersey, who were completely oblivious to the factthat he had been shown those wells as owned by the venture

That accountant was smart He had met and he had liked the promoters He had seen the oil wellsgushing with his own eyes He had failed to perform even the most rudimentary due diligence His

“gut” told him he had a good deal And he was bilked

Over the years, I have met a number of widows who have “loved and trusted” their financialadvisors In one case, a wealth inheritor I knew had met an advisor and his partner when they workedfor a large firm The advisor bent over backwards to express his love and devotion to the widow—inviting her to dinner, attending all her parties, introducing her to a good accountant, and slowlytaking over many areas of her life Her portfolio was around $10 million, and the advisor treated it as

“his own.” As her lawyers tried to develop her estate plan, he insisted that they talk only to him and

he made their job almost impossible The widow had “gut” feelings that he was her “type of guy” andone in a million

This is where my “gut” came in A simple Internet search uncovered that he and his partner hadbeen sanctioned by federal and state securities agencies They had been held to have misled clients,mishandled their funds, and placed them into inappropriate investments Sharing that information withthe widow easily took away her “gut” trust of the advisors

Putting Trust in Process

If you can’t rely on a “cloak” of trust, on something that seems too good to be true, on the rest of

the herd, or even on your own gut, then what can you rely on? In what should you trust?

The answer is quite simple: You don’t put your trust in people alone; you put trust in process As awealth inheritor, you will find that maintaining disciplined processes will help you meet andovercome all kinds of challenges Disciplined process takes all the other “indicators” out of thecalculation and leaves you with an objective standard Quite often, people say to me: “I really trustyou.” To that I always reply with thanks and appreciation followed by, “You may think you rely on

me, but you are actually relying on the processes my colleagues and I follow.”

Following sound process ensures your safety and protection when making wise decisions withrespect to your inheritance Such processes allow you to lead your own life and to have the freedom

to be what you want to be, without looking over your shoulder The best process is one that isprotective and always trustworthy

For example, say you are about to fly from Los Angeles to London (whether coach or first classdoesn’t matter—at least not here) You are flying with a reputable airline like British Airways,American Airlines, or United Airlines When you board the airplane, do you insist on meeting thepilots to see if you “trust” them? Probably not (and you probably cannot) Instead, you know that youare 99 percent secure in getting from Los Angeles to London because there are thousands of standards

in place, which means that all processes are there to assure your safety That pilot doesn’t start flyingand decide, “I have a brilliant idea and will do something no one has ever thought of before to getfrom Los Angeles to London.” Instead, pilots follow the same procedures over and over They knowthat everything from the engines to the lock on the door have been checked, and rechecked, to meetspecified safety standards—even as they make their “standard” walk around the plane to make sureall is in order

Nowhere is process more important than when working with a team A group of advisors canbecome a mélange of advice, competing ideas, and a regular “horserace” to see who wins unlessthere is a carefully designed governing framework to coordinate their actions Too many wealthinheritors put their advisors in a framework in which all advice comes to the wealth inheritor at once,who is then left with the task of filtering and selecting the course of action, provider, or plan Thatsetup rarely represents process and usually results in utilizing all the rules that don’t work A well-run, single-family office should start out by developing a process which sets out different roles fordifferent advisors as well as objective analytics to evaluate their performance Good process alwaysbegins with clarifying roles

Teamwork always has rules A baseball team, for example, cannot be a group of athletes eachrunning and hitting independent of one another Instead, there are rules of the game and processes thatbuild the team into more than an association of egos Similarly, well-run businesses, good hotels, finetheater, and innumerable other areas require teamwork

Clear roles and teamwork allow smooth wealth management and help facilitate family dynamics.But setting roles can be difficult in families where authority has generally raised the children andprocess is not something parents feel constrained by

My wife and I were once having lunch in a restaurant in Thailand We asked to meet the chef, andtwo women came out of the kitchen to meet us They looked very similar and my wife observed thatthey were identical twins, which they acknowledged One had an apron that said “Chef” and the otherhad one that said “Sous Chef.” We asked, “Why does one have to be the chef and the other the souschef?”

The sous chef answered, “In a kitchen, there must be a hierarchy with one person in charge.Without that there would be issues of quality and cleanliness.”

How did they decide who was chef and who was sous chef? “Well, that was easy,” said the souschef “We are both very good chefs, so we decided to use birth order My sister was born twominutes before I was, so she became the chef.”

Those twins had it figured out Each had a role and that allowed the process to work It also

allowed my wife and I to trust the cleanliness of the restaurant and the quality of the food.

Isolation through Distrust

So trust comes through process, and good process is protective Protecting oneself is important forwealth inheritors only partially because they may want to make sure their money is safe After all, theFrenchman mentioned earlier in the chapter was fine, even after he lost his 20 percent; he had plentyleft over But if your goal is to live life fully, to self-actualize with freedom from wealth, you need to

be sure that you can enjoy your life without spending your time looking over your shoulder andconstantly distrusting all those around you

As discussed at the beginning of the chapter, trust is key to building personal relationships.Unfortunately, like Doug in the opening story of the chapter, many people are actually isolated by thedistrust ingrained in them That distrust ruins personal and familial relationships This corrosivediscord can have a lasting impact

I once worked with a family whose patriarch, a wealth creator, distrusted everyone He playedadvisors against each other, and he distrusted his business colleagues He detested charitablesolicitors, and he felt that he couldn’t trust his children to make any decisions on their own The onlyperson he “trusted” was a stockbroker who sold him tax shelters The only reason he really trustedhim was because, like the patriarch, the broker hated and distrusted government and swore absolutelove, affection, and loyalty for and to the patriarch

The patriarch died and his children, still owning the worthless tax shelters, now struggle to buildrelationships and bonds because they question the motives of any person trying to help them forcompensation In many cases, the only person they are willing to trust is one who says he will not

“make a penny” off them, but is offering this, that, or the next thing out of “love and affection.” Theybase trust on a careful analysis of whether there might be hidden compensation—whether the onehiding it is a broker, an advisor, or a potential spouse Those family members have lots of money Afraudster could take a fair amount of it (and some have) without affecting the lifestyle of the familymembers, but it is the isolation and the distrust each feels that creates the lasting damage

Conclusion

The challenge of trust faced by a wealth inheritor requires careful understanding and management.You need to understand what works and what doesn’t if you are to lead life fully and happily Youmust consider how you were raised and what you were taught about trust Most importantly, you need

to figure out where trust works for you and where it doesn’t Remember what rules do not work—thecloak, the too-good-to-be-true scenario, the herd, and the gut—and make sure to place your trust insound processes Only then can you get on with life

CHAPTER THREE

Family Wealth Secrets

Some time ago, an investment advisor called me He was managing the investments of a family heconsidered quite difficult, as dysfunctional as any he had ever seen The family money he wasmanaging, an investment portfolio, was in the hundreds of millions of dollars The father, a focusedand reasonable man, was the wealth creator, and the mother was relatively uninvolved in the family’sfinances The investment advisor had just returned from a meeting with the parents and their fourchildren, then in their thirties He said the children sat through the meeting silently, the father did allthe talking, and the mother worked on her knitting between serving cookies and iced tea The advisorhad been expected to teach the children about the investment process, but they didn’t seem at allinterested He sensed they were lost and needed more help than he could give them He asked me ifour firm could help the family by designing “governance structures,” such as trusts, partnerships, oreven a single-family office to handle their affairs He had seen those structures in other wealthyfamilies and thought they might work to help this one

We set a meeting, in which I expected to be introduced to a family in need of some guidance, butready to recognize the importance of process in encouraging family functionality I thought that, likemany families, they needed structure to build relationships with each other that would allow them todeal with their substantial wealth Instead, I found four children trying to overcome the ramifications

of a “family wealth secret” more extreme than I had ever seen before—or since

Their father had started a manufacturing business many years before The business employedresidents throughout the community and, as it turned out, was quite successful He took little out of thebusiness, apparently reinvesting all his profits He worked hard, but managed to come home everyevening for dinner (often mentioning problems at work, although never mentioning successes) Likehis workers, he wore blue collars and lived a modest life

He and his wife raised the children in a small house, the front yard peppered with plastic pinkflamingo decorations, in a working-class neighborhood The family had one car and their clotheswere hand-me-downs or purchased from thrift stores The kids went to public school and then to alocal junior college The parents provided small allowances, but none of their children were givencredit cards Everything they purchased had to be with cash About two years prior to my meeting thefamily, the children all had wage-earning jobs One was a librarian, one worked in a fast foodrestaurant, one worked in a factory, and one had a menial job in the father’s company Each had a

“mobile home” parked in a trailer park, and they all came to the same family house every Sunday for

a simple meal cooked by their mother

One Sunday, after dinner, the father called the children into the living room “I want to discuss ourfamily wealth,” he said They all smirked a bit, wondering what in the world their father could betalking about Before they could ask what he meant, he went on to say, “I am told the business isworth about $800 million I also have cash and bonds worth another $400 million I am hiring aninvestment advisor, and I would like all of you involved in managing our family finances goingforward.”

One described that meeting to me as follows: “We thought Dad had gone crazy or was telling ajoke We looked at Mom and she sat in her chair knitting and smiling.” They asked each other how, ifthis were true, they could be living as they were They were so shocked, they weren’t sure whether to

be angry with their father for keeping them in the dark for so many years, or to be thrilled that they hadjust “come into” a huge amount of money like lottery winners

Two years after that discussion, I met with each family member individually The mother spokelovingly of her husband and children, but she worried that the children were not assuming theresponsibilities Dad had given them The father told me about his confusion over the fact that his kidswere not moving ahead with their own plans, nor building good lives for themselves and hisgrandchildren He loved them all entirely, but was troubled He believed the money would providethem support as needed and talked about his own satisfaction in building a good business and raisingfour “basically good” children In his mind, he had told the children about a common family project,managing wealth The wealth was merely a fact of life and of little significance He hoped we couldhelp the family by teaching his children the language of investment, the ins-and-outs of return versusrisk, the difference between bonds and stock, and to make them, as the father described it, “investmentsavvy.”

We spent time with each of the four children The librarian had always dreamed of being a poet.The employee at the fast food restaurant loved to cook and hoped to become a chef The factoryworker always wanted to open an antique store And the daughter in the business would have pursued

an MBA if she had had the resources Each regretted not pursuing his or her dream But central toevery discussion was the unhappiness they had felt being deprived of credit cards and new clothes asthey were growing up To each, that was the most tangible frustration to be expressed None seemed

to mind living in trailer parks, driving used automobiles, or not becoming what he or she wanted, buteach wished he or she had had a credit card

In fact, as we got to know the children better, we found each torn between resenting thedeprivation of credit cards and new clothing and feeling grateful that there was in fact so muchmoney I found that the father was not malevolent or manipulative—he had never purposefully tried tomold his children’s lives by keeping this secret Money and wealth had little meaning to him Heknew of no way to raise children other than as he had, which was more or less the way he was raised,too The house had been full of love, and he never thought that he could improve his children’shappiness with more money

As we talked all of this through, we fundamentally realized that the problem was not the absence

of love, credit cards, or new clothes The problem lay in the “family wealth secret.” The secretdeveloped naturally and with no intent to harm anyone in the family But it left the children without thecapacity to put money in its place and to get on with life It also left them without financial security toself-actualize Its revelation simply compounded the problem because the very fact of the wealthcould not be put into perspective To the children, the news their parents had dropped on them was

all-consuming Figuring out the purpose of the family’s wealth and its role in the family seemedimpossible Not only was the concept foreign to them, having grown up with seemingly little money,but they also felt resentment toward their parents These feelings made it difficult for the investmentadvisor to help them understand wealth management They were all bright enough to have learned theinvestment lingo, but they had much tougher issues to address: What to do with money and how to put

it in its place in their own lives

For the father, sharing the wealth was meant to help the whole family live what he considered acomfortable life He wanted to provide his children with the ability to follow their personalaspirations and even start families of their own His children, however, were irresponsible with their

“newfound” wealth They spent bits of it as if they had won a lottery Some bought new cars, anotherbought an expensive piece of jewelry, but none had moved out of the trailer park Nor were any ofthem working toward self-actualization

So, two years after the secret was exposed, we were brought in to help the children “manage” theirwealth There was, however, a lot to do before we taught investment “lingo” or made them

“investment savvy.” We first needed to help them figure out what their wealth was for We had to getthem past the abrupt exposure to the family wealth secret and help them find what they truly wantedout of life

We spent some time helping the family face, and overcome, these challenges We met with eachson and daughter alone and tried to understand whether there might be some passion under theirconfusion What we found was an extraordinary love of family and a sense that they were a smallcommunity, meeting for dinner together at Mom’s every Sunday night, sharing stories and commonexperiences Church was important to all of them, and they all saw the benefits of a middle-classupbringing

Together, they agreed to create a substantial philanthropic foundation, building a framework forthe structure and process of handling wealth Everyone participated wholeheartedly Small grantswere made to worthy charities with each child making suggestions, following through, and reportingback to the group They saw that $25,000 could jump start a dialysis center in a poor neighborhood;they found that $50,000 could buy books for a local school library; they used $100,000 to grant tuition

to disadvantaged children in their own town Through the foundation, they learned what wealth might

do to change lives They worked with the investment advisor to design reasonable and responsiveportfolios for the foundation and then themselves They began to figure out a “place” for their wealthand became more comfortable having it themselves

This was 20 years ago Today, the daughter in the family manufacturing business has worked herway into a management-level position, after which she earned an advanced degree in accounting Thechef left his fast food job and started a successful small restaurant The librarian kept her job parttime, but began pursuing her long-deferred dream of writing poetry The factory worker has invested

in and runs a small antique store Today, each has a house, several are raising children (and will givethem credit cards), and they are all adjusting to life while continuing Sunday night dinners at Mom’s

This wealth secret was unusual in that there was no conscious attempt by the father to hidesomething from his family To him, money was immaterial, and he never thought to spend it on himself

or his children It was that simple The consequences of that secret, however, were many years ofconfusion The father never considered those consequences as the secret developed; and when thesecret was disclosed, he and his wife could not understand why there were consequences

This was an extreme secret, and few are this dramatic But frequently “culture,” discomfort, rearing notions, and other personal attitudes result in family wealth secrets and ambiguities, leading

child-to most wealth inherichild-tors growing up with wealth secrets kept from them Before we look at the kinds

of secrets and how they are hidden, let us look at some of the reasons they develop It will help youdeal with your parents if you can figure out why and how the secrets developed

Why Do Wealth Secrets Develop?

The wealth secret in the family I described above came about primarily because the father did notfeel wealthy or consider that wealth was significant in his or the family’s life As difficult as thesecret was to handle once the wealth was exposed, its origin was really quite simple to understand

Wealth secrets develop for numerous reasons, some by mistake and others on purpose Often, thefamily wealth secrets come about because of the values or ideals parents want to instill in theirchildren For example, a very wealthy friend of mine married a woman who describes herself as a

“communist.” She hates wealth and wishes her children had nothing So she insisted that the children

be raised to believe that they were not wealthy, to share the burdens of poverty in a capitalisticsociety That mother would say her decision to keep wealth a secret was designed to help herchildren find their way in the world A psychologist might say she was trying to live out a fantasy, notunlike Marie Antoinette’s little farmhouse, and putting her children’s lives into that fantasy

Another reason wealth secrets arise is that many people are unwilling to discuss their wealth orthe wealth of others Talking about money can seem embarrassing The daughter of a wealthy fatherwho was an alcoholic told me, “My father was a rich drunk, and when we were growing up, motherdidn’t want us to discuss money or dad’s drinking Both were taboo.”

Today, in polite society, most people don’t feel comfortable discussing wealth at all, but this canunfortunately result in secrets that hurt generations to come That was clearly the case with a family Iworked with that was in its third generation of money and was actually returning to “shirtsleeves” asthe money got divided at each generation The mother and her husband raised the six members of theirfourth generation as they had been raised: people of culture—musicians, artists, and the like Onemarried a rich man, but the rest effectively lived like paupers Despite their cultured upbringing, thechildren failed to learn about handling and managing their own money and living within their means.Although the parents wanted to provide their family with the best opportunities, they avoidedconversations about the family wealth, financial planning, or money in general

Those parents asked us to start “bringing the children into understanding about their wealth” whenthe youngest was 30 That required going over their wealth (really, their lack of it) when each wastoo old to start a gainful career We carefully reviewed with each what they could not afford to do,what expectations they might have regarding lifestyle and independence, how to live on what theyhad, and when they could turn to their parents for support Several who were artists found they had totake on small jobs to supplement income The one who had married a rich man decided that shewould forego receiving gifts from her parents so her parents could give more to her brothers andsisters One sold his house to purchase a less expensive one

Today, they are all living with day-to-day financial uncertainty They were raised rich, but thesecret was that they would not remain wealthy There was no direct communication with their parentsabout money, so they had no way to apply a “reality check on their wealth.” Their situation is not

unique—many children are raised wealthy without the level of communication needed to let themknow what their financial future holds.

Wealth secrets can also develop simply by circumstance One of the children of the owner of one

of the largest privately held companies in America said to me once, “I thought of myself as middleclass like all my friends Imagine how I felt in high school when one of my friends showed me

Forbes, and I saw that we were one of the richest families in America It was a terrible feeling.”

With less and less privacy, more journalism about wealth, and all the information available onsocial media, that feeling is expressed more and more by wealth inheritors The family wealth secrethappens because the parents don’t think of themselves as wealthy; the “secret” becomes public beforethe children even know about it

Fear can be a motivator in keeping wealth secrets—at Lowenhaupt Global Advisors, we see it allthe time with different families Not infrequently, very wealthy people from Latin America lead apauper’s lifestyle at home because they worry about kidnapping, confiscation, and other threats They

do not want financial papers sent to them at home Yet, when they are in Miami or New York, theylive the life of royalty

An 80-year-old client of ours lived in fear that America was heading for anarchy and confiscation

He belonged to various societies and funded programs designed to warn the wealthy what was tocome Planning his estate, he confided to us that he had many millions of dollars worth of gold invarious Swiss safe deposit boxes “so he could use the funds when the United States collapsed.”Rather than asking how he would get to Switzerland to take custody of the gold, I asked him whoknew the location of the bars He knew the location, but was unwilling to tell anyone else “Howabout your son?” I asked

“The government will take him and torture him until he tells them the whereabouts if he knows So

I am not telling him,” he responded

I then asked the logical question gently, “What if you die? Who will retrieve the gold?” After apause, he said he had to leave my office I later learned that he went straight to his son and divulgedthat family wealth secret

Although the example above may seem extreme, there are other fears that also enter into parents’

or grandparents’ decisions to keep wealth secrets The most common is the fear that knowledge of thewealth will affect values and motivation Wealth creators worry that if their children know all aboutthe family wealth, they may become spoiled or lazy, thinking that life will be easy for them and thatall their needs and desires will be met, given to them on a silver platter Another fear is that once thechildren have knowledge of wealth, they will waste or lose it by taking control over it Parents oftenhave difficulty analyzing exactly how the wealth can hurt their children and, rather than developingstrategies for forthright conversations, try to avoid any discussion of or reference to the familywealth, creating the family wealth secret

Legacy Family Wealth Secrets

A unique type of wealth secret relates to legacy For example, a great grandfather who was acrooked broker can become a wealth creator philanthropist in family lore—his shady past becomesthe secret But there are many more subtle legacy family wealth secrets as well

A grandfather set up an irrevocable trust many years ago designed for his grandchildren and moreremote descendants, with his only child, his daughter, as the sole trustee Long after he set the trust up,

his daughter had two sons, his grandsons When the grandfather was very old, one of his grandsonsmarried and had children and the other announced to his family that he was gay and would nevermarry The grandfather then entered a pact with his daughter that the gay son should never know aboutthe trust The daughter wrote a memorandum explaining that pact and, naming the other son hersuccessor trustee, delivered the memorandum to him.

When the daughter died, her successor trustee felt obligated to maintain the family secret from hisgay brother Yet, the lawyers told him that he was obligated as trustee to tell his brother (whom heincidentally loved) That trustee son was saddled with a family wealth secret, a legacy from hisgrandfather and mother By maintaining the secret, he would make it his own secret and a wallbetween himself and his brother By disclosing it, he could break the legacy and maintain the openrelationship he valued with his brother

Trusts and Family Wealth Secrets

Trusts are often used as repositories for family wealth secrets They are frequently shrouded insecrecy when, in fact, a well-run trust should be transparent and their trustees, beneficiaries, andcreators should understand them A well-managed trust is a business entity with a purpose and goalsexpressed in the instrument creating the trust The trust holds wealth or pieces of wealth, provides forits management by professionals, and allows or requires distributions to beneficiaries It separatesthe management of the wealth from the benefits of the wealth When a trust is well conceived and wellrun, it allows both freedom and protection

However, many trusts are created and described as a “dead hand.” In other words, a personcreates the trust, and long after the death of the trust creator, the trust grasps the wealth and keeps itfrom the beneficiary The trustees see the trust as the creator’s way of keeping a “dead hand” at thecontrol panel The trustees see themselves as having loyalty to the creator alone and as sentries along

a wall of protection between the creator and the heirs

There are better attitudes toward, and functions of, trust Increasingly, legislatures and trustees arefocusing more on beneficiaries and less on creators by allowing parties to modify trusts to meet theneeds of beneficiaries Trusts can provide sound management process when fiduciary standards arefollowed carefully Those standards also require transparency, and when administered well, canbring wealth inheritors and their families an understanding that is always beneficial Communicatingthe process to beneficiaries in advance allows understanding, and understanding allows trust andcomfort Trust in process and comfort allow the beneficiary to get on with life A trust is oftenimmune from the claims of creditors It can also save substantial estate and income taxes And, it can

be drawn with great latitude in terms of the beneficiary’s rights at death or during life

Most jurisdictions require that trustees share information with beneficiaries, including the terms ofthe trust, the assets in the trust, and the policies adopted by the trustees The trustees have substantialresponsibilities toward the beneficiaries, and trusts work best when the trustees and the beneficiariesunderstand those If the beneficiaries—the wealth inheritors—work to understand the terms of thetrust instrument, the investments of the trust, and the rules being followed by the trustees, they can planlife with that trust in mind The inheritor can learn to appreciate the freedom that the trust allows andhow it can be used to help them achieve their own self-actualization, all of which lead to aproductive, happy life

Yet, family dynamics, trustees loyal to the dead hand, and the tendency of trustees to want to think

of themselves as not accountable to beneficiaries often cordon off the trusts When discussion of trustsbecomes taboo, a wealth inheritor has little opportunity to plan reasonably Of equal significance,with the specter of an undefined trust hovering, the beneficiary may assume that the trust is muchlarger than it is The inheritor could likely put life on hold, waiting for the death of someone, or arevelation yet to come.

Many parents and grandparents set up trusts for minors designed to take advantage of the “annualexclusion” from gift taxes These trusts are either distributable to the minor at age 21, or they give theminor an annual right to withdraw from the funds Regularly, a parent or grandparent calls me to saythe minor is about to turn 21 and to ask how to keep the trust a secret “We don’t want him spoiled bythe money and rushing out to spend it on luxuries,” they’ll say In fact, we have never found a healthy21-year-old who cannot understand that there are better things in life to do than managing money

Our experience leads us to advise the parent or grandparent to tell the young adult about the trust

We can then discuss with the inheritors how they are working hard in school, building friendships,and may likely prefer not to spend their time managing money They might consider rolling the fundsinto a new trust to be held until they are older and ready to take over We have seen hundreds ofyoung adults accept that perspective (sometimes after a celebratory birthday glass or two of hardliquor) and sign a new trust We have never seen a young adult say “no” on their 21st birthday Wehave seen them say “no,” however, on their 25th birthday, when their parents explain that the trustwas supposed to go to them at 21, but the parents didn’t want to tell them about it because they weretoo young for so much money To that young adult turning 25, the trust that was written to bedistributed at 21 becomes a family wealth secret and, all of a sudden, the inheritor feels tempted toburst that secret, take the money, and run

I find a trust distribution and discussion at 21 is a good opportunity to try to put money in its place

It is an opportunity to explain exactly what the trust principal can buy—usually not much more than ahouse—and what the income can mean when a family is being raised or a business begun Rather thankeeping a secret, this is the time to explain money and wealth management while allowing the 21-year-old to get on with life

A greater desire to understand a trust is what a 30-year-old man came to see me about, severalyears ago He was from a wealthy family and his father had created the wealth He knew of a trustheld for his benefit by the family lawyer His father had mentioned it to him when he was 21 and hadhad him sign a piece of paper meant to keep the money saved in the trust for many years to come Theyoung man, however, had plans to start a business He wanted to get married, buy a house, and start afamily He was not going to have a regular job with regular pay because he believed that the trustwould pay him at some time He wanted us to do his estate planning and help him prepare for thefuture

I asked him about the trust, and he said that although he knew little about it, his father had told him

it involved lots of money “I assume it is in the tens of millions because dad is very, very rich.” I toldhim that I thought it would be worth finding out the details before making assumptions, but he said hisfather would be upset if he asked about it I explained that under the law, he was entitled to see theinstrument he had signed and to know the amount in the trust I undertook to call the lawyer trustee.The lawyer trustee disclosed all the information (as required by law) We learned that the trust held

$2 million in assets and would distribute only when the young man was 50

That man needed to know the details of that trust when he was 21 Instead, he had assumed it was