Codify Your Legacy

Your financial legacy will be mostly measured by how successful your heirs steward your wealth, after you’re gone. That’s why you should work diligently during your lifetime to prepare them for success.

This post describes three ways to codify your legacy to better prepare the next generation for the responsibility of wealth management.

Documentation Matters

Families that communicate and make plans inclusively have a better chance of successfully transitioning wealth to the next generation compared to those who don’t.

For much of their lives, your children will be without your guidance. But, you can influence their future by codifying a financial philosophy and wealth management process they will follow. Doing so is one way your legacy will stand the test of time.

Here are three ways to begin Codifying Your Legacy:

1. Perform a “SWOT” Analysis
2. Document a formal Investment Policy
3. Create an Operations Manual

Take Stock

Many businesses undertake some form of SWOT analysis during business planning. SWOT stands for “Strengths, Weaknesses, Opportunities, and Threats”.

Strengths and Weaknesses are often related to the internal capabilities. Whereas, Opportunities and Threats are usually external.

Consider an intergenerational family owning $100 million worth of blue-chip stocks, a cottage in Muskoka, and three houses in Toronto. Grandparents in their late 70s, two kids in their 40s each married with children of their own.

After their family office advisor listens to their perspectives, the following SWOT characteristics are identified:

• Strengths: liquidity, investment manager in place, income generation, family harmony.
• Weaknesses: tax plans, mentorship, governance.
• Opportunities: diversification, philanthropy, delegation.
• Threats: professional/management fees, fraud.

A good SWOT analysis will uncover areas to focus on. Your family office can use the SWOT analysis to recommend actions and draft documentation addressing the issues raised; co-ordinating the work of other professionals when appropriate.

An Investment Policy

An Investment Policy Statement is a formal document describing the way your investment portfolio is managed. It often includes a description of your values, your investment philosophy, how you manage risk, a list of eligible investment types, a target asset allocation, a governance structure for how investment decisions are made, and how you evaluate performance.

Investing without a plan is like sailing without a rudder. Without an Investment Policy, your portfolio’s returns are determined by which way the wind blows, instead of your chosen course.

Regarding your legacy, it becomes much easier for future generations to follow your investment wisdom when it is documented in a form they can refer to and build upon after you’re gone.

Your Operating Manual

It might seem curious to create an operating manual for an investment portfolio. But, there lots of administrative tasks that contribute to your portfolio’s success that must be completed.

For example, you’ll need to file tax returns which means keeping accurate books & records. Evaluating your individual investments and investment managers requires a standardized performance measurement system. Making new investment decisions requires a clear and consistent diligence process.

Documenting an operating manual for your wealth management process will provide your heirs with much more confidence because they will be provided with a template they can follow, delegate to service providers, and build upon as time goes by.

A documented Wealth Management Process can also be given to service providers who will support your heirs.

Who Cares?

If you’re reading this post, I hope you care about the financial success of the next generation of your family.

Without documentation that your heirs can rely on, they will be more financially vulnerable to fraud, salesmanship, and high fees.

Your financial legacy will be more secure when you document plans that guide the decisions of future generations long after you’re gone. Better yet, future generations can then build on your legacy by adding to your framework as times change.

Clear documentation provides a stronger foundation than your words alone and encourage future generations to readily build on your success.

Your Family Office

If documenting your financial life seems like a lot of work (or super boring), then delegate this responsibility to your family office.

Your family office can do the work by gathering information, creating draft documents, and working with you to illustrate your opinions in a clear and professional way.

A good family office will clarify your opinions and moderate discussions between family members so that everyone can freely express themselves, thereby creating greater next generation accountability.

Your Kids Will Do Things Differently

Oftentimes, your heirs are not always the best people to be doing the day-to-day tasks that professional wealth management demands.

If you’ve been doing much of the administration yourself up until now, consider delegating responsibility.

Its important to begin delegating certain tasks to other professionals working for your family including your family office, your accountants, your lawyers, and your investment advisors to prepare for a sustainable transition of your wealth to the next generation.

Let the weight of administrative responsibility fall to your service providers. Doing so will help you gain the scale required to successfully transition your wealth to the next generation. To do this, you must codify your legacy by documenting your wealth management process, so your heirs and their service providers can readily build from your financial achievements when you’re gone. Its much easier for your heirs to gain experience while you can teach them, so don’t wait, act now.