CHAPTER 1

What Is the Wealth For?

Wealth is the slave of a wise man. The master of a fool.

—SENECA (5 B.C.-A.D. 65)

When it comes to significant family wealth, the starting question is always,what is the wealth for? That is an easy question to ask and a very difficultquestion to answer.

It is much easier to say what the wealth is not for, including the following:

* I don't want it used for taxes.

* I don't want it squandered.

* I don't want my spouse to take it in a divorce.

* I don't believe in charity, so it is not for charity.

* I don't want my children to have it too young.

* I don't want the lawyers using it all up in fees.

Any of these statements may be reasonable. None answers the question what thewealth is for.

Wealth is always to support the wealth holder with reasonable necessities oflife—food, clothing, housing, and some luxuries. And for most people,wealth is for the education of children and possibly grandchildren. But thereare amounts of wealth beyond those reasonably needed for living. If wealth isfor something other than extravagant consumption, the question always remains,what is the wealth for? Surprisingly, it is a question that rarely gets asked,nor is it revisited in the few cases it is initially asked.

I have spoken at wealth conferences around the world. Whether in Mumbai, London,or New York, members of the audience come up to me afterward and say that thequestion has never been posed to them before. Is it a valid question in thefirst place, I ask? It is, they answer. But it is a dangerous question for aservice provider to ask because if accomplishing the wealth's purposes does notrequire products being sold, there can be no sale and no profit from theprospect.

The story of a 95-year-old man who came to see me many years ago illustratesthis point. This gentleman was a Holocaust survivor, unmarried, and withoutchildren. He was planning his estate and I asked him about his assets. He hadall of his wealth, more than $1 million (then a great amount) in treasury billsin custody at the Federal Reserve. I asked him whether he should consider assetallocation, inflation, efficient frontiers, and so on. He answered, "This moneyis to take care of me during my lifetime. It serves its purpose best in cashequivalents, and at my age I have no concern about inflation." He knew what thewealth was for and had absolutely no need for financial services advisors muchless any of their products.

An accidental wealth holder who came into my office several years ago hadinvested in a friend's business 30 years earlier and came to own stock worth$800 million. He explained that he came to see me because he wanted to savetaxes. "That is fine," I said. "We can do that and have been doing it for 95years. But you are telling me what you do not want your wealth usedfor—taxes. What do you want your wealth used for?" He asked me what Imeant, and I said, "What are the purposes you want to accomplish with yourwealth?" His reply was one that I had not heard before: "Well, what are mychoices?" I laughed at first and then told him the question was actually anexcellent one. What are the choices?

In fact, the choices are not so many if we are talking about substantial wealththat is to be multigenerational. Broadly speaking, there are only two choices,though there may be gradations between them.

First, wealth can be for freedom and functionality. The idea is that thefunctional person with freedom can be whatever he or she wants to be. Second,wealth can be for control, so that a person's children and grandchildren canlive without concern or involvement with his or her wealth.

When I set out those choices—freedom and functionality, orcontrol—the accidental wealth holder said he could tell which I endorsed.The benefits of freedom and functionality were clear in the very words I used.But the accidental wealth holder believed that control was a negative concept. Ireplied that I endorsed neither and was in fact neutral. If instead of "control"I had said "protection," my perspective may seem less biased. An analogy helpsclarify the point. A Benedictine monk, living in a very controlled monastery,with access to neither money nor control over the way affairs are handled, hascomplete intellectual freedom. He is liberated of any concern about payingmortgages, investing monastic funds, or even where and what he will have fordinner.

So either choice can provide self-actualization if handled correctly. However,risk is implicit in both. To make wealth deliver freedom and functionalitywithout protection requires that the children or grandchildren be allowed tolose the money. In essence, they have to be free to fail. When a parent teachesa child to ride a bike, the parent must be prepared for the risk that the childwill fall. I told the accidental wealth holder that he had to be prepared forhis children or grandchildren to lose the money, to return to shirtsleeves, ifhe was to choose the course of freedom and functionality.

The risk of choosing control or protection lies in the danger that one'schildren may have believed the wealth was for freedom and functionality andwould be hurt to learn it was not. The purpose of thewealth—protection—must be shared early with the entire family. Itold the accidental wealth holder about a family my father and I had worked withmany years earlier. The patriarch had decided he would protect his heirsforever; his purpose for his wealth was control. We called the entire family,three sons in their midtwen-ties,...