Jay Pritzker, the founder of the Hyatt hotel chain, sent a two-page memorandum to 11 heirs years before he died in 1999, outlining how the family's multibillion-dollar empire would be run after his death. The document named a management team, outlined a business philosophy and prescribed how the $15 billion empire would be carved up over the ensuing decade. The note voiced expectations of harmony through the next generation.
Harmony was the last thing he got. Two grandchildren, Liesel and Matthew Pritzker, are suing their father and other family members on accusations that their assets were diverted from their trust funds and that they were excluded from plans for the family fortune.
Unfortunately, such unhappy endings are far too common in dividing family estates. Today, many personal financial advisers say that families that want to preserve their wealth should consider more than just passing on the cash.
"It's not so much about preserving assets, but preserving family," said John Scoggin, a financial adviser in Roswell, Georgia.
Warren Buffett, who with a net worth of about $41 billion and three children ought to know a thing or two about providing for his family, has absolutely no intention of leaving the bulk of his money to his children. The perfect inheritance to leave his children, he once told Fortune magazine, was "enough money so that they feel they could do anything, but not so much that they could do nothing."
"The definition of how much is enough," said Paul Comstock, a financial adviser in Houston, "is based on the platform of our expectations for entitlement." In other words, if you are used to flying your own plane to ski at Vail, you will not be happy taking the overnight bus to Durango, a less exclusive ski resort in Colorado.
Comstock says he has created an incentive trust, a "bucket" of money to help keep his family together in future generations and give his descendants life-forming "experiences" like foreign travel, a summer home, or a college year abroad. "It's all about the things that as a grandparent or parent if we were alive we would probably support and help fund," Comstock said.
Some incentive trusts are as simple as providing money for a college education. The U.S. and other tax codes have provisions that allow parents to put away substantial sums tax free if they will be used to pay tuition and related expenses.
Tax codes vary from country to country, but effectively a wealthy individual seeking to leave money must tackle two issues: how to provide for the family with a minimum of taxes and what kind of control to retain over how the money is spent.
Experts agree there are two keys to a successful family trust. The first is having the family unified around a single purpose, Comstock said. The second is to select a good administrator.
Catherine Keating, global head of fiduciary and wealth advisory services at J.P. Morgan Private Bank in New York, said, "The selection of the trustee is probably the most important decision the family makes."
Keating, whose clients tend to be worth $25 million or more, says there is really only one thing to look for in a trustee, good judgment.
"At the end of the day you can partner with experts" in law, taxes or asset management, but she adds, "what you need with a trustee is judgment and continuity. You are setting up a structure that will outlive you."
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