• Date: January 19, 2012
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• Tags: Cornerstone Advisors, press coverage, wealth management
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Dow Jones Newswire features Seven November client Cornerstone Advisors, on the importance of financial communications within families.

Teaching Client’s Children To Manage Wealth

By Harper Willis
A DOW JONES NEWSWIRES COLUMN

–Ultra-affluent couple wants to teach their children financial stewardship

–Running a charitable foundation gives children on-the-ground training

–Debating their choices with Dad

The client, the CEO of a publicly traded company, was about to retire and gain access to nearly $100 million in company stock.

Because he and his wife had always lived well below their means, plenty of that money would eventually go to their three 30-something sons. The couple was worried that their sons weren’t prepared to deal with such a huge windfall.

For help, they turned to Ken Hart, who works primarily with families with multi-generational wealth issues, at Cornerstone Advisors, based in Bellevue, Wash. The parents had held off on telling their sons about their inheritance so that they would build their own careers, says Hart. “Also, they didn’t just want to dump tens of millions of dollars on their kids’ laps without any warning,” he says. “They wanted to teach them how to give back to the community while preserving the wealth for future generations.”

The parents wanted to create a private foundation for 5% of their assets. Hart suggested that they offer the sons positions at the foundation to learn about tax requirements, investment management, record keeping and philanthropic giving. “It was a perfect way to ease the sons into the financial decision-making process,” says Hart.

At a family meeting, Hart explained the basics to the kids–that Mom and Dad would run the organization and they could be president, treasurer and secretary. Each son would be responsible for a portion of the money the foundation had to give away. They could choose which organizations they wanted to fund, but they’d have to defend their choices at biannual family meetings, proving that their selections fit with the foundation’s mission. These debates would be “a forum for the father to teach his sons about running a philanthropic organization,” says Hart.

Hart met with each son individually to help him prepare for the meetings. “They could ask me the basic questions they were embarrassed or shy about asking at the family meetings,” says Hart, who tutored the sons in investment fundamentals such as asset allocation, as well as the tax implications of their charitable giving decisions.

Each son learned the nitty-gritty details of running a foundation and how to work one-on-one with a financial professional.

At first only the eldest son–who had considerably more business experience and education than his younger brothers–enjoyed the debates with Dad. It took longer for the younger sons to gain the confidence to defend their choices, but eventually all three became highly engaged in the process.

Today, 14 years later, the foundation has given away more assets than the original funding, while still preserving its principal value. The client’s grandchildren are now attending the annual meetings and starting to identify charitable beneficiaries, to grandpa’s delight. “The point of having the sons work at the foundation was to teach them how to think beyond themselves when it came to the family’s assets,” says Hart. “Now the sons are teaching their own children the same lesson.”