Scott Fitzpatrick:
Hi everyone. Scott Fitzpatrick again. I want to continue on with this theme of Family Constitutions. I’ve previously spoken about them, that it can be part of your will. So, if mom and dad would die, there’s a bunch of assets here that maybe used for the children, or they might like to keep some of those assets back in a Family Constitution. For example, as part of an estate planning exercise, you may go, you know what? The capital that’s in the superannuation fund plus the family home might get split amongst the children. But the majority of the assets, these assets here, I might want to keep for the children and the next generations. And the family constitution can be the rule book for how that wealth is to be used, is to be distributed. And what’s the ultimate purpose of those assets? A lot of people liked the concept of keeping it for the next generation and the generation after.
So, your children effectively become stewards of the money. That’s all part of the wills and estate planning, but you can also use the Family Constitution as part of your living estate. So it’s operating today. Once again, mom and dad are alive living off the Superfund income, and we have a whole bunch of assets here that could be in that $5, $10, $20, $100, $200 million range. And how do we do with those assets now mom and dad are getting older? Who’s going to look after them? Who’s going to run them? Has the family used them? And for what purpose? What’s the role in community? What’s the role with charity? What’s the role with philanthropy?
Do we split the income off? Do we reinvest the income? What are our investment parameters for this? What level of risk do we want to take? Do we look after children? Do we look after children’s children? Do we look after education expenses? All of these things can start to come into this living document. The point of this document is it just doesn’t get written up and put on the shelf. This is the document that’s referred back to in family meetings or what I call it sitting on the family board. So let’s have a look at this document in a little bit more detail now.
Firstly, it’s a statement of intentions about it. What are the reasons for establishing a family constitution and what are our family principles? Honest and ethical, humble and fair, loyal and respectful, tolerant, compassionate, flexible, friendly, and approachable. Each family obviously can debate this and make sure that the words resonate with them. And what are the desires for this process? What are the family objectives to achieve individual acceptable balances of work and life, maintain good long-term relationships between family members? Who can be on the board of directors? What constitutes the board? What external board members and professional advisors who we’d like to have? Who do we like? Who do we trust? Who don’t we want? How do we run board meetings? Who’s the chairman of the board?
And once again, as a living document, quite often, the matriarch and patriarch are the chairman of the board. Resolutions of the board, flying minutes, distribution of income. So who are we going to distribute to? Charities, eligible members? Tax needs to be considered, entitlement to capital. Can we lend out to other family members? Grants of loans. Who can be a member? If you’re married to someone else who has children, how does that membership work? This entitlement, it’s a really important one. If someone has problems with drugs or gambling, is there a disentitlement act in there?
Financial education, conflict resolution, investment policy, and this particular one, use for the family home. Is their assets here that aren’t to be sold that need to be retained inside the family group. How does this interact with your will and entities? Who would be trustees?
So it was just an overarching document that’s going to be the rule book for the family wealth and there’s some eligibility requirements. Once again, it’s an active document. It doesn’t sit on the shelf. It’s there as a living document for the estate now, and it will interact with wills into the future. A great piece of value add to bring to a successful family. It’s a really great discussion point. Remember, our starting preface was that people, with some wealth quite often don’t want their kids to be the country club kids in the future.
