Wealth Stewardship

When we create Legacy statements with families, more and more we see the word Stewardship to create a whole Family value around it.  And it makes sense! The challenge for many affluent families is that family wealth is not self-perpetuating and often disappears within 2 or 3 generations. The Irish proverb, “clogs to clogs in three generations” applies to every culture.

Proper stewardship of family wealth is a key best practice that affluent families should adopt if they desire to make their wealth sustainable. At 5Gens we try to make it work at least for 5 generations, so the concept of Stewardship, raised to the level of a Family Value, often makes sense.  And choosing the right Stewards for the family is always complicated and can lead to issues later on if done incorrectly.

The Merriam-Webster dictionary defines ‘Stewardship’ as: “The activity or job of protecting and being responsible for something.”

Given the role of a steward, there are four Key Principles that should apply:

1. Ownership: A steward doesn’t own the assets; they just hold in trust and use what’s been given for the benefit of the one who really owns the asset.  In that sense, the Steward should be mature and responsible enough, and not greedy or needy.

2. Responsibility: A steward is responsible for the proper care and further development of what’s been entrusted to him or her.  A steward can be an organization, and not necessarily one person, but that only complicates things as even people within an organization or your family might not be so trust-worthy.

3. Accountability: A steward needs to provide account to the owner of how well they’ve managed what’s been entrusted to them.  Proper and periodic reports should be set from day 1.

4. Compensation: A steward is entitled to compensation.  Out of the 4 Key Principles, this is the probably the one most forgotten about.  And this can only create resentment down the road, either from the Steward that he feels his time is not valued by others, or by the other family members if things go wrong due to bad decisions taken by the Steward.

These Stewardship Principles should guide you best when making decisions down the road, as you will not always be around, but your Family and Wealth might be.