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Does Your Family Need a Constitution?

Posted On: Tuesday, August 2, 2022

Does Your Family Need a Constitution?

“All happy families are alike; each unhappy family is unhappy in its own way.” (Leo Tolstoy)

What is a family constitution?

You may have heard people referring to their Family Constitution, Family Charter or Family Protocol. These are all different ways of describing a document that sets out the rights, values, responsibilities and rules applying to a family, and provides plans and structures to deal with situations that arise in the course of the family’s financial dealings.

At the heart of most family constitutions is an agreement on how to use the family’s wealth. While family constitutions work best when they are referred to on a regular basis, they really come into their own at times of family crisis.

Ok, but what does it actually look like?

What shape a constitution takes will vary greatly from family to family. It could be a one-pager that sets down a few ‘guiding principles’. Or it may be a weightier document containing a family history, a mission statement, a set of values and beliefs, and a blow-by-blow account of how future wealth will be distributed. The best constitutions also tend to include a list of roles and responsibilities (both within the family and without) as well as some ground rules outlining how a family council might work. Some family constitutions are legally binding while others are only morally binding.

The journey can be more valuable than the destination

Addressing important issues, assumptions and differences of opinion before external circumstances force you to confront them – impending marriage, an offer to buy the family business, the death of a family member – can only be a good thing.

Making decisions about family businesses, family farms and family heirlooms is often more complicated than simply divvying up wealth. If you’ve got a family business, for example, a constitution can provide some important ground rules. These include, but aren’t limited to:

  • How the family should be involved in running the business, and which expertise should be sourced from outside the family  
  • How individual family members are remunerated for their contributions to the business  
  • How you’ll balance growing the business with making distributions  
  • Under what circumstances the business might be sold.

A collaborative work in progress

For any constitution to be successful (family or otherwise), you need to get buy-in from as many stakeholders as possible. Remember that while the younger generation are not calling the shots now, they will soon be tasked with managing family affairs. If senior members of the family simply present the constitution as a done-deal, it’s likely to cause more harm than good.

If, on the other hand, every member of the family feels like they’ve had a hand in crafting the constitution, it’s more likely to succeed. At this stage of proceedings, it’s also a good idea to involve us, your family’s financial advisors. 

That being said, it’s highly unlikely that you’ll be 100% happy with the first draft of your constitution. If you all see that some or other aspect of the constitution is not working, it’s time to call a family meeting and hammer out a better solution. It also makes sense to stipulate that the constitution should be reviewed every five to ten years. (This is a great opportunity to canvas the opinions of younger members of the family who’ve now reached adulthood.)

Putting your constitution to the test

A good constitution will usually stipulate regular meetings. And it goes without saying that the constitution itself should be front and centre at those meetings.

A good constitution will make it easier to arrive at important decisions, and it will also provide a framework for resolving conflict. By the same token, any failings in your constitution will also be shown up, giving you time to fix the relevant clauses before you’re faced with a serious crisis.

Our take on the matter

As your financial advisors, we really appreciate it when a family has a constitution because it makes it easier for us to preserve your family legacy. Good constitutions outlive the people who write them – and we want the prosperous relationship between our firm and your family to continue for generations to come.

Please speak to us about putting together a constitution that will ensure this happens.

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