Pennsylvania Trust

Planning Beyond the Financial Value of Money

Photo of Julie Karnavas

It can be daunting to think about how best to communicate the intangible value of family wealth to multiple generations. We are frequently asked how to conduct these conversations with the next generation and how to ensure that family values are not lost in the financial conversation.

We recommend a plan that begins with an understanding of “from where” and “how” family assets were earned. Whether assets are inherited, earned or a combination of both, it is important for future generations to understand where the family wealth came from.  Everyone loves a story, and it is important to create the connection early. While the portrayal may reflect financial success, it is important also to tell the hard-fought lessons that were learned along the way.

It is natural to have multiple views, different levels of financial savvy and competing interests across generations of families. Keep the conversation real and relevant. One way is to identify philanthropic goals that may encourage a family discussion about values. Often these conversations can lead to vigorous family debate, but it is an excellent way to draw out one’s feelings about wealth.

Centering conversations about values/mission provides an ideal backdrop to educate the family about financial concepts while at the same time imparting a non-financial understanding of the value of money. Encourage the family to create a legacy mission statement that will serve as a centering document for future conversations around goals and money.

Aligning portfolios to address competing needs

As legacy goals, values, and mission evolve, there are many ways to ensure that the whole family remains engaged. Beyond goal setting, the family may wish to incorporate an impact or ESG (Environment, Social, or Governance) screen to their portfolios. Indeed, we have seen this approach successfully develop in recent years as more and more corporations realize the financial benefits to managing around sustainability goals. At Pennsylvania Trust, our asset allocation framework may incorporate sustainable investment goals to enable investors to reflect values within the structure of their portfolios.

These investment themes develop with an initial conversation about risk, return, and time horizon. Regardless of the underlying investment strategy, we believe it is essential that there is a firm understanding of different levels of risk. The one that most people understand is permanent loss of capital, but perhaps the most likely (and harder to understand) is an erosion of purchasing power of assets due to inflation, if funds are not invested appropriately. The graphic at left portrays investment objectives and how they protect financial assets over long periods of time.

Open discussions around estate and inheritance plans, family philanthropic efforts, and thematic investment strategies are all effective ways to communicate your thoughts and wisdom about wealth and investing to your heirs — the smart decisions you’ve made, the mistakes that have happened along the way, and the things you most wish someone had told you about money and investing when you were younger.

Julie Strong Karnavas is Executive Vice President, Director of Portfolio and Relationship Management at Pennsylvania Trust.