The Anti-Entropy Engine: The Family Constitution
The Anti-Entropy Engine: The Family Constitution
Why 90% of wealthy families lose their fortune by the third generation, and how a written “Social Contract” prevents the “Shirtsleeves to Shirtsleeves” curse.
Executive Summary
- The Problem (Entropy): Trusts and LLCs control assets, but they do not control people. Without a shared vision, heirs often view the family wealth as a bottomless ATM, leading to internal conflict, lawsuits, and eventual dissipation of the fortune.
- The Solution (The Constitution): A Family Constitution is a formal document that defines the “Business of the Family.” It answers critical questions: What is the purpose of our wealth? Who is allowed to work in the family business? How do we resolve disputes without going to court?
- The “Rules of Entry”: Successful multi-generational families (like the Rothschilds or Rockefellers) treat family employment as a privilege, not a birthright. A common constitutional rule: “To work in the family firm, you must first get a university degree and work for 3 years at an outside company with a promotion.”
Not a Legal Contract
Critical Distinction: A Trust is legally binding. A Constitution is usually morally binding. While you can tie Trust distributions to Constitutional compliance, the primary power of the Constitution comes from consensus, not coercion. It is a peace treaty signed before the war begins.
Mechanic: The Three-Circle Model
Shared Mission
The “Why”
Employment
Meritocracy Rules
Council
Decision Body
Conflict
Resolution Path
Simulation: The 30-Year Trajectory ($50M Estate, 3 Heirs)
Wealth Retention Probability
| Feature | Estate Plan (Trusts/Wills) | Family Constitution |
|---|---|---|
| Focus | Assets & Taxes | Values & Behavior |
| Goal | Transfer Wealth | Preserve Family Unity |
| Creator | Lawyers (Top-Down) | Family Members (Consensus) |
“He who owns the gold makes the rules, but he who writes the Constitution defines the legacy. Without a governance structure, your wealth is just a magnifying glass for your family’s dysfunction.”
Essential Resources
INTERNAL
BMT Playbooks