The Social Contract of Wealth: Family Constitutions & The 3-Generation Curse
The Social Contract of Wealth: Family Constitutions & The 3-Generation Curse
Trusts manage assets; Constitutions manage people. Why 70% of wealth transfers fail due to family feuds, not taxes, and how to write the “Rules of Engagement” to prevent civil war.
Executive Summary
- The Statistics of Failure: Research shows that 70% of wealthy families lose their fortune by the second generation, and 90% by the third. The cause is rarely “bad investment.” It is **”breakdown of communication and trust”** among heirs.
- The Solution (Family Constitution): A document that defines the “Why” of the wealth. It sets the rules for:
1. **Employment:** Can family members work in the business? (Nepotism vs. Meritocracy).
2. **Communication:** How are conflicts resolved? (Family Council).
3. **Mission:** Is the money for lifestyle or for impact? - The Structure: While not legally binding like a Trust, the Constitution acts as the “Letter of Wishes” guiding the **Private Trust Company (PTC)**. The PTC Board is morally bound to execute these rules.
The “No-Nepotism” Clause
The Most Critical Rule: Nothing destroys a company faster than an incompetent heir acting as VP.
👉 Standard Protocol: “Any family member wishing to join the business must:
1. Have a relevant Master’s Degree.
2. Work for 3-5 years at an outside company with a promotion.
3. Apply for an open position and compete with non-family candidates.”
Mechanic: The Governance Pyramid
Simulation: The “Cousin Consortium” Conflict
| Feature | Family Trust (Legal) | Family Constitution (Social) |
|---|---|---|
| Enforcement | Courts / Law | Moral / Peer Pressure |
| Focus | Assets & Tax | Values & Relationships |
| Flexibility | Rigid (Irrevocable) | Living Document (Amended by Vote) |
“A family without rules is just a group of people waiting to sue each other. The Family Constitution is the treaty that prevents the ‘War of the Roses’ and transforms a group of entitled heirs into a unified ‘Family Enterprise’.”