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Family Wealth: — Keeping It in the Family — How Family Members and Their Advisers Preserve Human, Intellectual, and Financial Assets for Generations, Revised and Expanded Edition by James E. Hughes Jr.

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Chapter 1. Long-Term Wealth Preservation as a Question of Family Governance

Family wealth is not self-perpetuating. Without careful planning and stewardship, a hard-earned fortune can easily be dissipated within a generation or two. The phenomenon of the fleeting family fortune is so well-recognized that it inspired a proverb: "Shirtsleeves to shirtsleeves in three generations." Vanishing wealth is not unique to the United States, and variations of this proverb are found around the world, from Asia to Ireland. The Irish variant—" Clogs to clogs in three generations"—depicts things in the following way. The first generation starts out wearing work clogs while digging in a potato field, receives no formal education, and, through very hard work, creates a fortune while maintaining a frugal lifestyle. The second generation attends university, wears fashionable clothes, has a mansion in town and an estate in the country, and eventually enters high society. The third generation's numerous members grow up in luxury, do little or no work, spend the money, and fate the fourth generation to find itself back in the potato field, doing manual labor. It is a classic three-stage process: first, a period of creativity; second, a period of stasis or maintenance of the status quo; and third, a period of dissipation.

Is this rags-to-riches-to-rags cycle inevitable? I believe it is not, and in this chapter, I outline my philosophy, describing why most families fail to preserve wealth over a long period ...

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