Studies have shown that more than 90% of family wealth is lost by the end of the third generation. To help clients avoid this, advisors must become adept at bridging the disconnect among generations when it comes to the transfer of family wealth. In this issue you will learn:
If you would like to learn more about multigenerational, purpose-driven advising, please call our office now.
As was indicated earlier, studies have shown that 70% of families’ wealth is lost by the end of the second generation, and over 90% by the end of the third.
You could assume that errors in financial and tax planning and investments are the main cause of wealth lost over the generations (in other words, blame it on someone else’s mistakes). However, studies have shown that these factors account for less than 3% of lost family wealth. Instead, the largest contributing factor to generational loss of wealth (60%) is from lack of communication and trust among family members, followed by unprepared heirs (25%).
Why is there a lack of communication and trust that inevitably leads to unprepared heirs? Surveys have shown that fear is the dominant emotion that prevents clients from communicating with their heirs about their wealth:
Parents who fail to communicate their financial and estate planning goals to their children risk two outcomes:
Planning Tip: While it may not be easy to get clients to open up about their money beliefs and fears, it is essential to building meaningful, multigenerational relationships and overcoming the 90% odds that their wealth will be lost by the time their grandchildren die.
Here are some questions you can ask your clients to get them to open up and tell their “money story”:
The answers to these questions will help your clients openly express their fears, attitudes, and goals about their wealth and how they want it to ultimately be passed down (or not passed down) to their children, grandchildren, and beyond. This will then lead to a discussion about how the client’s heirs will benefit from knowing what to expect after the client is gone instead of being left in the dark.
Clients must communicate the following information to their families to insure that they will have the information they need during a difficult time:
Estate planning documents that have been created and what purpose they serve:
Benefits of lifetime discretionary trusts:
Overall goals and intentions for inheritance – what the money is, and is not, to be used for (in other words, education vs. charitable work vs. vacations vs. Ferraris vs. business opportunities vs. retirement) and who should be trustee of lifetime discretionary trusts created for heirs
Planning Tip: Advisors can support clients and their families by maintaining current copies of clients’ important documents and a current contact list for clients’ attorneys, accountants, and other professional advisors.
Advisors are well-positioned to help clients discover their wealth priorities, goals, and objectives and then communicate this information to their heirs. This, in turn, will prepare the heirs to receive the family’s wealth instead of being left to figure it out on their own.
Planning Tip: Advisors can assist in bridging the gap between generations by being proactive in the following:
Getting clients to open up and discuss their fears and beliefs about money will help them to create a “road map” for transferring their wealth. This road map needs to be personalized through integration of the client’s family values, family history, and ultimate goals for future generations. Future generations then need to be educated about the road map so that they can be prepared for the opportunities and challenges they will face.
We are available to assist you with figuring out your “money story” and creating and maintaining a successful, multigenerational wealth transfer plan.
 Sullivan, Missy, "Lost Inheritance," The Wall Street Journal (March 8, 2013): http://online.wsj.com
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