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How to Become a Multigenerational, Purpose-Driven Advisor


The Wealth Counselor, Volume 9, Issue 11

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:

  • The main factors that contribute to family wealth lost over the generations.
  • How to help clients overcome their reluctance to discuss their wealth with younger generations.
  • What clients must communicate to younger generations to effectively transfer family wealth.
  • How to build and foster multigenerational relationships.

If you would like to learn more about multigenerational, purpose-driven advising, please call our office now.

Why is Over 90% of Family Wealth Lost by the Third Generation?

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%).[1]

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:

  • Fear about running out of money
  • Fear about creating an “entitlement mentality” in heirs
  • Fear about heirs squandering their inheritance
  • Fear about outside influences overtaking heirs
  • Fear about not treating heirs “equally” and creating sibling rivalry
  • Fear about how disclosure now might limit choices and changes in the future

Parents who fail to communicate their financial and estate planning goals to their children risk two outcomes:

  1. The children misunderstand that conditions placed upon an inheritance are designed to maximize and preserve the children’s lifelong financial stability and life comfort; or
  2. The children interpret a “promised” inheritance as a license to be lazy and complacent while waiting to play the “inheritance lottery.”

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”:

  • What does money mean to you?
  • What are the attitudes about money that you want to teach to your heirs?
  • What have you done to help your heirs develop financial competency?
  • There are only three choices for who will receive your wealth: (1) Family and Friends, (2) Charity, or (3) the IRS; what are your priorities for the control and transfer of your wealth among these three choices?
  • Have you discussed these priorities with your heirs?

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.

What Must Clients Communicate to Future Generations to Facilitate Wealth Transfer?

Clients must communicate the following information to their families to insure that they will have the information they need during a difficult time:

  • Net worth statement, or, at the very minimum, a broad overview of the client’s wealth
  • Final wishes – burial or cremation, memorial services

Estate planning documents that have been created and what purpose they serve:

  • Durable Power of Attorney, Health Care Directive, Living Will – property management; avoiding guardianship; clarifying wishes regarding life-sustaining procedures
  • Revocable Living Trust – avoiding guardianship; keeping final wishes private; avoiding probate; minimizing delays, costs and bureaucracy
  • Last Will and Testament – a catch-all for assets not transferred into the Revocable Living Trust prior to death, or the primary means to transfer family wealth if the client is not using a Revocable Living Trust
  • Irrevocable Life Insurance Trust – removing life insurance from the taxable estate; providing immediate access to cash
  • Advanced Estate Planning – protecting assets from creditors, predators, outside influences and ex-spouses; charitable giving; minimizing taxes; creating dynasty trusts
  • Who will be in charge if the client becomes incapacitated or dies – agent named in Durable Power of Attorney and Health Care Directive; successor trustee of the Revocable Living Trust and other trusts created by the client; personal representative named in the will

Benefits of lifetime discretionary trusts:

  • Fosters educational opportunities
  • Provides asset, divorce, and remarriage protection
  • Protects special needs beneficiaries (if properly drafted)
  • Allows for professional asset management
  • Minimizes estate taxes at each generation
  • Creates a lasting legacy for future generations

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

  • Where important documents are located – this should include how to access the client’s “digital” assets
  • Who key advisors are and how to contact them

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.

How Can Advisors Foster Multigenerational Relationships?

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:

  • Facilitating initial family meetings.
  • Organizing annual family retreats.
  • Providing periodic updates to heirs.
  • Working to bring together the client’s wealth planning team (financial, legal, and tax advisors).

Final Thoughts About Successful, Multigenerational Wealth Transfer Planning

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.

[1] Sullivan, Missy, "Lost Inheritance," The Wall Street Journal (March 8, 2013): http://online.wsj.com

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