Recent studies have shown that nearly 70% of family wealth is lost by the second generation and a staggering 90% of family wealth is lost by the third generation. In an effort to mitigate this negative trend and put a stop to this “rags to riches to rags” movement, successful families align themselves with an advisor that can assist them in the establishment and execution of a detailed, multigenerational succession plan for their wealth.
Before establishing a succession plan, however, individuals must first answer several of the following difficult questions:
- Out of these three options, who do you want to inherit your wealth?
- Family and Friends?
- Charities?
- IRS?
- How will you help your heirs develop financial competency?
- How do you want your heirs to think about their inheritance?
- How and when do you want to communicate your personal financial picture and succession plan with your heirs?
One of the largest contributing factors to generational loss of wealth is the lack of communication and trust among family members. A lack of communication from those who have built the wealth is typically driven by a fear that knowledge of an inheritance would create a sense of entitlement in their heirs. However, a lack of communication can result in unprepared heirs who do not understand the overall goals and intentions of the wealth transfer. While it can be difficult for some to have the wealth transfer discussion with their heirs, it is essential to building a meaningful, multigenerational plan to preserve the family wealth beyond the second and third generations. This communication to future generations should include a discussion of your overall goals, intentions and final wishes, as well as a review of your statement of net worth and existing estate planning documents.
Comprehensive wealth advisors are well positioned to help their clients strategize and determine their wealth transfer goals and objectives and ultimately help them communicate this information to their heirs. Once the multigenerational goals have been established, advisors can assist their clients by facilitating the initial family meeting, organizing and leading periodic family update meetings, and by communicating the plan to the client’s entire wealth planning team (accountants, attorneys, trustees, etc.).
Establishing a personalized wealth succession plan with an experienced advisor is one of the best way to help preserve your legacy, reduce your estate tax liability, and unlock opportunities for future generations and your philanthropic desires. The success of your plan can be maximized by communicating your personalized plan to your heirs while educating them on the financial considerations of the stewardship of wealth.
