Most families want to leave something behind to help future generations.
Passing down wisdom and life lessons is one way. Passing down money is another. Surprisingly, both can be more challenging than they appear.
When it comes to money, a delicate balance should be considered:
“The perfect inheritance is enough money so that [children] feel they can do anything, but not so much that they could do nothing.”1
In fact, family wealth can be a curse, not a gift.
Comments from children of some of the largest family fortunes in America highlight inherited wealth as a recipe for a life devoid of fulfillment and purpose.2
- “It has left me with nothing to hope for, with nothing definite to seek or strive for. Inherited wealth is a real handicap to happiness.” - William K. Vanderbilt (1849-1920)
- “I regard large inherited wealth as a misfortune, which merely serves to dull men’s faculties…merely encourages laziness and impedes the healthy development of the individual's capacity to make an independent position for himself.” - Alfred Nobel (1833-1896)
- “The almighty dollar, bequeathed to children is an almighty curse. No man has a right to handicap his son with such a burden as great wealth.” - Andrew Carnegie (1835-1919)
- “Fortunes tend to self-destruction by destroying those who inherit them.” - Henry Ford (1863-1947)
Perhaps that is why many countries and cultures have a common saying regarding family wealth:
In the United States, they say, "Shirtsleeves to shirtsleeves in three generations." In India, they say, "Peasant’s shoes to peasant’s shoes in three generations". In Mexico, they say, "First-generation traders, second-generation gentlemen, third-generation beggars". In Italy, they say, "From stalls to stars to stalls".
The hard truth is, by the third generation, financial wealth is primarily gone. “Riches, in spite of the most violent regulations of law to prevent their dissipation, very seldom remain long in the same family.”3
One of our goals as stewards of our clients' wealth is to help families be more successful in passing down their wealth. Success is no accident. "It doesn’t just happen because some families are luckier than others are; it’s possible for any family. Families that flourish do so because they manage the family’s financial and non-financial resources with attention and intention."4
"For many families, the answer is intentionality. Flourishing families consciously work to create legacies of stewardship, values, and balance."4
"This kind of success means much more than maintaining the family’s financial legacy or enjoying prosperity. It means passing on purposeful legacies of value, empowerment, family connection, and stewardship. When families make a commitment to intentional wealth, they create a legacy of wealth that is enhanced by – but not limited to – financial success. They build a heritage that fosters rich and fulfilling lives for generations to come.”4
Here are the summary actions you can take today to proactively protect your wealth and your heirs.
Creating a Generational Plan
The making of a generational plan consists of two parts. First, the legal documents. Second, comes a detailed plan outlined in a way that clearly states how your beneficiaries should address your wealth after your passing.
There are several steps you can take now to begin the planning process.
Think Ahead, Far Ahead
Generational wealth planning is a bit different from designating gifts for your kids and grandkids through estate planning. When you start making a generational plan, you need to be considerate of future generations - including the ones you’ll never meet. It may be strange, but try to think of your family as people who haven't met you. Effective generational wealth planning passes your assets down to those who haven't been born yet, but it can be hard to consider their needs alongside the family members you already know and love.
Have Conversations With Your Family
If you want your wealth to last for generations, it’s crucial that you communicate with your family. Everyone must be on the same page when it comes to the responsibilities, challenges, and potential blessings of wealth.
You are your family’s best resource for wisdom and guidance when it comes to this, so don’t make the mistake of thinking that your money and values need to be kept secret. You don't need to reveal everything at once. Focus instead on preparing your children and grandchildren, sharing your knowledge and vision with them so that they aren’t left feeling confused, frustrated, or burdened.
This is an ideal opportunity to begin inviting them to attend our meetings. Or, ask us to send them our quarterly client letters, or sign them up for our Insight Articles or Quick Tips. There are many ways to begin educating and involving your future heirs.
Ultimately, we want to help you communicate your vision by opening a safe space for dialogue. All conversations are welcome towards achieving and maintaining generational financial peace of mind, personal purpose, and fulfillment.
Put It in Writing
Putting your plans in writing can rid future generations of potential doubt or confusion regarding your wishes and the responsibilities of stewarding family wealth.
Make sure you specifically identify how the money could be, or should be used, how it is accessed, and how it is replenished. With proper planning, it’s possible to preserve and grow family wealth alongside their own personal fulfillment.
Consider creating a Family Mission/Vision Statement or a Family Constitution. Is there a common vision for your family’s future? Express not just advice, but also your hopes for present and future generations.
Consider creating an ethical will. While a legal will deals with valuables, an ethical will deals with values. Just as a legal will lists the valuables you hold, an ethical will states the values you hold dear. Are there core values that you want to pass down to future generations? Perhaps these values helped you build or maintain your financial wealth, or helped you live a more fulfilling life? In addition to listing your values, consider if there are personal and/or family stories that you could share, especially ones that address where your family came from and how you got here.
Consider creating a Letter of Wishes to state guidelines for the future trustee of your financial assets. For example, read The Investment Instructions in My Will and what I believe is best for my family's investment assets after I'm gone.
Create a Professional Support System
Do you know what a sustainable withdrawal rate is for your assets? Do you understand how recent legislation will affect them? If you don't know, it's highly unlikely your heirs will know either. This is why it is important to have the right financial professionals at your side. However, this task can be one of the trickiest of all. As we published in our checklist for finding the right advice here, "Everybody claims to be a trusted advisor when some are really only salespeople."
“It requires a great deal of boldness and a great deal of caution to make a great fortune; and when you have got it, it requires ten times as much wit to keep it.” - Nathan Mayer Rothschild (1777-1836)
If you think you’re ready to start creating a generational wealth plan, remember to have a clear vision and share that vision with your family members. Put these wishes into legal documents, too. We can help you with the heavy lifting, the planning process, and coordinating with your family members to manage your financial and non-financial resources with attention and intention.
- Warren Buffett, 2013
- Mahatma Gandhi's Moral Economics: the Sins of Wealth Without Work, 1925
- Adam Smith, The Wealth of Nations, 1776
- Courtney Pullen - Intentional Wealth: How Families Build Legacies of Stewardship and Financial Health, 2013
This content is developed from sources believed to be providing accurate information. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security.