It’s estimated that 70% of families lose their wealth in the 2nd generation and 90% by the third. But why is this so? Because families fail to discuss wealth with their children with the assumption that they will figure it out themselves. While some parents fear that these discussions can rob the children of motivation, others feel too overwhelmed and anxious.
Sadly, the failure of parents to talk to their children can do more harm than good. For instance, children can wrongly perceive their family’s wealth, leading to insecurities. Additionally, it can be too costly in terms of unnecessary taxes, expenses, expensive estate settlements, and family battles that could lead to loss of wealth.
Families can prevent these unfortunate events using the following tips to preserve their wealth over generations. You can check out this page to know more.
Preserve Family Values
Families that have managed to preserve their wealth over generations understand that values are the ties that keep family members together. Therefore, they strive to pass these values to generations by living them. Parents should instill family values such as hard work, responsibility, resilience, honesty, and integrity. They should not only tell stories but also lead by example. For instance, children can quickly learn wealth management skills from parents and pass them on to future generations.
Communication and Transparency
Effective communication and transparency are vital to preserving wealth over generations. Parents should not shy away from talking to their children about wealth and how they wish it to be managed when they are gone. Additionally, they should give their children an opportunity to demonstrate their leadership skills by allowing them to contribute to the daily running of the family business. Besides, parents should listen to the view of their children and challenge them to think critically. Parents can use these forums to communicate their expectations on future wealth management and transfer.
Establish Trust Through Active Participation
Parents should encourage their children to participate in family meetings that discuss family structures and wealth. They should not only enlist them as beneficiaries without at least involving them in decision-making. Failure to involve children can make them view wealth as a burden instead of an asset in the future. Like in the case of George Huntington Hartford, he was the owner of the first American grocery store chain. But when his son inherited the wealth, he lost most of it in a lavish lifestyle and unwise investment decisions.
Educating children on wealth management can go a long way in preserving wealth over generations. Parents should instill the right financial management skills in their children early. Doing this offers an opportunity for them to improve their wealth management and decision-making skills. Parents should consider bringing in a wealth expert to educate their children on making sound decisions and investing wisely to avoid losing the family wealth.
Reliable Governing Practices
Families that have succeeded in preserving their wealth over generations have embraced reliable governing practices. Families must establish a formal governance system that guides decision-making, leadership choices, and succession. They can establish a board of directors or engage external advisors.
Reliable governing structures can help establish a sound succession plan and groom future managers while embracing diversity. These structures mentor young adults to assume leadership positions. Besides, each successor has a clearly defined role and responsibility to avoid future disruptions and loss of family wealth.
Successful families put proper financial plans to tackle challenges with managing family wealth over generations. Families may struggle to keep pace with the growing number of family members and maintain the family purchasing power. Therefore, financial planning is inevitable.
Parents should put the following measures in place to preserve wealth over generations.
Establishing a Will
A will stipulates how family assets will be distributed when parents are gone. Thus, it prevents future fights among family members and facilitates smooth succession. Besides, a well-crafted will can save a lot on estate taxes.
Appointing a Neutral Trustee
A neutral trustee brings in an independent and neutral perspective, especially when families face challenges and cannot agree. Additionally, this party brings expert professional advice and ensures effective asset management and wealth distribution. Besides, a trustee can provide long-term protection of intangible assets such as royalties from music and art.
Establishing a Family Constitution
A family constitution promotes family cohesion by defining the values and visions. Family members can always refer to the constitution when having disagreements, and children can always be inspired by the family visions stipulated in the constitution.
Involving a Financial Planning Professional
A financial professional can assist families in establishing proper investment and wealth management plans that can be passed on to generations.
Parents can preserve family wealth by communicating effectively with their children and establishing trust through active participation. Additionally, they should educate their children on wealth management and employ proper financial plans, including appointing a neutral trustee and involving financial planning professionals.