When you’ve worked hard your whole life to build substantial wealth, it’s natural to desire a future of financial stability for your loved ones. But unless you put protective measures in place now, it’s possible your wealth won’t last for future generations to enjoy.
Take the Vanderbilts, for example. They were one of the most famous (and wealthy) families during America’s Gilded Age, yet they later became well-known for another reason: not implementing a wealth transfer strategy for future generations. Within three or so generations, the family lost the majority of its wealth. At the height of their success, they had more money than the U.S. treasury. Within a few decades, they lost it all due to poor planning and a lack of preparing the next generation.
It’s not enough to count on your wealth itself to care for your family for generations to come. You must take proactive steps to prepare them mentally to be responsible stewards of your wealth. In addition, many families find it helpful to put safeguards in place to honor their wishes and values in a way that protects their family’s future assets, while still creating a healthy financial foundation for the next generation.
In fact, there tends to be some disconnect between the generation that builds wealth (you) and the generation that benefits from it (your children or grandchildren). Without a deep understanding of the much hard work and commitment that went into growing your family’s estate, the next generation may lack the respect or desire to protect it.
To keep this from happening, provide financial education for your family. Teach your children about the value of hard work, and what goes into achieving financial success. Show them the impact poor financial decisions can make, and what they can do to be responsible stewards of their inheritance.
While every family member may have their own thoughts about money, be sure to share with them your personal philosophy and set of values. There is no right or wrong here, but you want to be sure you’re explicit in expressing your beliefs so your family can better honor them in the future.
We recommend having family meetings with your loved ones—specifically about financial education and personal values. Creating an open line of communication now can help prevent issues years down the line.
As you think about how to conduct your family meetings, remember to be deliberate and transparent. Meet frequently, say once a year or once a quarter, to ensure your messaging sticks.
During these meetings, you may want to discuss your family values and the plan you’re setting in place for after your passing. Explain your current estate plan and final wishes, as this will help avoid any unwanted surprises for your heirs in the future. Open up the floor for discussion, and be prepared to explain your decisions — especially if you’re choosing to do something untraditional, like divide the estate unevenly. Addressing concerns now can help your family avoid further turmoil or discourse after your passing when emotions are already running high.
It’s possible you’ve shied away from talking about money with your loved ones in the past. Whether you have these discussions or not, eventually your family will inherit your assets. By having the hard or awkward conversations now, you’re better preparing them for future success and improving the odds that your final wishes are followed.
Don’t just lecture your family on the importance of being responsible with their wealth. Try to lead by example as you spend time with them. For many, seeing first-hand the impact of good financial decisions is much more eye-opening than hearing about them in a family meeting. Encourage them to start getting involved in the management process while you’re still here to provide oversight and can course correct as needed.
While educating your family and fostering open communication is key, you may also need to put safeguards in place to guide your family down the right path.
Doing so doesn’t mean you don’t trust the next generation or wish them to suffer financially in any way. Rather, it should be viewed as a gift of protection that helps ensure your loved ones are making healthy financial decisions and focusing on long-term preservation.
While we mentioned the Vanderbilts as a warning, think now of the Rockefellers as an example. The Rockefellers, along with many other wealthy, well-known families, have established trusts for their loved ones.
With a trust, you can have it set up so the beneficiary (such as a grandchild or great-grandchild) can only access the funds if they meet certain criteria. A trust is a powerful wealth transfer tool because it gives your heirs a solid financial foundation without giving them free rein to spend a significant amount of money unsupervised.
You can set up trusts for your loved ones however you see fit. Some examples include:
Allow the beneficiary to use the trust funds to pay for college, but not for their living expenses while in school.
Covering a certain percentage of a home down payment, such as 30% or 50%.
An initial financial gift the beneficiary can use to start a business.
A mandatory amount of community service must be completed before they can access the funds.
Funds are accessible at different milestones, such as when they graduate college, get married, have a child, etc.
Whatever parameters you wish to include, the purpose of establishing a trust is to make sure your family wealth isn’t spent in an irresponsible way. Yes, your loved ones will have a great leg up, but they may still have to work for it in a way that aligns with your values and wishes.
Preserving family wealth for many generations to come is something you can’t easily accomplish alone. A financial advisor is often a critical resource for families to lean on, especially since they understand what types of assets are being passed on and how that can affect beneficiaries.
For example, if much of your family wealth is tied into illiquid assets (such as a business or piece of property), the transfer process may be more complicated than inheriting a simple bank or brokerage account.
You want to make sure you’re helping your family feel financially secure, and that means passing on wealth in a tax-efficient manner. Nobody wants to burden their loved ones with a surprise tax bill, and an advisor can help prepare your family and make recommendations accordingly.
It’s likely your family is eager to adhere to your final wishes, but it’s up to you to make them known. Take the time now to prepare the next generation and establish necessary safeguards. It is possible to preserve family wealth for decades to come, as long as you’re proactive and communicate your intentions.
This is not a journey you have to go on alone. Our team at Atlas Financial Strategies specializes in helping families like yours build a solid succession plan and ensure future financial success for the next generation. Feel free to put time on the calendar anytime so we can talk through these concerns and build a plan together.
125 W. Romana Street, Suite 720
Pensacola, FL 32502
Phone: (850) 542-4803