Unfortunately, family wealth is not guaranteed to be passed down from generation to generation. In fact, studies show that family assets are lost from one generation to the next around 70% of the time. And 90% of the time, assets are gone by the third generation. This is often due to the fact that most of the focus has traditionally been placed on the givers of wealth, and not the heirs. It is crucial to properly prepare the next generation, by passing on valuable practices that will help sustain wealth. Whether you have a multimillion-dollar portfolio or a six-figure one, the keys to a successful inheritance come down to parenting and money management. Here are a few strategies to prepare the next generation.
Oftentimes, families will avoid the discussion of wealth and finances, in fear that these talks may end up spoiling their children. However, treating money as such a taboo topic results in young people coming into their trust fund with little to no preparation. The same way some lottery winners often lose their winnings, these children do not have proper knowledge on how to manage their newfound wealth. By addressing the topic of money, you can properly prepare them for what is to come.
Start educating your children on smart money habits from a young age. They should fully understand the concepts of budgeting and delayed gratification, even if you have the financial means to give your children everything they want. Instill in them the importance of saving and giving. Teach your teens how to budget by providing them with the allowance to pay their bills (car insurance, cell phone, etc.). If the bills go unpaid, they experience firsthand what the consequences are. This teaches them how to prioritize and make smart money decisions.
A recent study of 3,250 families showed that 60% of failed inheritances were due to lack of trust and communication. Aim for a legacy that goes beyond your wealth. Many families do this by writing up a mission statement. Have your family members write out the values they want to live by. These can range from education to volunteering to self-sufficiency. Frame this list and hang it in your home. This serves as a constant reminder of the family’s core values, and helps children understand the greater purpose of their wealth. By involving the whole family in determining common objectives and deciding how they’ll be accomplished, you can avoid the trap of dictating the future to your children.
Assemble a knowledgeable team of people who can act as advisors and mentors for the next generation. This includes investment managers, tax preparers, estate planners, trust lawyers, financial advisors and other successful business people who have extensive experience in managing money. They will provide a new level of value and expertise for both parents and children.
By implementing these practices, your children will have the best shot at properly managing their inheritance. You can take time to not only preserve your family’s wealth, but its legacy as well.
Advisory services offered through EWG Elevate, Inc. dba Protection Point Advisors.
This represents a partial list of clients. They have not been compensated and were not selected based on duration, performance, account size.