The Wealth Counselor
Studies have shown that 70% of family wealth is lost by the end of the second generation and 90% by the end of the third. Don’t let your loved ones become part of these statistics. You need to understand, and work to overcome, the disconnect that occurs between generations regarding the transfer of wealth. In this issue you will learn:
If you would like to learn more about multigenerational wealth transfer planning, please call our office now.
Why is Over 90% of Family Wealth Lost by the Third Generation?
However, studies have shown that these factors account for less than 3% of lost family wealth. Instead, the largest contributing factor to generational loss of wealth (60%) is from lack of communication and trust among family members, followed by unprepared heirs (25%).
Why is there a lack of communication and trust that inevitably leads to unprepared heirs? Surveys have shown that fear is the dominant emotion that prevents people from communicating with their heirs about their wealth:
Parents who fail to communicate their financial and estate planning goals to their children risk two outcomes:
(1) The children misunderstand that conditions placed on an inheritance are designed to maximize and preserve the children’s lifelong financial stability and life comfort; or
(2) The children interpret a “promised” inheritance as a license to be lazy and complacent while waiting to play the “inheritance lottery.”
Planning Tip: While it may not be easy to open up to your children about your money beliefs and fears, it is essential to overcoming the 90% odds that most of your wealth will be lost by the time your grandchildren die.
Here are some questions you should ask yourself in order to enable you to share openly your “money story” with your loved ones:
The answers to these questions will help you express your fears, attitudes, and goals about your wealth and how you want to ultimately pass it down (or not pass it down) to your children, grandchildren, and beyond. In addition, discussing your “money story” with your heirs will allow them to know what to expect after you’re gone instead of being left in the dark.
What Must You Communicate to Future Generations to Facilitate Wealth Transfer?
Planning Tip: Work with one of your key advisors to create and maintain a location list (where are your important documents being stored and who has copies?) and a contact list for your professional advisors (financial advisor, accountant, attorney, banker, insurance agent).
How Can Your Professional Advisors Help You Create and Maintain a Successful, Multigenerational Wealth Transfer Plan?
Planning Tip: Work with your key advisors to organize and hold annual family retreats that are designed to educate and update your heirs about your wealth transfer goals and plans that have been put in place to achieve these goals.
Final Thoughts About Successful, Multigenerational Wealth Transfer Planning
We are available to assist you with figuring out your “money story” and creating and maintaining a successful, multigenerational wealth transfer plan.
 Sullivan, Missy, “Lost Inheritance,” The Wall Street Journal (March 8, 2013): https://online.wsj.com