We all know the old adage, “you can’t take it with you.” But most of us would like to think that, long after our own lives have ended, our children, grandchildren, and perhaps their children too, will continue to benefit from the wealth that we’ve accumulated.
In theory, it doesn’t seem particularly complicated: you make a will, appoint trustworthy executors and leave it to them and your loved ones to ensure that your assets are fairly distributed and efficiently managed. In practice, though, it’s not simple. So many things can go wrong.
A study by Roy Williams and Vic Preisser, published in 2005, found that only about 30% of family wealth transitions successfully to the second generation, and only 10% makes it to the third generation. Those are frightening statistics. Why does it happen? The authors identified a number of factors involved, including poor communication and lack of trust.
This failure to retain inherited wealth is a phenomenon that affects even the wealthiest families. A particularly striking example is the case of the Vanderbilt family. When the rail and shipping tycoon Cornelius Vanderbilt died in 1877, he was the wealthiest man in the world. But, within just 70 years, his vast fortune had largely dissipated. Yet if the Vanderbilt heirs had invested their wealth in a simple, diversified equity portfolio and spent 2% of their wealth each year, it’s been estimated that each one living today would still have a fortune of more than $5 billion.
Of course, most of us will never be anything like as wealthy as Cornelius Vanderbilt. But the point is that, if it’s possible for heirs to squander a fortune as vast as that, the same thing can easily happen to any family.
The common denominator
There are all sorts of reasons why family fortunes fail to endure. In many cases, people who inherit wealth simply spend too much too soon, or they neglect to adjust their spending when their wealth fluctuates. Sometimes they take too much risk and sink too much money into speculative investments or ill-thought-out business ventures.
However, the biggest problem is that families don’t properly prepare for the handing down of wealth. They don’t have a cohesive decision-making framework in place. In short, they don’t have a plan.
That’s why we at rockwealth place so much emphasis on what we call inter-generational wealth planning. So what exactly does that mean?
Putting everything in place
The starting-point is ensuring you have all the right documents in place, including wills, trusts and powers of attorney. We will also look at ways to minimise the inheritance tax on your estate, whether that’s utilising allowances for gifting, setting up tax-advantaged trusts or leveraging charitable giving.
If necessary, we will also refer you to legal experts who can protect your wealth from potential creditors, litigation or other risks. If you still own a business, we can help you to plan for the smooth transition of leadership and ownership to the next generation.
Of course, as financial planners, we will also create, execute and oversee a long-term, evidence-based investment strategy to preserve and sustain your wealth.
Working with your loved ones
But, for us, inter-generational wealth planning doesn’t end there. It’s also about working with your loved ones to ensure that the transfer of wealth from your generation to theirs goes smoothly.
Sadly, it’s extremely common for siblings to fall out over money after the death of a parent. Family members who have got on well with each other for all of their lives can quickly find themselves at odds over money when a loved one dies. The most effective way to prevent misunderstandings and conflicts in the future is to encourage open communication now. So, as part of our service, we help to foster and facilitate honest, transparent dialogue.
Another way in which we can minimise the danger of future disagreements is to help establish a framework for making financial decisions, including creating a family board or council. This helps to ensure that all family members have a voice and that decisions are made in a fair and structured manner.
The final component of inter-generational wealth planning is education. This means equipping younger generations to make sensible decisions about spending, saving and investing, and helping them develop responsible financial habits. Financial education can also help families adopt sustainable practices, such as ethical investing and philanthropy, which contribute to a long-term vision for wealth that aligns with the family’s values as well as societal goals.
Don’t put it off
As you can see, inter-generational wealth planning is not a quick or simple process. It can take several years to do it properly. Life is short, and no one knows what it has in store. So, to ensure that your wealth endures and benefits future generations, it’s essential to take action now.
We at rockwealth are here to guide you through every step of the way. Don’t let your hard-earned wealth fall victim to poor planning.
Let’s build a future where your family’s wealth thrives long after you’re gone. Make an appointment with us today to get things started.