How to Make Money Last in the Family Tree

In a recent survey of high net worth individuals with at least $3 million in investable assets, nearly 80 percent of parents believe their children will be unprepared to handle the wealth they receive when it is transferred to them.

So how do you educate your children and grandchildren about handling wealth responsibly and ensuring they remain in a position to carry on the values of the generation passing the wealth on to them? We posed the following questions to U.S. Trust wealth manager, Brian Sharpe.

Q. In your experience, what is the number one concern for wealthy individuals when they discuss transferring their wealth to their children?

A. The number one concern is that giving too much to their children will stifle their work ethic. In fact, our research shows that only 36 percent of wealthy parents have fully disclosed their wealth to their children, primarily because they’re concerned about the negative repercussions on work ethic and family privacy (source: 2015 U.S. Trust Insights on Wealth and Worth).

The generation that created the wealth takes great pride in hard work and puts great value on hard work. If their children do not have to work at all, what does that mean for them as individuals and as a family?

Another concern is that, if you don’t give all your money to your kids (and taxes), then what do you do with the balance? That’s where good advice around a family foundation and other charitable strategies can come in.

Q. How do these wealthy parents or grandparents maintain harmony within the family when they discuss the family money?

A. The shortest path to disharmony is putting one sibling in a control position over another sibling after the death of the patriarch or matriarch. Classic examples include making one daughter trustee of her sister’s trust, or making one son CEO of the family business and the other son VP of sales.

“Discuss” is the key word. More transparency and frankness, over time, supports relationships of all kinds, including those within families of substantial means. It may help to have professional advice when laying out a plan to discuss transferring wealth within your family—and the responsibilities of the beneficiaries of that wealth.

A family foundation during the wealth creator’s life can be a helpful vehicle to discuss spending policies in addition to investment policies; the family’s values and legacy; how to provide structure to foster communication within the family. With an “arm’s length” view of the foundation’s assets, conversations can be more frank and forward-looking.

Q. What are some of the questions wealthy parents should ask themselves when considering transferring their wealth to their children?

A. A key question wealthy parents should ask themselves is, what is most important? For example: Is it ensuring your money lasts and your personal values live on beyond your passing or maintaining harmony among family members?

Another key question is, are my children prepared to handle the wealth they will receive? As our research shows, the vast majority of parents feel their children are unprepared for the responsibility, but that concern can be eased through preparation and education.

Q. What is some of the best advice you can offer our readers if this is a concern of theirs no matter if they’re leaving 10 thousand or 10 million to the next generation?

A. Disagreements over inheritance or distribution of family assets are among the top five circumstances that represent the greatest risk to family wealth. If you want to make your wealth last and you want to maintain family harmony at the same time, seek professional advice.

Though 54 percent of the wealthy believe their family would benefit from developing a formal set of principles to guide the purpose and meaning of their wealth, only one in 10 has done so (source: 2015 U.S. Trust Insights on Wealth and Worth). Creating and maintaining harmony within your family is one of the most important things you’ll ever do.

Put the requisite time and effort into the governance structures, leadership transition and legacy planning. Work with your trust and estate lawyer, accountant and a trust company that specializes in these issues. Learn, through those advisors, of the experiences of other families in your situation, rather than re-living common mistakes.

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