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Long-term studies show that 90% of wealthy families fail financially within three generations, and there is a 70% likelihood that a family will lose all their wealth within just two generations.

Imagine spending all your life working to build a business and accumulate wealth that should, by right, establish your legacy and family name. Yet, by the time your grandchildren come of age, the wealth that you worked so hard to establish has completely GONE!

Sadly, this is not an imaginary nightmare but a harsh reality for most wealthy families. You will be surprised to discover what is really required to both retain and grow your family’s wealth.

The solution to multi-generational financial success is a holistic one that is rarely considered by your traditional professional advisors

The question that needs to be answered is, “Do you want to be like 90% of people who simply leave their assets in a will or do you want to start building an inspirational legacy that will last beyond the lives of your children and grandchildren?”

Only a family with a purpose greater than its individual needs has the foundations required to experience multi-generational wealth.  Families need to appreciate the business of being a family if they wish to thrive for multiple generations. This means establishing the same governance structures within the family like that expected of a successful business. After all no business can simply rely on luck to secure its long-term success so why should wealthy families be any different?

Shirtsleeves to shirtsleeves in three generations is not just a saying. When my father was just a boy, he experienced the total loss of an entire family fortune. After rebuilding our wealth from scratch, I was determined to find out how we could break this inevitable cycle.

As a qualified accountant and tax advisor, I have saved my clients millions of pounds only to question what the point of it is when they end up losing their wealth anyway. Family breakdown will always lead to financial meltdown. The most crucial areas that are often overlooked by traditional professional advisors include structured effective communication, understanding family values, having a purposeful family vision, preparing the heirs, wealth education and appreciation, sustainable philanthropy and aligned accountable professional advisors. These areas are simply not dealt with by ‘traditional’ professional services.

These aspects are crucial for your family’s wealth legacy and must be in place if you wish to establish family governance that will last for multiple generations to come.

In this blog I will discuss how to prepare the next generation to receive the wealth to make them good beneficiaries.

Initiate Effective communication

The most challenging thing when it comes to the inheritance of family wealth is to have an open, honest, and straightforward conversation with the successors.

Although difficult to implement, effective communication is the foundation of long-term family wealth. Poor communication leads to distrust which leads to emotional conflict which causes the family to implode. The only way to avoid destructive and expensive family conflicts is to establish formal communication structures within the family dynamic.

The family wealth, its structures but most importantly the experiences, expertise and stories that have been created over many years need to be shared and communicated to the next generation. Simply passing down financial capital is not enough to sustain multi-generation family wealth. It is essential that the human and intellectual capital are also transferred. These conversations, however difficult cannot be delayed until ‘tomorrow’, because tomorrow will never come. They need to be held today and without delay.

Developing an understanding of the value and origin of the wealth helps to create a sense of responsibility in the inheritor to maintain and pass over the wealth to the next generation. It will encourage the individuals to appreciate their wealth, understand the concept of wealth disparity and instill the values of giving to the community at an early age. While handing over a substantial amount of wealth to the next generation, it is crucial to educate them on how the benefactor wants the wealth to be used after they have passed on.

It is advisable to seek the services of a professional unbiased mediator when the financial conversations become a controversial topic of discussion. It will encourage a pragmatic and objective dialogue which will have a positive effect instead of spiraling into a heated emotional exchange which is what happens in most cases.

Preparing the next generation

The importance of preparing the children mentally and emotionally for the inheritance of wealth is never something to be undervalued. It can be developed from educating the children about saving at a young age and involving them in both the philanthropic and the professional aspects of the family business as they grow older.

Experts say that children to whom the wealth has been given in trust and not just as a gift develop a responsible mindset for better wealth planning.

Once the successor understands the value of wealth, the next step is to educate them on the structure of the financial system. They should be encouraged to interact with professionals like wealth managers, financial advisers, and bankers to understand the financial structure within the family and the business. One should also look to engage the services of an experienced, independent mentor for the next generation. Depending on the ideal outcome, this mentor can provide life guidance as well as financial, investment and business advice.

Giving a fixed allowance for children will help them develop a better understanding of saving and spending at an early age itself. Philanthropy or charitable giving is another way to pass on family values where they will develop an insight into the importance of social commitment and giving. Philanthropy can also create a purpose greater than the individual needs of the family members which will create a greater interest in ensuring that the family wealth thrives for many generations.

Implementing the Four Fundamentals for YOUR Family

Our Family Prosperity Advisors are here to help you with further assistance in starting an effective communication process to prepare your heirs for effective management of wealth. Our initial process is very simple:

  1. Discover the current risks that your family faces today
  2. Work with your family to create an ideal purposeful future vision for the family’s wealth
  3. Create a series of bespoke solutions to bridge the gap between the current reality and the ideal future vision.

Effective management of wealth is not just about family prosperity but also better family relations.

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