How Not to Lose Your Wealth for Future Generations

You may have heard this shocking statistic circulating lately -- 70% of families lose their wealth within two generations (and 90% lose it by the third!). It’s hard to really imagine how this could be so, but according to a survey done by Williams Group Wealth Consultancy, it’s true.

How Do Families Lose Generational Wealth So Quickly?

There have been a number of surveys conducted looking into the reasons behind these stunning numbers, and it turns out that there are a few simple reasons why families tend to lose generational wealth so quickly. Sure, bad business deals and overspending account for some amount of this loss, but financial experts agree that the primary reason for this rapid loss of wealth is lack of communication.

In a recent survey conducted by US Trust, results show 64% of wealthy individuals don’t disclose the details of their wealth to their heirs. We hear this often in our practice as well. Many families do not wish to share the details of their wealth with children (even adult children), so they choose to keep their financial status and estate plans a secret from future beneficiaries.

Often, our clients tell us

1. They were taught not to talk about money

2. They worry that knowing about wealth will make their children lazy

3. They are afraid that the information will get out to friends and family

While these reasons may be deeply-held beliefs that are hard to break, ignorance is not the answer. Whatever the reason wealthy families choose not to talk to their heirs about money, it is clear that keeping kids in the dark has the opposite of the intended effect.

As a side matter, we should also keep this in mind: with access to the internet, children can find out more and more information. Mortgages, home prices, and corporate information are available online, so it is not out of the question that a curious young person may have already learned something about the family wealth.

Conversation and Education are Key

Financial advisors, attorneys, and wealth experts agree: the best thing to do to preserve generational wealth is to communicate and educate the younger generations about financial literacy. Communicating your family’s values and financial “mission statement” to the next generation can ensure that they are prepared to inherit and manage wealth in the future. It has also been shown that, contrary to wealthy parents’ fears, knowledge about wealth does not necessarily create lazy and unmotivated heirs.

What can you do to ensure your heirs are prepared to inherit (even if you are not “rich”)?

• Talk early and often to your children about money and financial responsibility

• Disclose the details of your estate plan to your beneficiaries to prevent conflicts and unexpected “windfalls”

• If you are worried that your heirs will not be able to handle their inheritance, use a trust to guide how assets are distributed and spent

Bring in a Third Party to Help the Conversation Along

If you are concerned about raising the issues of money, inheritance, and estate planning with your heirs, consider bringing in a trusted attorney for the conversation. Having a third party present can ease the tension around the conversation, and an attorney will be able to provide valuable information to heirs about probate, taxes, and trusts. If you are preparing to discuss your family’s finances with your children, feel free to reach out to the experienced and compassionate team at Stewart + Gordon. We would be happy to help! Our office number is (303) 337-2400.