Daniel G. Berick, of the law firm Squire Patton Boggs, recently wrote that “entitlement and lack of familial ties are two of the many threats to successful generational wealth transfers.” Having just helped Will and Barbara develop an Estate Strategy to pass on their wealth and wisdom to the following generations, I couldn’t agree more.
Will and Barbara first came in to see me when they were in the mid-sixties and very well off financially. As we started to create their Estate Strategy, we were going through a detailed discussion of their goals. It became very apparent that their adult children had a very different set of values and financial objectives. Of their five children, two couldn’t manage money at all and the other three were not much better.
Because of the lack of financial prowess by their children, their Estate Strategy had to involve a series of trusts to prevent the rapid erosion of the family’s assets. And this problem would likely become more significant as successive generations grow more removed from Will and Barbara’s generation and their wishes. Unfortunately, Will and Barbara had spoiled their kids and didn’t spend much time educating them about all things financial.
As bleak as this may seem, I was able to convince Will and Barbara that it wasn’t too late. I started by encouraging them to arrange frequent family meetings to gain buy-in of the importance of a shared philosophy across generations and to start sharing some basic financial training with them.
However, being able to resolve these financial issues and intra-family resentments created within their family by the entitled children was not going to be easy, but was absolutely necessary. Will and Barbara easily recognized that tackling the problem was important to them and their children. Will especially wanted to build a sense of responsibility, discipline, and balance in their children who have grown up in conditions of privilege and entitlement.
Creating and maintaining wealth is difficult and requires work and dedication…it is an essential part of the strategy discussion we needed to have to put a personalized strategy in place for them. Will and Barbara now realize that frequent communication among the family group, including discussions of heritage and values, will instill a sense of obligation and purpose in their children and succeeding generations. They now recognize the need to give their children opportunities to participate in the process of family wealth management.
Will and Barbara face a growing issue for wealthy families…how best to address the circumstances created by the “problem child” and the ripple effects caused by the problems of criminal behavior, substance abuse (or similar issues), irresponsible personal relationships, or other problematic personal matters. After hearing their desires and wishes for their wealth and their children, we agree that a trust-based strategy to wealth preservation and generational wealth transfers was going to be the core of their Estate Strategy. The goal was to insulate everyone against the financial effects of the “problem child behavior” by building legal protections and formal structures between the problem child and the family’s assets.
While the entitlement trap and the problem child problem focus on issues relating to individual family members, the issues caused by lack of connection among family members are sometimes less obvious and can be even more significant. Creating a more positive culture and fostering cohesion are key elements in creating the connectivity that keeps wealthy families from splintering over time.
In my experience, families that are unable to develop and maintain that cross-generational connection are much more likely to fracture over time. Spending time to build relationships among multiple generations is essential to having an effective and powerful Estate Strategy. This helps to foster mutual familiarity and relationships that allow for cohesion and resilience in the face of change and transition.
Part of maintaining unity and successfully stewarding family wealth is communicating a sense of unified family mission and shared goals to those successive generations. I recommended to Will and Barbara that they make periodic assessments of their family’s goals to ensure they remain aligned with the objectives of the next generation.
Will and Barbara now recognize their families wealth is at great risk unless they groom their family members to assume different roles along the way. Without adequate preparation, future generations will find themselves in management positions…yet they will lack the crucial tools necessary to discharge their responsibilities successfully.
Among the most challenging and sensitive issues in effective generational wealth transfers are those arising out of assumptions and expectations concerning family members’ roles. Some of the challenges include a traditional or cultural mindset of sons versus daughters, additions of step- and half-children and -in laws, no suitable family candidate for leadership, or a family candidate who does not want the obligation. Each case demonstrates the importance of open and honest assessment of skills and aptitude when considering the family’s Estate Strategy.
Will and Barbara left our last meeting with not only a better sense of how to achieve their goals through an effective Estate Strategy, but with a specific plan of things to do that will help them effectively execute their strategy. But most importantly, they left with much greater peace of mind and feeling that they had taken some very important steps to reduce the families Risk.
