Preserving Multi-Generational Wealth

Help Your Clients Avoid Joining the 70% Of Families Who Lose It All
Craig Robson, Founding Principal & Managing Director, Regent Peak Wealth Advisors
Craig Robson, Founding Principal & Managing Director, Regent Peak Wealth Advisors

The term “one percent” is often used to refer to the wealthiest individuals and families in the U.S., who account for more than a third of total wealth, according to the Congressional Budget Office. However, it’s estimated that a staggering 70% of these affluent families experience a significant loss of wealth by the time it reaches the second generation of heirs.

A multitude of factors can contribute to the erosion of wealth across generations. One of the most damaging when it comes to preserving wealth is the lack of interfamilial dialogue and clear communication about the future management of the accumulated assets. Families that fail to discuss their wealth and establish a plan for its preservation and distribution are setting themselves up for potential disaster, increasing their likelihood of joining the 70% who see their assets dwindle over time.

Without these crucial conversations and proactive planning, families risk experiencing a substantial loss of wealth, potentially undoing generations of hard work and financial success. Here are some practical ways to prevent that from occurring.

Communication With Heirs Is Imperative To Maintaining Wealth Through Generations

Securing wealth across generations necessitates advisors initiating essential conversations between the baby boomers who accumulated the assets and their heirs. As the great wealth transfer continues to unfold, with boomers bequeathing their accumulated wealth to the next generation, advisors play a crucial role in fostering these discussions to pave the way for a seamless transition.

Advisors must proactively engage with heirs to educate and equip them with the necessary tools for effective estate management.

They must proactively engage with heirs to educate and equip them with the necessary tools for effective estate management – particularly since younger generations may not be fully prepared or willing to manage significant wealth, whether liquid or illiquid. Posing meaningful questions is key to uncovering the values and beliefs central to the heirs, which will inevitably influence future investment decisions. By encouraging open conversations, advisors can potentially facilitate a smoother transfer of assets and empower heirs to navigate their financial legacy with a comprehensive understanding of the responsibilities and opportunities it entails.

It’s also essential to prepare the next generation for the specific roles that they’ll assume once their benefactor passes. This involves discussing specific assets, such as real estate, and considering whether the heirs’ beliefs conflict with investments in certain industries or sectors.

Gaining an understanding of each heir’s unique strengths and interests is also important for assigning responsibilities effectively. For instance, if one heir is a doctor, they may prefer to be the designated power of attorney due to their medical background. Alternatively, maybe a family owns a large beach house that has been passed down through the generations. It would be critical to determine whether the heirs want to keep the property, and if so, who will be responsible for its maintenance.

By addressing these issues before the passing of a loved one thrusts these responsibilities upon the next generation, advisors can prevent heirs from feeling overwhelmed.

The third component involves ensuring that the responsibilities outlined during the preparation and education phase are executed upon successfully. At this stage, it is important for an advisor to make introductions to the family’s network of professionals, including tax, estate and trust advisors. Heirs should feel comfortable engaging in detailed conversations with each professional to gain a comprehensive understanding of how their wealth will be impacted.

It’s advisable to create a concise one-page reference document or “cheat sheet” that includes the contact details of these professionals, as well as important information for accessing accounts such as passwords. This document will serve as a valuable resource for the next generation, enabling them to better navigate the various aspects of their inherited wealth and responsibilities.

Continuity Requires Open Dialogue

Alarming statistics indicate that the majority of family fortunes dissipate within just a few generations, but in many instances, this can be prevented. Preserving multigenerational wealth requires more than just accumulating assets – it demands foresight, proactive planning and open lines of communication with the family’s children.

Preserving multigenerational wealth demands foresight, proactive planning and open lines of communication with the family’s children.

By prioritizing an ongoing dialogue with heirs and actively involving and preparing them for important financial decisions, families can foster a sense of ownership among the younger generation. Arming heirs with the education and tools they need to manage their inherited assets can pave the way for a seamless transition and assure long-term financial stability across generations.

Craig Robson is Founding Principal and Managing Director at Regent Peak Wealth Advisors.

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