Knowing these common legacy pitfalls can help your family avoid them.
Family coach and author Roy Williams surveyed more than 3,000 families and found that over 90% of family wealth transfers fail by the end of the third generation. But, in this context, what does “fail” really mean?
A failed wealth transfer can mean several things – a disappearance of the family’s financial wealth, the dissipation of important memories and values, and even intense discord among family members. So why is this happening so frequently and how can you help prevent the same thing from occurring within your own family?
Here are five of the most commons reasons money doesn’t survive wealth transfers over multiple generations.
Lack of Meaningful Communication
It’s critical for multiple generations of a family to engage in clear, open dialogue, which sets the foundation for successfully passing down both financial assets and important values. Getting to know how each of your family members prefers to communicate can also decrease the possibility of family discord. Encouraging clear communication can mitigate many of the reasons wealth transfers fail, and dialogue should center on aspects that go beyond just financial wealth.
Little or No Shared Vision
Once your family is engaged in meaningful communication, the next step is to define your shared vision. Moving in contradictory directions will eventually seed conflict, so build common ground by identifying what you’re all working toward. What do you want your family’s legacy to look like? What family qualities do you want your great-grandchildren to still value? Giving each person a chance to clearly communicate his or her interests will increase understanding by all, and it’ll help the purpose and positive impact of your family’s financial wealth.
Disregard for Intangible Assets
When family communication focuses too much on financial wealth, the opportunity to foster a sense of gratitude can be lost. Be sure you’re also communicating about things that go beyond money – like your core values, the experiences that have had the greatest impact on your life, and the philanthropic causes you care about most. Structured communications around these non-financial topics can help refocus everyone on what matters most: your family unit.
Erosion of Trust and Transparency
You may have heard the adage “transparency breeds trust.” Well, it also goes the other way: if family members believe transparency is lacking, trust can also erode. Transparency does not necessarily mean disclosing your net worth to every family member, but it does mean including them in discussions around the intended purpose of wealth you’ll pass down. Encourage family members to ask questions throughout your family dialogues, and be as open as you can with your answers.
Attitude of Entitlement, Not Gratitude
If there’s one emotion that helps support wealth transfer success, it’s gratitude. When family members are focused on what money can do for them, overspending and misuse soon follow. But by communicating about both financial and intangible wealth and participating together in charitable events, you can slowly strengthen an attitude of gratitude.
It’s not always easy to navigate the complexities of family wealth. But with open communication and the guidance of a trusted financial advisor, you can begin these important conversations and help set your family up for wealth transfer success.
Let Bernath & Rosenberg guide you through the complexities of family wealth. Please call us at (212) 221-1140 if you would like a consultation on these matters.
Ted Stricker, CFP®, joined Bernath & Rosenberg in 2015 and manages the firm’s Wealth Management Team. He has over 20 years of experience in the financial services industry and specializes in designing financial plans for business owners and high net worth families. Ted is a CERTIFIED FINANCIAL PLANNER™ and a member of the Financial Planning Association.