Based on our experiences, affluent and high-net-worth families often walk a fine line when it comes to planning their estate. While they may want to pass their assets on to their children and grandchildren to provide them with a measure of financial security, they don’t want to give them so much money that kids and grandkids aren’t motivated to work hard and support themselves financially.
As a result, affluent families often simply don’t talk about wealth management, basically sweeping it under the rug and hoping the issue will resolve itself. But like the dust and dirt that accumulate under the proverbial rug, issues of family wealth management that aren’t openly discussed will pile up over time and eventually spill out, creating a big and costly mess for everyone involved.
Frontier’s first step to avoiding this kind of mess is being proactive and talking with your children and grandchildren about your estate and the family wealth that they will one day inherit. Far from giving them a sense of entitlement, this could help them better understand their responsibilities as heirs to your wealth if done properly.
Here are four steps that Frontier believes you should consider as you think about how to best discuss generational wealth management with your children and grandchildren:
- Explain the origins of family wealth to them. When kids and grandkids understand how family wealth was generated, they often feel a greater sense of responsibility for managing it wisely. This may be especially true if wealth was generated via a multi-generation family business.
- Draft a family wealth values statement. This statement should explain in writing how you and your spouse view money from a broader point of view. Ideally, it will put wealth and financial resources in their proper context: as essential components to everyday life, of course, but not more important than integrity, hard work and the family itself.
The statement should also communicate your values when it comes to charity and philanthropy. If you and your spouse have consistently contributed money to certain charitable causes or organizations, make your kids and grandkids aware of this. While you might not insist that they continue contributing to these causes specifically, you should stress the importance of giving to charitable causes they are passionate about.
- Get your kids and grandkids involved early on in wealth management. When they are old enough — perhaps as mid-teenagers — involve them in family meetings discussing how wealth is managed, invested and donated. For example, you could have kids and grandkids conduct research on certain kinds of investments like mutual funds, ETFs and REITs and then make suggestions about how family wealth could be allocated to them.
During these meetings, help kids and grandkids understand your overall investing philosophy and strategy. For example, are you conservative, aggressive or somewhere in between? They may or may not adopt this philosophy themselves, but at least they’ll understand the strategies that led to the accumulation of wealth in the first place.
- Explain your estate planning documents and make sure they are organized and easily accessible. You probably have had several important documents created as part of your overall estate plan, including your last will and testament, power of attorney and various trusts. Your kids and grandkids need to understand the role of these critical documents so they can make sure they are properly executed when the time comes.
They also need to know exactly where these documents are located so they can access them easily when they’re needed. So provide kids and grandkids with keys to safe deposit boxes or passwords to online vaults that will unlock access to these documents.
Having conversations about wealth management can sometimes be awkward for families, but this isn’t an excuse to avoid the conversations altogether. By following these steps, you can better prepare your heirs for their future wealth management responsibilities while helping ensure the continuation of family wealth to the next generation and beyond.
Please contact us if you have more questions about preparing your children and grandchildren for generational wealth management.