For the head of an ultra-high-net-worth family, questions inevitably arise about in what way wealth, as well as their values, skills and knowledge, can be passed to succeeding generations — and how their legacy is preserved. BPM Advisory Director Kris Marney, who has 20+ years of experience in accounting leadership, wealth planning, and family office management, offers a perspective.
Family wealth is hard-won. How can you ensure that your family’s core values are preserved alongside your financial legacy? What strategies can be employed to equip and inspire the next generation to be responsible stewards of this inheritance?
According to a report from Bank of America’s Private Bank last year, a massive amount of wealth — $84 trillion — will be transferred from wealth creators to the next generation and charities in the next two decades.
Most successful people are familiar with the challenges of building businesses, growing assets, and investing to protect their hard-earned wealth. In our experience, however, passing on that wealth presents an unfamiliar opportunity.
Such a transfer in some ways parallels a business succession plan; indeed, passing on business entities or investments may be a substantial part of a wealth transfer. But passing wealth to the next generation has more complex aspects and demands that the wealth creators ask themselves new questions. Do they want to build and grow a dynasty? Does the family head have a succession plan for one or more business entities they hope will endure? How will they ensure their children’s success?
And there’s more. What besides money do wealth creators or family heads want to pass on to their children and grandchildren? What values do they want their children to inherit, and what kind of culture can they foster? Would a written history help ensure those values are carried forward by a future generation? How can they ensure legacy assets endure — or might a wealth creator want heirs to follow their own dreams? How do they educate and empower their children to flourish?
The next generation should also appreciate how wealth was earned — through hard work, dedication, at times even struggle. Ironically, some who inherit wealth find themselves a little chagrined at their good fortune, embarrassed by the wealth, even though it affords them the opportunity to effect positive change. Some are intimidated by the task of carrying on a founder’s legacy, and how to learn to do that. To the extent it can be taught, younger generations should learn how wealth affects not just net worth but self-worth as well. Having a mission and a social purpose play a vital role in assuring that.
A question of timing, the need for education
Whether ultra-high-net-worth individuals are trying to foster service and philanthropy, preserve a family enterprise, or simply create trusts for their beneficiaries, legacy planning should reflect their convictions and priorities — while remaining cognizant of the ideas, values and interests of the succeeding generation.
Whatever their wishes, determining when to inform the next generation about the wealth and a planned legacy is important. When significant holdings are at stake, how and when should a wealth creator reveal their extent? How should they factor in the maturity level of the recipients? If they are still children or include grandchildren, how sophisticated should their education be?
Disclosing wealth is not just about bringing the next generation “into the fold.” It’s a conversation about purpose, about the wealth owner’s intentions, at the same time navigating a younger generation’s expectations and their own aspirations. Is the next generation aware of the hard work and ingenuity that made them a success? Are they concerned with what is expected of them, or worried about what kind of impact they will have? Might they want to use their wealth for a lifestyle, or pool their resources to make a social impact and leverage wealth to benefit others?
Family retreats can be an ideal environment for these discussions and to begin the education and guidance process. Spouses will need to be in agreement with the timing and amount of wealth transfer strategies to provide a unified front. Documenting and communicating the family plan can be instrumental. Beyond retreats, regular family meetings to discuss the expectations of the older generation, the goals and aspirations of the younger generation, and any changes to the plan’s trajectory.
Entrepreneurs and families are not alone
Families are famously complex, and the values of an older generation often are not easily conveyed to the next. Complexities arise when a family has grown larger, and the family business may have diversified and adapted over time. With multiple generations to include in future planning. (It can fairly be said that what one cousin is told, all other cousins quickly find out!), the older generation may want to ask themselves if they have open communication with their children, allowing the latter to ask questions, offer points of view, even voice concerns.
Strategies for estate planning, and for educating family members about what to expect when wealth is or is not passed on to them are delicate. This is especially so for younger recipients of wealth; the scion of the family must manage expectations as well as teach them how to invest and protect assets. These are not always easy conversations. Nuanced decisions must be made. Family members should become familiar with governance and oversight of the family’s finances.
All these needs dictate a curriculum of education and training for those family members who are “waiting in the wings.” Advance planning and articulating objectives also greatly help, as does being flexible when encountering the next generation’s perspectives, opinions and hopes. Family meetings provide an opportunity to start the process. And having the right team of advisors in place is key to success. A dispassionate third-party advisor can be vitally important to gain knowledge about tax obligations, investing and financial management, providing independent perspectives and experience to guide the execution of a successful wealth transfer and wealth preservation plan.
For more information, contact us.
