In 2007, the Boston College Center on Wealth and Philanthropy embarked on a four-year study to take a look at the lives of wealthy people and how being affluent has impacted their lives, and those of their children, as reported in the MarketWatch article, “How to leave an inheritance that doesn’t tear your family apart.”
Participants were asked about how their money helps or hinders their deepest aspirations for themselves and their children. The study found that participants with children worried less about making more money and impacting the world through philanthropy than “to be a good parent.”
Most parents don’t want to discuss money with their kids, and understandably so. It’s a daunting conversation, and can invite the question: “How much inheritance can I expect?”
However, when parents don’t communicate their hopes and dreams, the chances of a successful outcome aren’t great. A 20-year study at The Williams Group revealed the reasons why there is a 70% failure rate among affluent families, where family assets dissipate, and family relationships disintegrate. The research found that it’s connected to a family’s ability to have meaningful, productive and honest discussions about the effect of money and the purpose of the wealth.
Some well-intentioned parents will respond to their children’s question of “how much and when?” by creating a structure that does the protecting for them. They establish trusts that distribute assets to their children at age-appropriate milestones. Or they add a term in their will that says, “if there is any fighting, it all goes to charity.”
In some families, the parents don’t tell the children what their inheritance will be, thinking that not knowing will ensure that the kids don’t lose their motivation to achieve in their own right. However, children who are left in the dark may have other questions, like could they count on their parents if they wanted to start a business of their own, or would they be cut off if they ran into trouble.
Family conversations about wealth, work ethics and social responsibility that begin when children are young and continue over time, changing as their children mature, is far more likely to lead to a family that understands and respects the origins of the family’s wealth and the responsibility that comes with it. Some family meetings should be facilitated by attorneys, wealth managers, CPAs and/or family therapists familiar with challenges of families with wealth to better ensure that children and grandchildren will be prepared to be good stewards of their family's wealth.
Moreover, the parents and grandparents should be engaged and significantly in creating the estate plan and monitoring its evolution over the years and decades, to ensure that it reflects the values of the older generations, and contains the thinking and guidelines of the people who created the family wealth -- not simply the guidelines and thinking of the estate planning attorney whose computer generated the estate planning documents.
Reference: MarketWatch (February 21, 2018) “How to leave an inheritance that doesn’t tear your family apart”