Family Wealth Management: Tips for a Successful Transition Between Generations

Passing on wealth is not just about getting financial assets to future generations. It’s also about passing on what you think is important and avoiding damage to your children’s relationships with each other. Unfortunately, research shows that for many families the process goes awry. Here are some steps you can take to try to avoid common and costly mistakes while increasing the likelihood that your estate transfers successfully and lasts through another generation.

Avoid this unfortunate inheritance situation

It’s not an uncommon scenario: The parents pass away and leave the family home to the children, Joe, Bill and Marie. Joe wants to keep the house and live in it to preserve the homestead for generations. Bill is fine with that as long as Joe can buy out Bill’s share. Marie insists they sell the home because the market is hot and there’s a good profit to be made. And so the fighting begins.

Certainly, no family likes to think that the parents’ legacy will turn into a tussle over assets. Yet it happens all too often.

Understand why most transfers fail

While wealth transfers fail for many reasons, the top explanation is simple: lack of communication.

Most parents are uncomfortable discussing money with their children. Perhaps we fear such talks will reveal children’s greed or that by talking about inheritance the kids will be less motivated to strive in life. Maybe parents believe such a discussion would be all about trusts, tax strategies and insurance policies. While your financial advisor or investment professional might use these tools to achieve your wealth transfer goals, the real purpose of talking with your heirs ahead of time is to express the impact you hope the assets will have on your family and community — both now and after you’re gone. Pointed communication of what you would like to accomplish with the assets can help legacies endure for generations.

Plan to avoid mistakes

Before you talk with family members about your legacy, it’s critical to fully consider all of your potential beneficiaries. Map out and identify all of your immediate and extended family members so that you will have a clear picture of whom you and your financial advisor or investment professional may want to plan for. Perhaps you have a child who requires custodial care when you’re gone. Or you may have elderly parents whom you hope to support financially if you predecease them. Before you talk with your heirs, take time to document specific details — including names, addresses and contact numbers — and then use the map as the basis for a planning conversation with your attorney, tax professional, financial advisor or investment professional.

Shape the conversation appropriately

A thorough discussion of family wealth may be confusing to underage heirs. Minor children should probably be kept on a need-to-know basis and given increments of information as they mature. Older heirs, however, may benefit from knowing what they will inherit so that they can make plans for future assets that fit with their life choices and plans. This is especially true when passing on the family business. Such a legacy may affect an heir’s decisions about college or other opportunities that could enhance the business’s health. On the other hand, if an heir doesn’t want the business, it’s best to know that when the heir is a young adult so you can make alternative succession plans.

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Work With a Certified Professional

Rebekah J. Fero, CFP®, AIF®