When confronted with how best to transfer wealth to younger generations, most families invariably focus on preservation, taxation and governance. Success in these areas, however, is no assurance that younger generations will not squander a family’s wealth. In fact, research has established that 70% of wealth transitions fail. Although there are a multitude of reasons why inheritances are wasted, one commonality is the failure to consciously communicate and transfer family values along with the wealth.
Most family leaders know, at some point they will need to communicate to their children the size of the family estate and how the assets will ultimately get transferred and to whom. However, how and when to communicate this can be a tricky and risky endeavor. If communication is done too early, there is risk that some children will stop being productive members of society; knowing that an inheritance is awaiting them. If done too late, the children may not have had time to learn the financial acumen necessary to manage their inheritance.
Before the matriarch and/or patriarch of a family begins communicating how much wealth will eventually be transferred to his/her children, it is important to prepare them first. According to Joline Godfrey, families should have a roadmap that encompasses the following elements:
- Establish Values and Mission
- Identify Key Skills
- Assemble Money Mentors
Establishing a family’s values and mission should involve as many family members as possible, but the process should start with the family leaders. It is important for everyone to agree regarding the values they want most for their kids. Here are some examples of values that have been shared with me over the years: education, entrepreneurship, philanthropy, humility and service to others. With these values in hand, the family is ready to craft a mission statement. A “stroll down memory lane” can help a family identify the defining elements of a family’s mission. The mission statement will serve as the overall purpose of the family’s wealth.
After a family’s values and mission have been formalized, the next step is identifying the key skills that the children will need to master to carry out the family’s mission. Some of these skills can be as simple as budgeting or may involve more complicated skills such as learning how to evaluate charities to receive distributions from the family’s foundation. According to Godfrey, defining a set of skills compels focus and gives structure to what is an otherwise daunting challenge — becoming financially literate.
After the mission is defined and the requisite skills to carry out this mission have been identified, it is time to assemble the family’s trusted mentors to help the next generation hone their financial skills. Mentors do not necessarily need to come from within the family circle. In fact, many families rely on a trusted circle of advisors to help fill this role. I was recently asked to help a family’s eldest son learn how to understand the value of money. Although this young man is in college and well on his way to becoming an aviation engineer, he did not understand the value of money and how money can be spent a lot faster than it is earned. The family thought this message would better resonate coming from a trusted third party rather than from a family member.
Mission and values, identifying your family’s key skills, and finding trusted money mentors are three steps to help families pass on their beliefs and values. Thus, allowing them to be a part of the limited 30% who are able to successfully transfer their wealth beyond the first generation.
 Wiliams, Roy and Vic Preisser, Preparing Heirs: Five Steps to a Successful Transition of Family Wealth and Values. Bandon: Robert D. Reed Publishers, 2003.
 Godfrey, Joline, “Preparing Children for a Life of Wealth.” Insights on Children and Wealth.
Transferring Your Values, Not Just Your Bank Account
By Tim Nguyen
Senior Vice President & Private Wealth Advisor