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Industry Spotlight > Women in Wealth

4 Ways to Prepare Families for a Smooth Wealth Transfer

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Open, consistent communication is the single most important attribute in successful family wealth management. When wealth holders team up with a savvy financial advisor to clearly communicate with their children about wealth and teach them how to manage it responsibly, most problems are avoided. Unfortunately, many wealth holders are afraid to discuss wealth with their children, and unhappiness almost always follows.

Here are some guidelines on how advisors can help set the tone and provide ongoing support, all while creating family harmony in the process:

1. Identify Wealth’s Impact and Defining Family Values

A trusted advisor should not only manage money over the long term, but also guide families in thinking about its proper role and overall impact in their lives.

One of the best exercises advisors can offer wealth holders is to encourage them to share their values through life experience. If parents want their children to give back, then discuss options for charitable giving or joint volunteer work. Help clients identify philanthropic intentions, and the areas about which they care the most. If they have a foundation, stress the importance of their children’s involvement and focus on the areas they might like. Helping to define family values instills character and integrity in children, and most often leads to responsible, well-adjusted adults.

Another discussion worth having with children is explaining the purpose of the wealth. Children who know their family’s wealth is serving a greater good often feel more connected to their family and the wealth. Advisors have a unique opportunity to assist wealth holders in articulating a coherent vision about their wealth, which in turn helps their children understand the positive impact it can have.

2. Money Management 101

Advisors need to remember that as surprising though it may seem, many children from wealthy families never grasp the importance of effective money management. They haven’t been taught how to budget or make sensible spending decisions. They don’t realize the cost of living a lifestyle like their parents’. When they become adults and perhaps don’t have the same wealth as their parents, many will spend more than they can afford. Because they had no experience being disciplined spenders, they get into financial trouble. It’s a shame because it’s avoidable.

Advisors are in a unique position to provide families with money management education, which must involve an understanding of credit. Many view credit as a source of income. They don’t understand how it works, particularly because credit card usage is so pervasive. The problem is that children don’t often see the bills. Having children manage a credit card when they are younger may seem basic, but it’s excellent experience.

3. Discourage Concealing Wealth

One of the biggest mistakes advisors encounter regularly is that parents try to conceal wealth from their children.

Most adolescents realize they have money because of reactions from their friends. Children need a framework to make sense of their family’s wealth. Most parents have spent a lot of time thinking about the ramifications of their wealth and are thus the best educators of their children. Advisors should encourage the sharing of that wisdom with children, and the importance of not remaining silent. 4. Proactive Wealth Transfer and Legacy Planning

Advisors cannot stress enough that proactive, clear communication is a best practice when it comes to wealth transfer and planning a legacy. Encourage families to remain flexible about how money is to be managed in the future.

Facilitate the following discussion:

  • What are the goals of the family’s wealth?
  • How should wealth be dispersed to children and/or to charities?
  • How is wealth to flow to successive generations?

Help wealth holders clarify how their legacy is to be structured, so there are no surprises. This in turn should be communicated, as appropriate, during a client’s lifetime to ensure that family members enjoy the wealth passed on to them. Many people create havoc in their estate by failing to communicate. In an information vacuum, family dynamics take over. Family members often interpret the wealth creators’ wishes based on their own version of family history — often to their own benefit.

Remind wealth holders that “forcing” family members, for example to jointly manage their money, usually has the opposite effect.  It’s important to provide options to family members. Offer the counsel that while most wealth creators will naturally try to keep the family together, heavy-handedness breeds discontent. If adult family members have choices, they will almost always stay together. If they are locked in, they will struggle and try to break up jointly owned assets.

The Bottom Line

Wealth holders should never underestimate the value of clearly conveying their wishes to future generations.  However, being unprepared to manage money happens all too often. Informed advisors are in a unique position to facilitate a more positive relationship with money management and family dynamics, reducing the burdens common with managing significant wealth.


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