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5 Tips for Successfully Passing Down Wealth

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What You Need to Know

  • Many children within UHNW families don’t receive a solid financial education about the impact, expectations and responsibilities of wealth.
  • Clients need to start early in educating children the value of money. They also should be included in financial planning meetings.
  • Make sure your client's books are in order and children are aware of the financial set-up.

Growing wealth is one thing. Preserving and passing it down to the next generation while confidently knowing it will be maintained is something else entirely.

While many think that financial literacy is directly correlated to the size of a person’s bank account, I’ve found this not always to be the case. For more than three decades I’ve worked with hundreds of ultra-high net worth families and family offices across the country to help take care of clients’ personal financial administration needs and establish financial habits that they can share with their children.

I’ve found that many children within these families don’t always receive a solid financial education about the impact, expectations and responsibilities of wealth. As a result, they are not equipped to manage their inherited estate when the time comes.

Wealth is a wonderful privilege, and it can amplify both the joys and the problems of life, meaning that financial clarity and good communication are even more important. By having a better view into these financial habits, I’ve also found that advisors are much better equipped to provide counsel that is tailored to what these clients need.

Based on my experience helping manage these families’ cashflow and actively maintaining generational wealth, here are what I view as five key tips for passing on wealth to the next generation.

1. Encourage your clients to talk to their kids early about money.

Encourage clients to start conversations early, starting with the concept of a dollar. To a young child (or even many young adults these days), the difference between $150 and $1,500 may mean little if they are not familiar with what it takes to earn $150 versus $1,500.

If clients want their children to ultimately understand the value of their family’s wealth (and thus preserve it) they must first understand the value of a dollar.

Whether it be earning money through a chore system, or a part time job at a local store, a child will quickly come to understand that money comes from work, and time — one of our most precious resources.

So next time your client’s child wants the latest iPhone, they should be told just how many days of work and chores are required to earn that privilege. This will in time provide them with a solid foundation and respect for their wealth, and thus how to nurture it.

2. Provide a clear picture of what your client’s estate entails — and why it’s important to take daily actions to maintain it.

It’s important your clients understand that there is a real value in ensuring everyone in the family has a clear view of their wealth — as it can diminish faster than they might think.

Something as simple as understanding a minimum cost of living is important to explain to children. While the minimum cost of living for an UHNW individual may look very different from the average American, if that figure is not discussed, you’d be surprised how quickly unnecessary and skyrocketing expenses can make it difficult to meet those financial obligations.

This is even more important when you look at the “inverse compounding” effect of wealth transfer. While $100 million is a very generous amount to pass on to a child, that wealth can quickly fragment and diminish.

Once that child has a child of their own (or multiple), which then have grandchildren, that wealth can be quickly spread thinner and thinner. Coupled, often, with spending without earning, wealth can be rapidly depleted.

Wealth is like a baby: You must keep a continuous eye on it and take daily actions to ensure it continues to grow and thrive.

3. Include children in financial planning conversations.

Poor communication is the biggest cause of issues when planning for the future, no matter how much money your client has. It’s important to instill a goal-oriented and planning mindset as early as possible. Encourage your clients to speak to children about why the family has wealth and works so hard to maintain it, not just how. What is the true purpose of your family’s wealth?

On a regular basis, involve your client’s children in financial planning. Ask questions such as what do we want as a family in life? What causes that improve the world do we want to support? Do we want to take more family vacations, buy a new house, or invest in a second home?

Additionally, they should know what may be required later in life in terms of home health care or assisted living, and plan for what may be required to give your loved ones the care they need when they need it.

4. Ensure your client’s books are in order, and their children are aware of the financial management setup.

There’s the saying, “Nothing is certain in life except death and taxes.” While death sadly can’t be avoided, your clients can ensure their family’s financial information (and tax returns) are easy to access when it’s time for the next generation to take over.

Encourage your clients to clearly outline who is managing the family’s day-to-day finances. Is it a third-party? Is it a family member? How do they reach them, and should the worst happen, what is the continuity plan?

Many clients’ children have no idea where the will is, or who the attorney is. I even encountered one situation where a client’s children had found a will, and assets had started to be disbursed, only to then find another will prepared by another attorney that superseded the previous one.

Clearly these are headaches most clients do not want to pass on to their children, especially in the context of what will already be a difficult time.

5. Give children small responsibilities that provide insight into what it takes to manage wealth.

I was lucky to be raised by great parents who gave me important training wheels for managing my finances later in life. If I wanted to receive an allowance, I had to complete my chores. Quite simply without the work, there was no reward.

Grasping the importance of savings is another crucial concept to ingrain early. Unexpected circumstances in life always will come up and having a safety net is essential. When I was a child, whenever I earned money from those hard-earned chores, my parents allowed me to spend a third of it, but instructed me to save a third of it and use a third to do something positive and productive for the world. That could be donating to charity, using it to help someone in need, or even putting it towards a business idea.

This practice ingrained in me the importance of saving, while also encouraging creative thinking around how to grow my money through a potential business idea, and the importance of giving back.

As an advisor, make sure that your clients are taking the time to keep everyone on the same page when it comes to maintaining finances. The biggest key is communication, and while it can feel awkward at first, the more you practice, the easier it becomes.

When started early and done well, proper communication around money will lay the foundation of wealth for many generations to come.


Ken Eyler is CEO of Aquilance, a company that handles the personal financial administration needs for hundreds of ultra-high net worth families all across the country.