Weekly Insight: Your Family Wealth Philosophy

Tipping-scale-with-housesIt’s a shocking statistic: More than 66% of the time, family wealth fails to outlive the generation following the one that created it, and 90% of the time, assets are exhausted before the end of the third generation. Parents fear that raising kids in a wealthy household or bestowing large inheritances will reduce their children’s ambition and create a sense of entitlement. Yet, the reality is that people who have never had to scrimp and save do not have the same relationship with money as those who have.

The families that succeed in sustaining wealth often take a step back from the dollar amounts to ask key questions about the purpose and meaning of family wealth. Passing on financial values can be equally, if not more, important than the assets themselves. Working with your heirs to help them understand their roles as stewards of family wealth can go a long way. The best way to ensure the survival of your financial legacy is to provide clear guidelines. A best practice among high net worth families is to develop a written values statement or family wealth philosophy. Does that sound too touchy-feely to you? Let’s consider what it may look like and how it may help you, and your family, make future financial decisions.

A family wealth philosophy does not need to be overly detailed or limit flexibility. It is a simple framework against which future requests and decisions can be judged. For example, suppose a family decides that the primary purpose of its wealth is to promote and sustain family unity. The parents may decide to buy a vacation home for all of their family members (adult children and grandchildren) to use. They may also weigh decisions such as the type of home, floor plan, geographic location, and accessibility against the original objective.

Another common goal of families with means is to support education as a way of empowering family members to pursue their ambitions. Some children/grandchildren may pursue a Ph.D. while others may not go to college at all. This means that each beneficiary or child may not receive the same support in dollar terms. This brings up an important point: Most wealth accumulators want to treat their heirs fairly. However, “fair” does not always mean equal. The important thing is that family members do not perceive decisions regarding who gets gifts/support and who doesn’t as random or arbitrary.

Some wealth accumulators worry about being seen as too controlling and thereby resented by their children and grandchildren. However, research has shown that younger beneficiaries actually like the idea of restrictions and want parameters around their access to wealth. Gifts that are shared without purpose or intention can feel like welfare. Inheritors also tend to have a greater sense of ownership and responsibility when they are included in family discussions about wealth and develop financial literacy over time.

A recent study found that over 60% of high net worth families had defined their intended purpose of the assets they plan to pass along via a will or trust, only 29% had a conversation with those receiving the gifts, 16% articulated their purpose in a letter, 3% had a family values/philosophy statement, and 2% made a video message. You have to act with intention, transparency, and clear communication if you want to be as successful empowering your family as you were in accumulating the wealth in the first place.

Click this text link to see a sample: Family Wealth Philosophy and Giving Plan. Let me know if you need some help or would like to talk through this process as it relates to developing your own family wealth philosophy.

Have a great week! 

About The Author:
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Jeremy Kisner
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Senior Wealth Advisor
Surevest Wealth Management
Weekly Insight: Your Family Wealth Philosophy was published: by