Month: December 2024

Rory O’Hara

Forbes Councils Member

Forbes Finance Council

COUNCIL POST| Membership (fee-based)

Rory O’Hara, CFP®, CRPC®, is the founder and senior managing partner at Ausperity Private Wealth.

For many wealthy families, passing down financial assets invokes more anxiety and fear than a sense of accomplishment or relief. And for good reason: Very often, transferring familial wealth can lead to its destruction.

The easiest way to avoid that fate is by confronting the challenges of family wealth planning head-on. That way, wealthy families can allow their children to manage their inheritance responsibly and, hopefully, in a way that reflects and reinforces their values for generations to come.

The Challenge For Wealthy Families

The key to solving the challenges associated with transferring wealth is mainly behavioral. Indeed, while many children of wealthy parents have the skills to manage wealth, inheriting a large amount of money tends to change how even the most well-intentioned people act.

Granted, shouldering that responsibility can be a wake-up call for some, giving them a sense of purpose and making them more productive citizens. However, something entirely different happens for others: They become more entitled, arrogant and materialistic. And that’s when the problems begin.

Inheriting a large sum of money will likely impact a person’s lifestyle, behavior and relationships in one way or another. That’s why transferring wealth is so difficult. In fact, familial wealth often ends up being lost by second-generation recipients. Unfortunately, the odds of disrupting this pattern are close to zero in the absence of adequate preparation.

Best Practices For Successful Family Wealth Planning

Family wealth planning can be incredibly complex and stress-inducing, so it’s no surprise that many wealthy families either continuously delay the process or struggle to know where to start. However, if families are intentional and have an unwavering commitment to getting things right, they can transfer wealth to the next generation—and the one after that.

Here are two things that every wealthy family should do:

• Identify values and characteristics to pass on to children. In almost all cases, family wealth is associated with a distinct set of values and principles. It’s what author Stephen Covey called a “combined, unified expression from all family members of what your family is all about—what it is you really want to do and be—and the principles you choose to govern your family life.”

Start by identifying your values. Then, communicate them as early and as often as possible. By doing that, you have a better chance of ensuring your children absorb those lessons and pass them on to future generations.

This could mean instilling a sense of independence, encouraging entrepreneurialism or stressing the importance of philanthropy. Some like to teach children that wealth is, first and foremost, a social responsibility. Whatever you decide is most important to you, write it down and consider it a family mission statement. It will serve as the foundation of everything you do.

• Establish and communicate expectations and responsibilities. One huge hurdle for wealthy families is when children have no boundaries or clear expectations regarding financial support. This is especially true for adult children who have grown up privileged. They often rely too much on their parents for assistance, sometimes to the point of not having any sense of responsibility.

For this reason, it’s critical that wealthy families not only establish but frequently communicate expectations in this area. This includes teaching children the difference between wants and needs at a young age, which encourages positive spending and saving habits later in life. It also means being comfortable refusing to offer support when they cross certain boundaries.

Additionally, don’t be shy about putting regular family meetings on the calendar. Good things can happen when everyone can discuss their values and the importance of personal responsibility in an open and positive setting.

Plus, once they become regular occurrences, these meetings will make issues related to wealth planning easier to solve, including each member’s role in the process and, most importantly, what that will look like in a carefully thought-out action plan.

Ultimately, successful family wealth planning transcends mere financial transactions. It involves instilling a legacy of values, responsibility and purpose that can sustain generations. By proactively tackling the intricate challenges associated with wealth transfer, families can ensure not only the preservation but also the enhancement of their legacy.

The information provided here is not investment, tax or financial advice. You should consult with a licensed professional for advice concerning your specific situation.

Source: https://www.forbes.com/councils/forbesfinancecouncil/2024/06/25/family-wealth-planning-preparing-the-next-generation/