Legacy planning to preserve and protect wealth
Legacy planning has become such an important topic of discussion among high net worth families and their advisors in recent years. Research recently done by the Williams Group found that 70% of family wealth is depleted by the end of the 3rd generation. To ensure that they do not fall into that statistic, wealthy families are looking for guidance from their advisors to preserve and protect their accumulated wealth for future generations.
There are many reasons why wealth is depleted: poor investment choices, inflation, taxes and poor personal money management. The list can go on and on, but what it really drills down to is lack of communication and education across generations. The next generation successors are ill-equipped to deal with the responsibility component that comes with their sudden inheritance.
To ensure that wealth lasts for multiple generations, wealthy families will need to plan ahead. There are three key considerations when building a sustainable family legacy plan:
1. Build trust and establish open communication to prepare heirs
Wealth creators are often concerned that knowledge of an inheritance may create rifts among family members or spoil the younger generation and prevent them from achieving their goals. For this reason, they keep their estate plans secretive, creating an atmosphere of distrust and possibly, misunderstandings. Initiating a meeting to discuss the structure of the estate with all family members is an effective approach to prevent misunderstandings and ease any uncertainties about expectations. It is also a great opportunity to share long term investment strategies and knowledge gained from advisers as well as teach the heirs financial responsibility by discussing priorities for the wealth whether it be paying for education, achieving investment goals or giving back to the community.
2. Define core family values, traditions and mission statement as a family
A shared understanding of family traditions and history, life stories, values and wishes are key to creating a legacy plan. When having this discussion, it is important to have the entire family, including the younger generation, involved. Teaching family values at an early age will help ensure that they adhere to these values and effectively transition this knowledge to the next generation.
In addition to defining family values and traditions, the creation of a family mission statement provides purpose and guidance to enhance a family’s ability to preserve and grow its financial wealth for future generations. To establish a mission statement, the family must first understand their history and overcome any issues that may undermine the ultimate mission. Secondly, the family should collectively develop a common vision.
3. Build a team of trusted advisors
Legacy planning differs from traditional estate planning and financial planning because it involves an emotional element when choosing trusted advisors to manage family wealth. Families look to advisors to facilitate important discussions across generations, find ways to bring families together as well as provide guidance and best practices for wealth transfer. Trust and an innate demonstration of care are just a few of the important qualities needed in an advisor.
It is extremely difficult for families to maintain wealth across many generations. Those that do often embrace an atmosphere of open communication and instill the family’s values along with a sense of the family history and build a team of trusted advisors.
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Published on February 2020
The information provided here is for general guidance only, and does not constitute the provision of tax advice, accounting services, investment advice, legal advice, or professional consulting of any kind. The information provided herein should not be used as a substitute for consultation with professional tax, accounting, legal or other competent advisers.
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