Goering Center news

By Kevin Hengehold

You may have seen statistics about wealth disappearing after one to two generations of transfer.  You have almost certainly heard the saying, “shirtsleeves to shirtsleeves in three generations.” The saying outlines the cycle whereby the first generation of a family works hard and makes sacrifices to accumulate wealth and assets. The second generation witnessed their parents struggle, and they recall the frugality of their own childhoods. The third generation, having grown up with comfort and resources, consumes the family wealth.

You’re also probably tired of hearing the “shirtsleeves to shirtsleeves” warning.

The statistics, as well as anecdotes, are alarming, and they can cause conflict between family members. It’s important to remember that, just like having a well-communicated business plan increases the chances of your business’ success, having a well-communicated inheritance plan increases the likelihood of a successful wealth transfer.

According to Roy Williams and Vic Preisser, who studied more than 3,200 wealthy families and wrote the book Estate Planning for the Post-Transition Period, the top concerns for parents as it comes to wealth transfer are:  

1. Too much emphasis on material things
2. Naiveté about the value of money
3. Spending beyond their means
4. Initiative being ruined by affluence
5. Will not do as well as parents would like

Typically, estate planning meetings and workshops focus on using the appropriate legal structures to avoid taxes. Assuming that you have received the appropriate tax and legal counsel (if not, please refer to the Goering Center’s Professional Services Registry), what more can be done to increase the chances of successful wealth transfer?

Williams and Preisser found that breakdowns in trust and communication were behind 60 percent of failed inheritances.  They recommend that a family write out a “family mission statement” and hang it in a prominent place to remind family members the story behind their wealth, and the purpose going forward. Then, define a glossary of terms included in the mission statement to ensure that the meaning and intent of the mission statement is clear.

Give the next generation a chance to learn while you are still able to provide guidance. Work together on a philanthropic endeavor. Allow your heirs to provide input into how some of your charitable donations are directed. Allow for input from your children, and even grandchildren.  Be willing to answer questions and be willing to share, or even give up control when you think there is a good learning opportunity.

While running your business, you follow Jim Collins’s advice to “get the right people on the bus, and get them in the right seats.” The same principles apply to preparing your heirs to be good stewards of your family’s wealth. Some of your heirs might be excellent to help with financial details. Others might be drawn towards philanthropy. And some siblings and in-laws might struggle working together. Having discussions around these topics early can increase the likelihood of passing on your wealth and your values.

You want the best for your children. But just as you wouldn’t ask one of your employees to take over an important role without any training, you need to be intentional about training the next generation of your family for the job they are fortunate to inherit. Involve your inheritors in age-appropriate decisions about your family’s wealth. Allow them to take on financial responsibilities for the family. Plan for a successful transfer of your wealth and your values to achieve an enduring legacy.

Kevin Hengehold is the director of marketing at Hengehold Capital Management. Reach Kevin at kevin@hcmwealthadvisors.com or 513-598-5120.

Featured image at top: Photo/Mangostock/Fotolia