Multigenerational Wealth: Building It, Maintaining It, and Preparing the Heirs to Receive It
In Japan, the saying goes, “Rice paddies to rice paddies in three generations.” In Scotland, they say, “The father buys, the son builds, the grandson sells, and his children beg.” In the US, it is framed as “shirtsleeves to shirtsleeves in three generations.” The Chinese, perhaps, state it most boldly: “Wealth never survives three generations.”
Clearly, the problem of maintaining generational wealth is common worldwide. And the problem isn’t going away; recent estimates indicate that in the US alone, Baby Boomers will transfer something like $68 trillion to their heirs over the next 25 years. If those heirs are not adequately prepared for the responsibilities and opportunities conferred by that wealth, the consequences, not only for the families involved, but for society as a whole, are difficult to calculate.
We’ve written previously about multi-generational wealth transfers and some of the strategies families might use to ensure the smooth, tax-efficient passing of the financial baton to the next generation. The basics of proper estate planning with wills, trusts, durable powers of attorney, and other foundational documents are the most important building blocks to establish a multigenerational financial and philanthropic heritage. But in order to create a lasting legacy that can endure for multiple generations, it is vital to put in place structures capable of propagating the proper attitudes, understandings, and priorities in those who will receive the wealth. Not only that, but this “generational wealth mindset” must be passed along to the succeeding generations if a truly multigenerational culture is to be preserved, maintained, and enhanced for future heirs.
Build your wealth management team
It seems obvious, but it should probably be stated at the outset: though fortunes may be established by hard work and visionary effort, the help of professional, experienced, and fiduciary advisors can greatly enhance the likelihood that what is built by the founders is not squandered by their heirs. As wealth increases, the importance of issues like taxation, estate planning and conservation, risk mitigation, and investment strategy may come to supersede the influence of the founders. Founders who obtain such guidance and advice are much more likely to pass along significant wealth to their heirs than those who “go it alone.” Your wealth management team, then, should include not only a qualified wealth advisor, but also the legal, tax, and risk management experts who can help you plan ahead for the emerging issues that can adversely affect your wealth-building efforts.
Build a multi-generational culture of financial education
The importance of establishing a family culture of planning and discipline is perhaps best understood by comparing two famous American families: the Rockefellers and the Vanderbilts. Both families amassed fabulous wealth during the nineteenth and early twentieth centuries, but only one of them can still make the claim to a financial and philanthropic dynasty. While Cornelius Vanderbilt built a lavish fortune through shrewd and timely investments in shipping and railroads, he failed to establish a plan for educating and training his heirs in how to keep the family fortune together. Consequently, while some individual descendants have held onto a portion of their inherited wealth, the Vanderbilt legacy has largely been dissipated. John D. Rockefeller, on the other hand, who founded the Standard Oil Company in 1870, established a program of estate planning and financial education for his heirs that has contributed to the continuation of the Rockefeller legacy, which today is valued at some $8.4 billion, distributed over 70 heirs. Utilizing a combination of a well-drawn family constitution and irrevocable trusts funded with life insurance, the “Rockefeller Method” has succeeded at proliferating the financial and philanthropic vision of John D. Rockefeller for six succeeding generations.
Building a culture of wealth and philanthropy can begin very early and, at the beginning at least, need not involve attorneys or accountants. According to one philanthropic advisor, it all starts in early childhood with learning empathy for others. Comforting an ill sibling or friend with the gift of a treasured stuffed animal may foster feelings of generosity toward those in need. That impulse is the beginning of the philanthropic mindset, and it can be learned, even by young children, if parents and other caregivers stay alert to possibilities. Then, as the future leadership generation ages, it is important to engage them in substantive conversation about family goals for wealth-building and philanthropy. At a certain point, future leaders should be introduced to trusted financial and legal counselors and educated about the use of trusts, donor-advised funds (DAFs), annual gifting, and other matters. Some families may even wish to hold “family meetings,” perhaps during the holidays, to discuss charities and other worthy causes under consideration for philanthropic giving. Transparency from the older generation about the importance of sound financial management and philanthropic goals will go a long way toward instilling the proper attitudes and sense of responsibility in those who will one day take the reins. Personal stories that highlight the importance of these principles can give life to the family vision for future generations.
As a fiduciary, Quantum advisors believe that a holistic approach to wealth management is the best way to build a multigenerational financial and philanthropic legacy that lasts. By putting our clients’ interests first in everything we do, we are able to help them put together not only the right plan, but also the right team to execute the plan. To learn more about how we collaborate with our clients to build individualized solutions to complex problems, please visit our website to read our article, “Creating Value through Succession Planning.”
DISCLOSURE: Quantum Financial Advisors, LLC is an SEC registered investment adviser. SEC registration does not constitute an endorsement of Quantum Financial Advisors, LLC by the SEC nor does it indicate that Quantum Financial Advisors, LLC has attained a particular level of skill or ability. This material prepared by Quantum Financial Advisors, LLC is for informational purposes only and is accurate as of the date it was prepared. It is not intended to serve as a substitute for personalized investment advice or as a recommendation or solicitation of any particular security, strategy or investment product. Advisory services are only offered to clients or prospective clients where Quantum Financial Advisors, LLC and its representatives are properly licensed or exempt from licensure. No advice may be rendered by Quantum Financial Advisors, LLC unless a client service agreement is in place. This material is not intended to serve as personalized tax, legal, and/or investment advice since the availability and effectiveness of any strategy is dependent upon your individual facts and circumstances. Quantum Financial Advisors, LLC is not an accounting or legal firm. Please consult with your tax and/or legal professional regarding your specific tax and/or legal situation when determining if any of the mentioned strategies are right for you.
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