Problem Statement and Assumptions
Assumption: families with above-average amounts of assets/wealth pass their wealth down many generations.
Data: 68% of people with $30m+ in wealth are self-made; 24% - inherited and self-created; 8.5% - solely inherited. [a bit of rounding up here]
Problem: 70% of wealth ends on the 2nd generation; 90% - on the 3rd generation.
Parents may plan to pass down their wealth, but heirs may not be able to handle it.
Heirs get overwhelmed and underprepared.
Separate Yourself from Your Wealth
It’s understandable that parents don’t want to spoil their children or think kids are not ready yet.
Emotionally hard to let go of the grasp on the money —> starting the transition process too late.
Failure to prepare the heirs for the responsibilities of managing an inheritance is bad for both the heirs and the assets.
Devise a Proper Estate Plan
Superstitions aside, people hate planning for family affairs after death.
Only 32% of Americans have a will and even less so – an estate plan.
Important to audit the tools to identify the assets and the most tax-efficient ways of passing them to the heirs.
If children are young —> find a guardian and make a plan to gradually pass the inheritance to them not to overwhelm them with the money.
Give Your Children a Sound Financial Education
As a bare minimum heirs must be well versed in basic finance concepts.
Teach them to handle their personal money / allowance.
[MK: strongly suggest finance course or at least a couple of units on finance]
Update Children on the Changes in Net Worth
Openness and honesty [age-appropriate and context-suitable] in communication about parent’s finances.
Get children involved in allocating money to charity and other expenses to give sense of responsibility and stewardship.
Encourage Kids to Build Their Own Wealth
To discourage children from becoming “trust fund babies” make the inheritance distributions staggered based on milestones.
Encourage ambition and desire to establish careers [family business or otherwise].
[MK: explain the contents above to the children, too, so that they can repeat this process]