Are Your Heirs Ready? 3 Lessons to Teach Children About Wealth Now - Rodgers & Associates
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Are Your Heirs Ready? 3 Lessons to Teach Children About Wealth Now

Forbes recently reported that we are at the brink of the largest intergenerational wealth transfer in history1.

Over the next 30 to 40 years, $30 trillion in assets will pass from one gener­ation to the next in the United States. The Center for Rural Pennsyl­vania estimates2 that in Lancaster County, Pennsyl­vania alone, $1.1 billion transfers from one gener­ation to the next each year and will continue to transfer annually for the next 25 years.

The sad reality is that 70% of this wealth will never make it past the 2nd gener­ation. Researchers discovered this statistic holds true going back more than a century after reviewing hundreds of family wealth transfers3. Should this trend continue, more than $800 million each year in Lancaster County could be lost, squan­dered, mismanaged, or wasted by the next gener­ation.

My interest in this topic started more than a decade ago. We observed our clients expressing concerns about passing on the wealth they had saved to their children and grand­children. They didn’t want their children to be spoiled by their inher­i­tance. What could be done to assure inherited wealth helps their children?

Is a life well-lived measured by the size of our bank accounts and how much property we acquire? Or is it measured by our relationships and the condition of our relationships when we leave?

Researchers found a common factor in the 30% of successful wealth transfers that kept the families together and the wealth available to the 3rd & 4th gener­a­tions. Successful families trusted each other and maintained good commu­ni­cation among the gener­a­tions. If we want to build a legacy that will last, parents, children, and grand­children need to develop trust and have regular, meaningful commu­ni­cation.

Long before television and smart­phones, we knew that our parents and grand­parents could teach us important lessons about living. They were the ones who had experi­enced life’s ups and downs, gained perspective, and were qualified to share their wisdom. Today, as people are living longer, it’s not unusual to have four or five gener­a­tions alive at one time. We have a terrific oppor­tunity for each gener­ation to guide and inform the younger gener­a­tions coming after them.

After parents die, their wisdom and experience die with them unless effort is taken to learn from them. Parents need to teach the next gener­ation about how they acquired their wealth, and the respon­si­bil­ities that go with inher­iting that wealth. Many people seem to have given up on the idea that the best of what we can offer of ourselves and experi­ences can be passed on to our children. We cannot share our wisdom by simply adding their name as a benefi­ciary in the will.

I believe there are three lessons we all should teach our children about wealth:

  1. There are no shortcuts to wealth

    Those who take shortcuts—lottery winners, marrying for money, or inher­iting a sizable estate without any preparation—often live dysfunc­tional lives, with their windfall creating larger problems than they faced before.

    Receiving an inher­i­tance without any prepa­ration can be poison to children who will destroy themselves and their own families because they know nothing about the respon­si­bility of handling wealth. You must work to prepare your children long before an inher­i­tance is received.

  2. Use wealth in service of others

    Everyone is rich when wealth is used in the service of others—family, friends and humanity. Thomas Jefferson said the “pursuit of happiness” is an internal journey to know ourselves and an external journey of selfless service to others. It is best for children to learn this from their parents at an early age.

    A family should develop a culture of sharing the family’s wealth with others and meeting to make these decisions together. Wealth management should flow to the next gener­ation while parents are still living and can help guide the process. It will become wealth that has been grace­fully and wisely relinquished—a gift that keeps on giving and a gift that cements parent-child relation­ships, not an inher­i­tance that under­mines and confuses.

  3. Use wealth to strengthen family relationships

    Wealth can divide or connect. Wealth can grow relation­ships or it can destroy them. Wealth is energy; it is there to employ. If you have wealth, does it control you, or do you control it? The answer is found when you examine your engagement with others in your life. It’s why some people with lots of money die impov­er­ished, while some people of modest means who bask in the warm touch of family and friends die rich. Having regular conver­sa­tions with the next gener­ation provides an oppor­tunity to frame a different set of values and leads to a different kind of relationship and commitment between parent and child.

    Reframe the family’s chari­table giving as a family project deserving of time and attention propor­tionate with the effort that went into making that money in the first place. Chari­table giving should not be tax driven; it is values driven, with an emphasis on need and effec­tiveness. Anything less than that does a disservice to those in our family who came before us, and those whose sacrifice, hard work and deferred consumption led to the donation.

    Selecting worthy causes is not just a process for the rich but also for those who have a modest amount of wealth to pass on. Don’t under­es­timate how even a small gift to charity can leave a big impression on children when they are included in that decision. Every family, regardless of their wealth, should have family meetings.

Your children need to understand that they are your legacy, not your money and possessions.

For your legacy to flourish, you must get your children involved, work with them to create something and contribute something to your community for the benefit of others.

What we leave behind, most impor­tantly our words and deeds, are reflected in the lives of those we touched. Are you taking time to teach your children and grand­children about the family and legacy you want to pass on?


Rick’s Tips

  • Researchers have found that 70% of wealth that is passed down will never make it past the 2nd  gener­ation.
  • Those who take shortcuts to wealth often live dysfunc­tional lives, with their windfall creating larger problems than they faced before.
  • We cannot pass on our legacy to our children simply by adding their name as a benefi­ciary to a will.

1 The Greatest Wealth Transfer in History? By Jess Stone­field.  Forbes, May 21, 2018

2 Wealth Transfer in Pennsyl­vania.  By the Center for Rural Pennsyl­vania, a legislative agency of the Pennsyl­vania General Assembly.  February 2016

3 Source: Williams Group Wealth Consul­tancy.  theWil​liams​Group​.org.