In Successful Wealth Transfers, Trust May Be More Important than Trusts

Why do the majority of wealth transfers fail? Learn how to have the right conversations with your heirs now so they can learn how to properly manage their inheritance.

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It is estimated that 70% of wealth transfers fail to extend to the third and fourth generation of heirs1. Why? Is it because more and more people are passing away without estate documents? Or because the documents were not set up correctly? The unfortunate reality is it’s because the receiving generation either loses, squanders, or mismanages their inheritance. Often, this gift meant to help future generations can have a negative effect on the lives of the heirs. For many of our clients who hope to leave an inheritance to their children and grandchildren, this statistic is alarming to say the least. So, how can we begin to correct this problem?

Why wealth transfers fail

It is reported that 60% of the time wealth transfers fail because there is a breakdown of trust and communication within the family and 25% of the time because the heirs were unprepared to be responsible for their inheritance1. By working on these two areas and having the assistance of a reputable Estate Planning Attorney to set up estate documents correctly, families can greatly increase their chances of a successful wealth transfer.

How to talk about money with your family

Fixing trust issues within your family can be a difficult and emotionally taxing endeavor. Some families with deep trust issues find it helpful to hire an outside counselor or therapist to help the family work things out. In many cases trust can be improved by proactively working to enhance communication.

Money can be an intimidating topic of conversation with your children and grandchildren. At the beginning, these conversations can be difficult and awkward, but the more money is discussed, the easier it becomes to have those conversations.

Use charitable giving as a learning opportunity

Charitable giving can be a great way to not only talk about money with your heirs but to also teach them valuable lessons about money. By allowing family members to designate a portion of your giving to non-profits they choose, you can teach due diligence and presentation skills by having them research the non-profits that spark their interest and presenting those findings to the family. The value of money and impact it can have can also be taught. One way to manage this giving would be to establish a Donor Advised Fund. This will also give them the opportunity to learn about investments and hone their budgeting skills to determine how much of the fund should be distributed. These are skills they will need in the future to manage their inheritance well.

To begin improving the wealth transfer failure rate, we need to start doing something differently. We need to have these conversations and prepare our heirs while we are still living. Having well-prepared estate documents established is an important pillar of your estate plan, but don’t forget the often overlooked pillars of trust, communication, and heir preparation.


1 Source: Williams Group Wealth Consultancy. theWilliamsGroup.org

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