By Brian Littlejohn
Your family’s legacy is as much about providing for future generations financially as it is about shaping how you wish to be remembered. While a carefully crafted estate plan is important, preserving generational wealth also requires communication, education, and trust among family members.
Indeed, 70% of wealthy families lose their wealth by the second generation, and 90% by the third, according to the Williams Group wealth consultancy. To establish a successful family legacy, proper planning can go a long way towards maintaining wealth long-term.
Here are three steps for establishing a successful family legacy:
Step #1: Open the Lines of Communication
To preserve wealth long-term, a critical first step is to open the lines of communication among family members. If you have young children, you don’t necessarily have to disclose every financial detail. However, it’s important that younger generations understand the value of money and how to manage it. And if your children are older, consider discussing your will with them, so any potential issues can be addressed in a safe and open environment.
Step #2: Define a Common Purpose for Your Family’s Wealth
Don’t assume that your heirs share your attitudes and beliefs towards money. It’s your responsibility to communicate to the next generation your wishes for how they manage their inheritance.
In many cases, families that establish a successful legacy can articulate a common purpose for their wealth. This is often the result of reflecting on your family’s core values and setting clear objectives for how you want your wealth directed long-term. If you’re not sure how to start this conversation, an experienced wealth advisor can help facilitate a productive discussion.
Step #3: Document Your Intentions
Though it’s critical that the next generation understand your intentions, it’s equally important to document your intentions for future generations. For example, you may want to set provisions for how future heirs can access and use their inheritance to ensure their actions are aligned with your values.
Ultimately, it’s up to your children to instill good values in their children, and so forth. However, putting certain guidelines and restrictions in place can serve as an effective backstop.
Establishing a Successful Family Legacy Is a Process
Often, family members who create wealth have a different attitude towards their money than those who inherit it. To develop and maintain a successful family legacy, it’s important to communicate openly with the next generation, encourage financial literacy, and instill the right values.
In addition, consider working with a trusted advisor to develop your legacy plan and foster communication among family members. Your advisor can help ensure your legacy plan is well documented and executed efficiently, so your family wealth is protected and preserved for generations to come.
Brian Littlejohn, MBA, CFP®, CFA is a financial advisor with Sherwood Wealth Management, providing investment management, retirement planning, and comprehensive financial planning and is a subscriber to MyPerfectFinancialAdvisor.