Well, the likelihood that your financial legacy will endure and be a blessing rather than a curse may depend on more than your estate planning legal documents.
Have you ever heard the expression "shirtsleeves to shirtsleeves in three generations"?
Basically, this means the first generation that creates wealth through hard work and thrift leaves it to the second generation that blows most of it on entertainment and fleeting amusements.
So, what of the third generation?
It squanders what is left, usually on destructive behaviors.
The further one is removed from the work and thrift that generates wealth, the more likely one is to waste it and become a wastrel in the process.
Unfortunately, it is human nature.
A recent Barron’s article reviewed the research on the challenges of successful inheritance planning by Roy Williams and Vic Preisser, authors of Preparing Heirs: Five Steps to a Successful Transition of Family Wealth and Values.
The article, titled “Preparing for Inheritance: How to Avoid Losing It All,” is worth a read on this very subject.
Williams and Preisser gathered data from more than 3,000 families who had lost their family wealth.
What did they learn?
Was it poor planning and bad investments?
No, not really.
In fact, fewer than 3% of the respondents attributed the family wealth crater to poor planning and bad investment.
Was it unprepared heirs?
Getting closer, but still only about 25% said heirs were unprepared
Was it, in the famous words from Cool Hand Luke, a failure to communicate?
Ding, ding, ding!
Indeed, some 60% said it was a lack of communication and trust in the family.
Takeaway: the most brilliant of financial, tax, and estate plans alone do not create good stewards of wealth.
Senior generations must invest the same kind of time and effort it took to create their wealth when it comes to teaching their heirs about the financial legacy they will inherit, unifying the family around its accomplishments and charitable engagement.
The better a senior generation makes this "investment," the more likely family wealth and relationships will flourish.
Communication lets heirs have an understanding of the values, responsibilities, and choices made by the senior generation.
In the process, this communication may reveal ideals, beliefs, values, and shared visions that might otherwise have been left unsaid, allowing the family to foster a common vision to support a common purpose for future generations.
According to the article, annual family meetings should be scheduled with a goal of promoting family harmony.
Eventually the family’s principal advisors, including those for legal, tax, and financial concerns, should receive a copy of a “heritage statement.”
This is a formal document of the family’s shared story, values, and vision, and when updated, the advisors should also get a new copy.
A heritage statement should sharpen the family’s vision, since it is to be shared outside the family. With a clearly defined vision, the recommendations of the family's professional advisors can be coordinated around the family’s goals, beliefs, and values.
Your family can up its chances of maintaining wealth rather than destroying it. Take to heart the charge to use family meetings and the heritage design process for wise financial, tax and estate planning.
If you would like some further reading on the subject of avoiding inheritance planning pitfalls, I would recommend reading "unHeritage – 11 Pitfalls to Family Legacy and How to Avoid Them." After you read it, you likely will want to share it with your own loved ones and professional advisors.
Remember: “An ounce of prevention is worth a pound of cure.” When making your financial, tax and estate plans, do not go it alone. Be sure to engage competent professional counsel.
For more information about estate planning in Overland Park, KS (and throughout the rest of Kansas and Missouri), visit our estate planning website and be sure to subscribe to our complimentary estate planning e-newsletter while you are there.
Reference: Barron’s (November 7, 2015) “Preparing for Inheritance: How to Avoid Losing It All”