You’ve worked hard your whole life to build your wealth and maintain it over time. Eventually, it will be time to leave it to your children. But are your children prepared for inheritance?
One of the most difficult parts of passing wealth is ensuring heirs are ready. In most families, 70% of inherited wealth is lost by the second generation, and 90% by the third. Poor money management and bad investments are only a few of the causes. While these numbers are staggering, they reinforce the vital importance of ensuring your children are prepared to handle the inherited wealth.
Educate Your Children
Just as you are responsible for managing your wealth, you are also responsible for teaching your children how to manage it. Wealth and investment strategist Peter Culver offers useful tips:
1. Have Multiple Conversations
Speaking with your children about the family wealth is not a one-time conversation. It’s a continual dialogue that should take place over the years as your children get older. Inform them of the family’s wealth, your values and what’s important to your family, and their responsibilities in managing it.
2. Teach the Value of Money
Parents may feel conflicted in passing their wealth down to their heirs. While they want their children to benefit from the family wealth, they also want to ensure their children are independent. Tell your children what you want your wealth to accomplish for the family and model the financial behavior you want your children to follow.
3. Hold Family Meetings
The key to successfully transferring wealth is communication. While it can be difficult to talk finances with family, it is necessary. Family meetings will help ensure that everyone is on the same page as to what happens to the money over time.
4. Create a Mission Statement
This is a useful tool for defining the wealth and determining how it will be used. To help your children and future generations understand and appreciate how the wealth was built, include in the mission statement how family values contributed to the creation of the wealth.