Are Your Heirs Ready for Prime Time?

Transferring Maximum Wealth Does Not Guarantee Wealth or Family Harmony in the Next Generation

Dear Clients, Colleagues, and Friends,

According to the renowned Williams Group with over 50 years of coaching families in preparing heirs, their research studies have established that 70% of wealth transitions fail (defined as involuntary loss of control of assets). If this is to be believed, clearly important elements are missing from the current approach to estate planning, allowing this staggering failure rate to continue. According to Williams, the key missing element in wealth transfer planning is an awareness of how to proceed with the preparation of their “heirs”. The hand off of responsibilities for the family wealth could not be sidestepped, and heirs felt the weight of expectations without the security of preparation. The amount of wealth to be transferred over the next 50 years is estimated to be between $37 and $44 Trillion. Wealth, as defined by the Federal Reserve, consists of homes, personal property, business holdings, real property, stocks, bonds, cash on deposit, etc. Accompanying that wealth transfer is the unavoidable annual transfer of control for an estimated 270,000 estates of $1M or more. The “control” responsibility falls on the designated heirs, trustees, or professional managers — whether prepared or not, and whether they share the family’s values or not.

Those who make plans to transition wealth are ultimately concerned about its impact on the lives and well-being of the beneficiaries. If you are one of these 270,000 estates over $1M, are you asking yourself “what difference will the wealth make in the lives of our children and grandchildren?” “Will the family’s values underlying the accumulation of the wealth be reflected in how the wealth is used?” “How will the wealth impact the communities in which I live?” If not, perhaps you should be asking these questions.

Given the potential for wealth to be used for goodwill, or simply to be “wasted” with no detectable impact, the preparation of heirs to manage wealth becomes one of the major responsibilities parents of affluent families and successful business owners face. The question is: “How well prepared are those heirs and their families?” In the final analysis, the quality of preparation (for the heirs) shapes the outcome to the central concern that seems to occupy the mind of every parent or spouse: “Will the wealth help or harm the family?”

Where do you send your heirs to learn how to remain sensitive to (and apply) the family’s values within the framework of managing the family assets? Thus, the mission for the family’s wealth should be a broadly developed consensus mission. Attainment of this mission, accompanied by routine reporting on progress towards the family mission, will build trust and communication within the family and community. This shared family mission brings a sense of harmony to the family and shapes behaviors for younger heirs, providing them with a sense of family that extends to future generations. This subject matter is so important to the “successful transfer of wealth,” we will explore this area in greater detail and strive to provide some of the answers in future Client Alerts. So stay tuned…

Posted in Client Alert.