Have you heard the stats regarding passing down wealth? The data is actually quite concerning, particularly for affluent investors. By most accounts, wealth barely lasts for up to 3 generations for most HNWI. The latest research indicates that in too many instances 70% of wealth is lost when it’s transferred from the wealth-generating generation to the next. From there, an estimated 90% is lost after that. Why does this happen?
Although many wealthy individuals focus heavily on wealth management, like investment and portfolio management, they may be neglecting the benefit of running a successful family office and having a solid estate planning. Advanced estate planning is critical with regard to protecting assets both during one’s lifetime and upon their death. Setting up trusts that offer protections from taxes, creditors and ruinous lawsuits helps accomplish this goal.
Why most wealth doesn’t last
Beyond a lack of emphasis on estate planning, what are some other factors that may prevent the goal of wealth lasting more than three generations? The first factor can be family structure, or more commonly referred to as family governance. This establishes a framework by which the wealth creator’s family can assume responsibility for making good financial decisions. To do so, keep family members apprised of all business practices and ventures, and learn the financial fundamentals that go into making them a success. Training and inclusion are imperative.
This leads into the next factor, which is education. It’s critical for family members who will eventually inherit to have an exceptional financial education, including understanding investments and financial planning vehicles, along with the importance of trust and estate planning.
The last factor, entitlement, is a difficult one. What many people don’t understand is that maintaining wealth is just as hard as building it. Children who have been handed trust funds often lack the motivation to continue to work and build upon what they’ve been freely given.
All of these issues can be dealt with, and the family name kept intact with proper education and planning. Assuring that all family members stay involved and educated on family business ventures and investments helps protect wealth after founding members are gone.
Planning ahead for the future of your family
Protecting your financial legacy is possible, despite the sobering statistics. Proper estate planning and management is a big part of ensuring wealth is not lost between the generations. At the JMV Law Group, we specialize in structuring and implementing HNWI estate planning solutions. While providing the highest standard of care, we offer creative solutions for protecting your wealth during your lifetime and beyond.