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Written by: Matthew Karr, Esq. | The Heritage Law Center
Studies have found that 70% of the time, family assets decrease significantly from one generation to the next, and have disappeared completely 90% of the time by the third generation. Case in point, Cornelius Vanderbilt, the railroad and shipping scion of the 19th century, left his vast fortune of $100 million to his heirs when he passed in 1877. That fortune didn’t survive past three generations.
This happens because the receivers of the wealth aren’t being prepared properly. Here are five steps you can take to make sure your heirs can handle their inheritance wisely.
Talk openly and honestly. Be up front about your wealth and your plans for it. Heirs are often ill-prepared because they haven’t been brought into the discussion. Sit down with your family and share your hopes and dreams for the family and how to reach certain goals.
Create a mission statement. Gather your family members together and create a mission statement that includes your core values and identifies the long-term purpose of the family’s wealth. During this time, share family memories, experiences, and life lessons from older generations to help guide the process and ensure the family story carries on.
Raise kids to be smart with their money. Children need to understand the concepts of budgeting and delayed gratification. One idea for young children is to give them a piggy bank with three slots: one for spending, one for saving, and one for giving. Explain to them how each of those slots are equally important. Figure out an allowance for older kids that will let them pay their own bills. Give them that responsibility, so if they don’t pay a particular bill, they will see the consequences (e.g., cell phone gets shut off).
Teach them slowly. For older children, you can put some money into an investment account and let them make investment decisions. You can help guide them but ultimately they are controlling this money. The success of this account falls on their shoulders.
Record your story. Your lasting legacy should be much more than just money; it should also be about those valuable intangibles that make your family unique, told through your insights, values, and experience. We do this through our legacy planning process, helping you capture and pass on your own story and aspirations for your loved ones.
You may also want to consider creating a trust as part of your estate plan. There are different types of trusts, each with different benefits and considerations.
Related: How Practicing Kundalini Yoga Led One Venture Capitalist to Building His Legacy