Wealth Continuity: An Heir Raising Experience

Posted on January 31, 2018

Wealth Continuity: An Heir Raising Experience

The transference of family wealth has long presented a challenge for families. Over time, and in many different cultures, it has been called many things. You may have heard the proverb, “Shirtsleeves to shirtsleeves in three generations.” In Japan, the expression goes, “Rice paddies to rice paddies in three generations.” The Scottish say, “The father buys, the son builds, the grandchild sells, and his son begs.” In China, “Wealth never survives three generations.”

Regardless of how you phrase it, only 30% of affluent families are able to transfer wealth to the second generation, and only 10% percent to the third. Worldwide, there is a 70% failure rate in wealth transitions – regardless of country, tax laws, or economic cycle.

This leads us to ask – what causes such an epidemic chipping away of family wealth?

  • 60% caused by a breakdown in communication and trust within the family unit (lack of reliability, sincerity, competence and communication)
  • 25% caused by inadequately prepared heirs
  • 12% caused by other factors such as taxes, legal issues, etc.
  • 3% caused by failures of financial professionals to correctly interpret taxation, governance, and wealth-preservation issues

Family dynamics – how family members interact with each other individually and with the family as a whole – is the largest single factor in the long-term success or failure of wealth transfer.

Over the next 50 years, we will experience the largest intergenerational transfer of wealth in history. In the coming decades, between $41 trillion and $136 trillion will pass from older Americans to younger generations, suggesting that roughly $1 trillion to $3 trillion in wealth will change hands every year.

These statistics are alarming for many reasons. In the coming decades, vast amounts of wealth will be transferred to family members who, by and large, are unprepared to manage it. This overwhelming failure to transfer wealth beyond the second generation represents an inability to preserve and pass on a family’s legacy.

So, what can a family do to prevent this? Once a family understands the factors that contribute to a successful transfer, as well as those that contribute to failure, they can begin to focus their attention and energy to effect change. Initiating communication is the critical first step, and we discuss how to get started in our recent commentary titled Wealth Continuity: An Heir-Raising Experience.

read the full piece

Important Disclosure:Third-party rankings and recognition from publications are no guarantee of future investment success. Working with a highly-rated adviser does not ensure that a client or prospective client will experience a higher-level performance. These ratings should not be construed as an endorsement of the adviser by any client. Rankings and recognition are based on information prepared and submitted by the adviser.

Legacy Family Office is registered as an investment adviser with the State of Florida. The firm only transacts business in states where it is properly registered, or is excluded or exempted from registration requirements. Registration does not constitute an endorsement of the firm by the Commission nor does it indicate that the adviser has attained a particular level of skill or ability. The firm is not engaged in the practice of law or accounting. All investment strategies have the potential for profit or loss. Hyperlinks in this article are provided as a convenience and we disclaim any responsibility for information, services or products found on websites linked hereto.