Reasons for decline in generational family wealth

© serezniy – 123RF.com

According to research the primary reasons for the steady decline in generational family wealth is distrust and a lack of communication between family members.

The secondary reason is a failure to prepare children to manage sudden windfalls responsibly, which is unsurprising given the reluctance of many parents to discuss the family finances with their children or grandchildren. Other reasons cited include taxes on the transfer of wealth, inept or unscrupulous investment advice, the thin spread of inheritance over a sprawling family tree, and simple profligacy.

Fortunately the main reasons for wealth deterioration can be addressed prior to the transfer of family wealth to the next generation.

Here's how:

• Initiate the conversation - share the family history with the younger generation and initiate an open dialogue on the vision for the family going forward.
  
• Involve the family in decision-making and management of the family wealth - include them regularly in meetings with the family's financial advisers and technical specialists to cement the relationship. This will leave your family less vulnerable to inept or unscrupulous investment advice when you are no longer there. Include heirs as trustees on the family trust - this allows heirs to familiarise themselves with the administration and inner-workings of the trust while you are still present to provide guidance.
  
• Ensure proper financial education - this does not necessarily refer to degrees in finance and business. However, if, for example, your children serve as trustees on the family trust, providing them with proper trustee training by professionals will better prepare them to manage the inherited family wealth.
  
• Execute proper estate and succession planning - this is essential to ensure that wealth is transferred to the next generation without incurring unnecessary high inheritance taxes or other costs relating to succession and estate administration issues. Local and offshore trusts may be of particular importance in structuring your multi-generational estate plan.

Greek philosopher Epictetus wisely advised: "Be careful to leave your sons well instructed rather than rich, for the hopes of the instructed are better than the wealth of the ignorant."