Are parents not preparing heirs?

Photo of an extended familyFamilies, including wealthy families, don’t know how to establish the expectation that heirs build more wealth, SEI concluded after the first of three gatherings in Philadelphia of affluent parents and children this past April.

Since most parents doubt their children’s ability or motivation, they are tempted to set up estate planning techniques that restrict access to money.

“Family leaders often end up playing not to lose rather than playing to win,” said David McLaughlin, a senior managing director for SEI. “The most consistent message we heard from parents was the desire to pass values before passing wealth, and the most consistent concern was how to make sure the wealth doesn’t have a negative impact on the potential of the heirs.”

Parents would like to “prepare and hold future generations accountable for continuing to improve the lives of family members, but they had no view of the path to take to accomplish this,” he said.

Recent studies show that as much as 70% of wealth is gone by the third generation and 90% by the fourth, he said. It seems to be a universal problem, judging from proverbs across time and cultures:

  • “From clogs to clogs in three generations.” (British)
  • “The grandfather buys, the son builds, the grandson sells, and his son begs.” (Scottish)
  • “Rice paddy to rice paddy.” (Japanese)
  • “The first generation builds the wealth, the second generation lives like gentlemen, and the third generation must start all over.” (Chinese)
  • “Shirtsleeves to shirtsleeves in three generations.” (American)

According to SEI, 14 people attended from six families, ranging from $10 million to just over $40 million in net worth. Parents ranged in age from 48 to 62, and children were between 19 and 21.

Parents fear they’ll spoil their children. As one business owner said, “I don’t want them to become lazy, to take it for granted.” But many felt that life should be easier for their children than it had been for them. As a corporate executive put it, “If I wanted something, I had to do it on my own. Now as a parent, I want to be more nurturing, take care of their inner spirit, not be so tough,” he said.

“All attendees seemed to have a competing set of impulses (nurture the soul by providing kids access to opportunities vs. build capability by sending kids to “camp suck-it-up”) and had stories about employing both approaches with their children,” McLaughlin said.

In many families the topic of money is considered taboo, and heirs don’t know how much they will inherit, where it came from, or how they will sustain the family wealth and build it. Parents talk about personal values, thinking that those will apply to money. In fact, it is important to be explicit about financial values, McLaughlin said.

Source: April 2011 by Temma Ehrenfeld

Print Friendly

© 2015 Chuck Jones & Associates, Inc., 7110 SW Fir Loop, Suite 240, Portland OR 97223-8025 (503) 291-1313. CERTIFIED FINANCIAL PLANNER™ are
certification marks owned by the CERTIFIED FINANCIAL PLANNER™ Board of Standards, Inc. These marks are awarded to individuals who successfully complete
the CFP® Board's initial and ongoing certification requirements.