Five Ways to Prepare Your Heir to Inherit Your Estate

You have developed all of your estate plan documents – your will, trust, letter to heirs, living will, and etc. So now you are all set, right? Probably wrong, at least if your plan includes keeping the wealth in your family for more than one generation.

A key to success in keeping wealth in a family for multiple generations is preparing the heirs.

Here are five ways to prepare your heir to inherit your estate.

Develop a family wide wealth strategy.

If your family can agree on a value system and develop a long term plan to keep the family value system and the family wealth intact, your heirs will understand the whys behind the actions and be involved in the wealth strategy – thus more apt to continue to follow the plan and keep the wealth.

Mark Haynes Daniell in Strategy for the Wealthy Family defines 7 principles to hold onto wealth for generations. In three of the principles, he discusses the below recommendations:

Agree and act on the values the long term family will uphold.

Meet with family members to define and document a family constitution or a family mission or values statement. Put methods in place within those documents to allow future, unborn generations the opportunity to modify and update the statements based on conditions in their generations.

Put governance mechanisms and structures in place to assist the family long term.

This will allow development of future leaders, training of younger family members, and continuing involvement from all family members, including shared decision making on investment and business decisions.

Take a long term view (50 – 100 years) with planning.

By taking a long term view, especially on financial investments, money can be allocated across the various generations to best support the growth and maintenance of all generations.

Engage the family and heirs in open communication and shared decision making.

• By reinforcing the uniqueness of the family through sharing of family history, family stories and through frequent communication opportunities, family members learn how to act out their roles in the long term family plan. This reduces the possibility of argument and wealth destroying controversy.
• Hold multi-generation family meetings; engage your heir in discussions on family finances, world economy, business decisions and investment analysis; define and explain the family governance roles to your heirs and let them practice those roles.
• Teach the child the family’s culture, history and values.
• Share estate plans with each heir in appropriate settings for the plan and the heir.

Build trust.

Roy Williams and Vic Preisser discuss, in Preparing Heirs, the basic premise that most estate transfer failures are due to a breakdown in family trust and communication, causing the heirs to diverge from the long term family wealth plan.

Ways to build trust include: physically caring for your infant and toddler future heirs; making time for family activities; encouraging activities which boost the self-esteem of your heir; providing love and discipline (don’t solve all the problems by throwing money at them); demonstrating the joys of giving; demonstrating and teaching your heir the values held by the family.

Provide education, training, mentoring and practice.

Thayer Cheatham Willis (a counselor and an inheritor) in Navigating the Dark Side of Wealth notes the importance which formal education has in exposing your heir to the wider world of ideas; and the importance of teaching your heir about finances in general as well as the family finances in increments that are age appropriate for the heir.

• Ensure heirs have the opportunity for higher education.
• Encourage heirs to select and utilize mentors for various subject areas .
• Engage heirs with your circle of advisors.
• Build structures that allow peer level engagement in family matters among all heirs to facilitate practicing family roles and gaining leadership skills.
• Assist heirs in finding relevant internships or employment to facilitate learning activities.
• Allow your heir to have both positive and negative experiences

Counselor, Thayer Cheatham Willis; Financial Advisor, Mark Haynes Daniell; and Lawyer, James E. Hughes all stress the need for the heir to experience the full range of life challenges. Allow your heir to take on opportunities, overcome obstacles and experience the consequences of their actions. By doing so, you encourage the building of your heir’s self-esteem and life skills.

Allow your heir to develop a sense of incentive by not automatically providing everything desired.

• Let your heir take on a job, start their own company, live on their own without your support.
• Unearned money can be a great hindrance at certain critical ages, such as early adulthood (late teen to thirty) as it interferes with the ability of your heir to find their own path in life.
• Give the the ‘gift of want’. According to Troy Dunn in Young Bucks – How to Raise a Future Millionaire – this teaches your heir to think about how to get what they want and shows them they can do it.

We first published this article on Investor Guide in August 2010.

Sources:

Preparing Heirs – Five Steps to a Successful Transition of Family Wealth and Values by Roy Williams & Vic Preisser, copyright 2003, published by Robert D. Reed Publishers

Family Wealth – Keeping It in the Family by James E. Hughes Jr., copyright 2004, published by Bloomberg Press

Navigating the Dark Side of Wealth – A Life Guide for Inheritors by Thayer Cheatham Willis, copyright 2003, published by New Concord Press

Strategy for the Wealthy Family – Seven Principles to Assure Riches to Riches Across Generations by Mark Haynes Daniell, copyright 2008, published by John Wiley & Sons

Young Bucks – How to Raise a Future Millionaire by Roy Dunn, copyright 2007