Top Three Reasons Wealth Transfers Fail

Why is it that our ancestors didn’t figure out how to pass along their wealth to us?  Here are my top three reasons they failed to do so.

No family mission.

Most families do not even try to address building or keeping wealth across generations. It is every generation for themselves when it comes to money.

No one cares about creating a legacy of wealth – each generation must earn their way and feels entitled to spend what they earn.

Even if parents, children and grandchildren agree that it would be great to have a family wealth legacy, often it is just too hard and too different from anything they have known. They can’t, or won’t make the effort to codify their joint mission and set out to achieve it.

Families need a legacy leader as well as a financial one. The legacy leader builds rapport, common missions and goals and works to impart family history and ensure communication channels remain effective.

Lack of leadership/succession planning/heir preparation.

Many times, the wealth creating generation, or more typically, the wealth creator herself, is not willing to let go of the goose laying the golden eggs. She refuses to get others involved in the business, it is her baby and she won’t let go of it!

She thinks that one of her children will just naturally step into their role as wealth creator, running the business or whatever was used to generate the wealth. Without succession planning and leadership preparation for the family business, the wealth creator can find that once she is finally ready to let go and move to an advisory position, no heir is willing or able to assume the mantle of leadership.

If you wait until your child is in their forties or up, he or she most likely will have found his or her own path in life and won’t be interested in stepping into someone else’s shoes.

Often the wealth creators are so busy creating the wealth that they never get around to training their kids or grandkids in how to deal with money. They never prepare their heirs with the tools, cultural training or desire to keep the wealth in the family for the long haul. No family governance system is put into place and no future family leadership (legacy or otherwise) is built.

The current family leadership must understand who in the next generation is able and willing to assume the yoke of responsibility for moving the family legacy and wealth creation vehicles forward a generation. If no one wants the responsibilities involved, the current leadership needs to find a method to utilize outside or extended family help through a generation to carry the family wealth legacy forward.

Heirs must understand and own the family mission. They must be trained in family history and wealth creation and management processes. They need chances to practice handling money, family issues and leadership activities.

Lack of communication or mis-handled communication.

Even after writing out a family mission, planning for next gen leadership and succession and preparing heirs with years of education and practice, wealth transfers can still go awry due to lack of communication.

If there is a perceived fortune, or even if there are emotionally charged objects that multiple people want, potential heirs can crawl out of the wood work.

If the actual estate documents have not been communicated and explained by the grantor, challenges may happen – in court – and cause the estate to disappear into the lawyers coffers.

If the executor doesn’t understand or can’t handle family dynamics, troubles may pop up as well. Allowing one side of the family to access treasured belongings while denying access to other sides is a sure recipe for disaster. Lack of leadership ability in solving minor disputes or lack of understanding in how to handle the grieving process may also endanger the wealth transfer plan.

Without the authority and leadership of the elder whose estate is to be settled, sibs and cousins, aunts and uncles or even parents and in-laws can dust off old grudges against each other or the elder and use them to demand a different share of the estate, negating the family mission.

Heirs (even the trained ones) can decide to spend the money instead of setting it aside or adding to it for future generations, even if they initially agreed to and supported a different family mission.

Making sure the elders in the family openly discuss their intentions and estate planning documents with all potential heirs will help make the transfer smoother.

Setting up family governance processes and structures will allow processing of disagreements in a more civil and less costly manner than putting them through the court system.

Early initiation and continuing practice of holding family meetings will help keep the members talking to one another instead of their lawyers!

Has your family successfully transferred wealth from one generation to another?