Strategies to help your heirs keep their inheritance through multiple generations

Strategies to help your heirs keep their inheritance through multiple generations

August 08, 2023

Talk about money.  The lack of financial literacy and money management skills is a leading cause of lost wealth.  A great deal of time and effort is spent on those that generate the wealth and very little on those that will be receiving the wealth such as a surviving spouse and the next generation.  Educating these individuals on how to manage wealth is one of the most important steps in preserving wealth.  We have all heard the stories of lottery winners who have lost it all because of a lack of financial literacy but the same thing happens to the surviving heirs of successful individuals that have generated wealth but did not ensure that their heirs were educated on how to handle the wealth.

Participate in values-based planning.  Your legacy can be more than the money that you leave behind, it can share your values with your family and allow every member of the family to participate in creating your family mission statement.  By soliciting input from all family members, you are better able to identify common objectives and how best to implement these objectives.  This helps to eliminate the perception of one generation dictating the future of subsequent generations.

Educate future generations on money management at an early age.  Teach children to separate their money into different accounts or funds for spending, saving and giving.  As children get older and have definable expenses such as their own cell phone, subscriptions, memberships, car insurance etc. make them responsible for the payment of theses expenses and be willing to let them suffer the consequences if they do not make the payments such as having their cell phone turned off.  For areas where you will be impacted by liability or credit worthiness, you may wish to have contingencies in place with alternate consequences.

Establish an investment and savings account specifically for each child and have ongoing funding from either an allowance or their own job where they can see actual market performance with gains and losses.  Educate them on the difference between saving for a goal and investing for future growth.  They can experience the effects of compound growth and the time value of money.  Opportunity costs for spending decisions are more real when it involves their own money.  Decisions made and lessons learned at this stage also allows a better method of evaluating any estate planning guard rails that you may wish to implement.

Involve your children in discussions regarding your charitable endeavors and be receptive to their input regarding charities that they wish to support.  This boosts the odds that when the time comes for them to make these decisions, they will have the skill, knowledge and self-confidence necessary.

Assemble your team of qualified advisors including investment and wealth managers, tax preparers, estate planners and trust attorneys.  Have these individuals as well as other trusted figures in your and your children’s lives act as mentors or a de-facto advisory board of directors for them.  This can place a barrier between your children and their friends and acquaintances when they are approached for money for either handouts or investment opportunities.  This allows a fair and balanced view of potential opportunities but if the answer is no, allows them to maintain the relationship.

Establishing a trust has many benefits including but not limited to avoiding probate, protecting assets from creditors, minimizing estate taxes and protecting the assets from mistakes made by your heirs. There are multiple types of trusts and ways to implement them to assist you with your specific circumstances.