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The content below has been provided by our partner, Raymond James Financial Services Advisors, Inc.
Five Reasons Your Legacy Won’t Last ... and What You Can Do About It!
The Chinese have an adage: “Wealth never survives three generations.” That’s also true here in the U.S. and around the world – so much so that many countries have their own version of the saying.
For hundreds of years, families have utterly failed to protect their wealth against disastrous intergenerational wealth transfers. While it might seem like a simple thing to pass the wealth you’ve acquired on to your children and their children, it’s actually extremely difficult. And most families fail completely, allowing their assets to dissipate and their family unity to collapse.
Here, we’ll examine the reasons wealth transfers often fail and how your family can mitigate this potentially catastrophic risk.
The Wealth Transfer Program
Numerous articles and voluminous research studies have analyzed the wealth transfer problem. Wonderful minds from Wharton Family Global Alliance, U.S. Trust and other organizations have dug deep into the “wealth transfer failure” epidemic.
The results of their efforts clearly illustrate the severity and overwhelming odds that intergenerational wealth transfers represent.
61% of Families Rank “Legacy Development” as Top Planning Need
Think of all the time spent with financial advisors, estate attorneys and tax professionals. Yet few families invest time to define, protect and perpetuate what matters most: family unity. It’s no wonder that 61% of families surveyed for a 2010 Mindscape study ranked legacy development as a primary interest.
For the family unit to thrive and excel multigenerationally, it must have a common vision, shared experiences and a unified legacy. Your family’s legacy includes your core values, family traditions, philanthropic efforts and impactful life experiences. We refer to these intangible assets as “More Than Money” (MTM) wealth.
Unfortunately, most families fail to focus on the intangible assets, giving rise to adverse consequences and wealth transfer failure. That’s because figuring out the best way to develop your family legacy can be tricky.
Later, we will provide a simple, elegant and effective “how to” structure for developing your family legacy.
77% of Families Stress Importance of Leaving “Core Values and Life Experiences” as Inheritance
Our core values are ingrained in our decisions and thoughts. In some ways, they define who we are as people.
Our life experiences are the human, intellectual and social capital of the family – specifically, the friendships, family, education and life lessons that teach us so much.
When we consider this, it’s easier to understand why a recent Morningstar study revealed that 77% of families want to pass on their MTM wealth.
We tell stories to our friends and loved ones, but most are slowly forgotten over generations. Fighting this is critical to multigenerational success.
91% of Family Wealth Transfers Fail by End of Third Generation
In this context, what does “fail” mean? According to family coach and author Roy Williams, who surveyed more than 3,000 families for his book For Love & Money, the definition of “fail” has three elements...
First, the financial wealth disappears. Family discord, a lack of meaningful communication and the destructive mentality of entitlement are the most common reasons for this.
Second, the intangible MTM wealth is slowly forgotten over time.
Can you name all of your great-grandparents’ first names?
If you can’t remember their names, how can you possibly know what mattered most to them?
Finally, due to the discord leading to the financial wealth dissipating, the family unit is fractured – often beyond repair.
Now ask yourself, which of the three would be the most upsetting to lose: your money, your intangible wealth or your family unit?
Five Reasons Wealth Transfers Fail
Research, experience and data compiled over hundreds of years have allowed us to specifically identify why most wealth transfers fail.
Looking at the factors that separate the Vanderbilt family (unsuccessful) from the Tabasco family (successful over seven generations) is critical to mitigating this risk for your family.
Here are five of the most commons reasons your money will not survive wealth transfers over multiple generations:
1. Lack of meaningful communication
It’s critical for multiple generations of a family to engage in a structured dialogue about core values, legacy, philanthropy, gratitude and impactful life experiences.
Understanding how each family member prefers to communicate will decrease the possibility of family discord.
Clear communication can mitigate many of the reasons wealth transfers fail, and dialogue should center on the MTM wealth of the family.
2. Little or no shared vision
Once we get a family engaged in meaningful communication, the next step is to define the shared vision. Moving in contradictory directions will seed discord and conflict at some point.
Clearly communicating the interests of each family member will increase understanding by all, and common ground can serve as the family’s shared vision.
Now each family member will know the purpose and positive impact of the family’s financial wealth.
3. Disregard for intangible “More Than Money” assets
When family communications focus too much on financial wealth, the opportunity to increase gratitude within the family is lost.
Structured communications about core values, legacy, philanthropy and impactful life experiences will refocus the family on what matters most: the family unit.
4. Erosion of trust and transparency
You may have heard the adage “transparency breeds trust.” Conversely, if family members believe transparency is lacking, trust within the family will also be lacking.
Transparency does not necessarily mean disclosing your net worth, but rather including family members in the purpose of the family’s financial wealth.
Many of our clients have decided not to disclose net worth yet still have their families well aligned.
5. Attitude of entitlement rather than gratitude
If there is one emotion that can mitigate wealth transfer failure, it’s gratitude.
At our office, we often refer to the “destructive mentality of entitlement over an attitude of gratitude.” When family members are focused on what the money can do for them, overspending and misuse soon follow.
By communicating about MTM wealth and engaging in “active philanthropy” (family participation in charitable events), the attitude of gratitude will slowly be strengthened.
How to Mitigate Wealth Transfer Failures For Your Family
There are four key elements, or foundational building blocks – values, legacy, gratitude and governance – that, if embraced, can provide the structure needed to preserve multigenerational wealth.
Many families would like the benefits of this type of planning. They want to strengthen family unity while mitigating the risk of failure. But how?
There are a number of well-qualified firms you can hire, and almost all of them will approach the process in the same way: four to six hourlong interviews with each family member, complemented with a follow-up series of questions that result in a family meeting. But then what?
We at Aspida360 believe this process is far too time- and cost-intensive. Instead, we developed a digital system – “The MTM Vault” – to define, protect and perpetuate what matters most to your family.
Our technology platform connects family members wherever they reside. Our program prepares heirs by addressing the four key MTM pillars through a series of 30-minute digital exercises that produce a starting point for meaningful conversations.
Along the way, one of our advisors provides guidance to all adult family members, ultimately culminating in annual “family forums” that are uniquely designed to deepen the root system in your family tree.
With a professional advisor to guide you and a digital system that provides a clear structure, there has never been a more time-efficient or cost-effective process to navigate a successful multigenerational experience for your family.
1"People place a higher value on a good that they own than on an identical good that they do not own” — Kahneman, Knetsch, and Thaler (1990)
2“Some studies have suggested that losses are twice as powerful, psychologically, as gains.” Kahneman, D. & Tversky, A. (1992). “Advances in prospect theory: Cumulative representation of uncertainty.” Journal of Risk and Uncertainty. 5 (4): 297–323.
This material is not intended for use as investment advice. It does not guarantee the attainment of your goals. Individual results will vary. There is no assurance that any investment strategy will be successful. Investing involves risk and investors may incur a profit or a loss.