The Challenges of Family Wealth Preservation

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There is an adage about three generations of wealth – the first generation makes it; the second generation maintains it and the third generation spends it. It is universal – from Italy (”from the cowshed to the stars to back to the cowshed”) to China (“wealth never survives three generations”). However, with the right plan in place, this certainly does not have to be the case. I will outline some best practices that will work for anyone who is looking to preserve and grow their wealth across generations.Create a clear financial plan. Without proper planning, wealth will be lost to taxes, bad investments, exorbitant professional fees or unpreparedness of your heirs. Implementing a financial road map that clearly outlines how the wealth will be managed and invested while also including tax planning strategies will aid in a successful outcome. Work with a financial planning professional specializing in this area and one who has worked with families whose wealth is similar to your own. If there is a family business involved, that will also require a specialist.Educate your heirs. Many Americans don’t want to talk about their money and estate planning with their family. An April 2022 survey of adults with investable assets of at least $100,000 found that only 19% were completely transparent, with reasons such as they think it's none of their family’s business, it’s not necessary or they want to avoid conflict among their heirs as to who is getting what. Pass down information if the family wants their wealth to last multiple generations. By passing down the experience and wisdom from those family members who have either earned the wealth or have the experience of managing it successfully, these lessons will enable the next generation to have the tools to continue on a successful trajectory. If the family is largely inexperienced in handling a large amount of wealth – and there are many examples of those who have lost it due to lack of management skills – then a financial advisor, attorney and tax professional should be brought in to educate the family.