Long-term financial planning can—and often should—go beyond the mere mechanics of how assets will eventually go from person A to persons B, C and D. Issues around wealth and values, fiscal responsibility, and family legacy can be important matters to address in many families.
The ability to have meaningful conversations about legacy is what truly sets the ultra-wealthy apart (even more than private jets). Recent research suggests that those with a net worth of $25 million or more are acutely focused on broad, big-picture concerns relating to how their heirs will use the money they inherit.
Gone are the days where the first generation earns it, the second generation mostly keeps it, and the third generation squanders it. Let’s look at what’s behind the new, proactive approach from the .01% and what it can teach the rest of us.
The kids are all right… right?
When it comes to passing on assets to heirs, the ultra-wealthy investors (again, those with at least $25 million in net worth) indicated they would leave 56% of assets to children and grandchildren. And yet… they’re not totally comfortable with that decision. Three in 4 worry that the next generation may waste the money they receive.
That raises an important question: How can you support your kids and make sure that your support isn’t wasted?
For the ultrarich, the answer lies in legacy planning. More than 85% of ultra-wealthy families believe it’s important to leave some kind of legacy for future generations.
Don’t let the fancy name fool you, this essentially means that very rich people are having conversations about what kind of impact they want to make on the people around them and the world at large.
As part of these conversations, I’ve seen families talk about their values and the biggest life lessons they want to pass on. I’ve also heard families get specific about which charities they want to help and which they want to avoid.
If you want the statistics behind it, more than three-quarters (77%) of the ultra-wealthy believe it is important to direct their wealth in alignment with their values and goals. The thing is, though: Doing this requires you to know your values and goals. Both individually and as a family.
The power of purpose
Rather than try to figure out your values and goals later in life and retroactively apply them to your investments and estate plan, I suggest focusing from day one on purpose. What kind of impact do you want to have on the world? What makes you tick? Frankly, those conversations make building wealth a lot easier. From there, legacy planning is smooth sailing.
If you haven’t been having these conversations all along, however, try these steps to jumpstart your legacy.
1. What can green do for you?
It’s rare for children born into wealth to take a keen interest in the logistics of money, including tax and legal strategies or different investment products. Some families (and financial advisors) end the conversation there.
But that’s a mistake. In actuality, the kids of wealthy families often want to understand the big picture—and that includes the purpose of their money, what they can accomplish with their wealth. Essentially, they seek to understand the impact their inherited wealth can have—on their families and their communities. Once they understand that, they tend to be more proactive about investing, planning, and in general putting the money they inherit to work for good.
2. Talk about money. A lot.
This one’s a bit of a Catch 22, since no one likes it when rich people talk about money all of the time. But the other side of the coin is equally dangerous: Having so much money that you never need to talk about it.
The solution? Family meetings. Discuss money frequently, but keep it in the family. Tie those conversations to what money can do, not how much you have.
Often, these conversations lead to bigger, more meaningful chats about hopes, dreams, and life overall. If you can, start these conversations early, when kids are young, so the idea of money as a tool, money with purpose, kicks in early on.
As an added bonus: Starting early can help kids develop a sense of financial responsibility and motivation to achieve that may not come naturally to a family that doesn’t need to pinch pennies or budget. It also gives you a chance to regroup at teachable moments without having to start the conversation from scratch.
While it makes sense to start these conversations over dinner or casually amongst family, as your kids get older, consider bringing in a third party facilitator like a financial advisor. As your kids or grandkids learn more about money and purpose, an advisor can help illustrate for them in real time how the two things intersect.
One note: Talking about money doesn’t mean you need to disclose your net worth or even tell your kids what they’ll be getting. In fact, making the conversation about purpose should instill in the next generation that it isn’t really about that, anyway.
3. Walk your talk.
As vital as values-focused conversations with heirs are, the most effective way to instill your values around wealth is by modeling them. In short, if you want your kids to live lives filled with purpose, YOU must start by building a purposeful life. Hopefully, if you’re leading by example, your kids will take note. If not, try these more obvious tactics.
- Write down your family values. It might seem silly, but putting things in writing helps you frame conversations, hold yourselves accountable, and see how priorities and circumstances may change (or not) over time.
- Involve kids in select financial decisions. Give kids real-life experiences with how money, choices and values interact. Start small and safe: Ask younger kids for their input about where the family should go for a vacation based on a set travel budget. Get older children involved in choosing charities or causes the family should consider. Bring adult children into the process of how to invest and allocate family wealth in the financial markets.
- Create a family bank. I’ve seen rich families create family ‘banks’ for lending money to their adult children who need funds to buy a home or start a business.. The goal is to provide support and a safety net while still giving them a taste of the real world. Rather than simply handing money over, the family patriarch or matriarch can act more like a bank that is loaning money to the child—thus creating a more real-world experience that can help educate the child about collateral, down payments, repayment terms and so on.
A legacy of purpose
Ultimately, there’s a lot to be learned from the attitudes and actions of the ultrarich when it comes to passing on their sizable wealth. And you don’t need to have $25 million, or even $5 million, to use the same tactics with your own family.
Questions about how this might work for your family? Let’s chat.
