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The movie Field of Dreams added a new phrase to our collective vocabulary: “If you build it, they will come.” But when it comes to preserving and perpetuating a multi-generational financial legacy, building it, though a necessary start, isn’t enough. Yes, the following generations will certainly “come” to the legacy, but the larger question is whether they will come with the tools and knowledge needed to preserve and grow that legacy. That is the point at which legacy planning, family governance, and, above all, financial literacy and education become essential for the maintenance and perpetuation of next-generation wealth.
What Does Financial Literacy Look Like?
For many first-generation wealth builders, the concepts of saving, budgeting, and controlled spending are second-nature. But for their children, who may have grown up with an assumption of many of the privileges wealth confers, these principles are unlikely to be as intuitive. This means that families intending to perpetuate a financial legacy should start by doing all they can to instill basic principles of financial literacy and good stewardship in their children; concepts like thrift, the importance of saving, and caring for others through giving can be learned early and made a regular part of the child’s routine.
The process can start with something as simple as telling stories from your own experiences. Many Baby Boomers, for example, grew up hearing stories from their parents and grandparents about the Great Depression and how important it was to be thrifty in conserving money and other resources. In our own lifetimes, we’ve experienced financial ups and downs, including the Great Recession that started in 2008 and the recent economic uncertainty over coronavirus. What experiences can you share with your children about a time when cutting costs made a big difference in your life?
Did you ever take on a paper route to save up for a new bike? Did you do odd jobs around the neighborhood to pay for week at summer camp? Chances are that your kids would love hearing about these experiences, and along the way you can testify about the satisfaction we all feel when we reach an important savings goal that enables us to obtain something we really wanted.
As for cultivating the charitable impulse, by sharing your stories, either of helping or of being helped, you can help your children absorb the idea that money is a tool that can be used to make life better, not just for ourselves, but also for others.
Family Governance and Next-Generation Wealth
As we mentioned in a previous article, one of the chief differences between families who succeed in building multi-generational wealth and those who fail is their approach to governance structures for the following generations. Those who prepare and execute a well-designed plan for governing the use of the family’s resources are much more likely to achieve a durable legacy that can grow over time and benefit the family and the greater society for decades to come.
Proper governance should provide for, among other things, how and when beneficiaries of the family resources will receive access, and in what degree. Often, benchmarks and incentives will be incorporated into trust documents and other estate planning instruments. For example, 25% of a child’s inheritance may be granted upon graduation from college; additional access may come with reaching a specific age or meeting certain professional goals; bonuses may become available for attending and participating meaningfully in family business meetings. By incentivizing younger family members to transition successfully into adult responsibilities, the family is also creating a pool of capable leadership for preserving the family’s wealth into the future.
Effective governance should also encompass ongoing financial education, both in the processes and concepts of the financial and legal structures supporting the family enterprise, and also in the perpetuation of the core values and priorities underlying the family legacy. Especially for wealthy multigenerational families, it is important to create continuity around core values and mission. Because the understanding of these values needs to span two and often three generations, such a plan needs to be tailored to the sensibilities of each generation, and it needs to be revisited and updated, probably at least annually. Attention to “telling the story” to each generation insures that family leadership continues to grow out of a shared set of priorities, even as its style and expression changes over time—as it must, in order to remain relevant.
Getting the Help You Need
Establishing a durable structure for multi-generational wealth requires careful attention to legal and financial matters as well as risk management and ongoing education. Thus, it’s important to build a team of advisors who are both familiar with the goals of family stewards and who also possess the expertise and experience needed to offer helpful guidance through the process and over the years.
As family stewards age, it is typically important to engage in purposeful communication around family goals and efforts in investing, estate planning, tax strategy, philanthropy, and other endeavors. At the appropriate time, aging family stewards should bring those who will be assuming greater responsibilities together with these trusted advisors to discuss estate planning, trusts, investment policy, and other matters.
As a fiduciary wealth advisor and financial planner, Aspen Wealth Management is positioned to provide professional, evidence-based advice and assistance for families with significant wealth who wish to establish or preserve their legacies for future generations. If we can provide information, please get in contact with one of our financial advisors.