How to Preserve Family Wealth: Better Conversations and Flexible Estate Plans

Tom is an estate planning specialist focused on helping clients understand and embrace estate planning strategies, while Alexandra is a wealth advisor specializing in working with multi-generational family clients. In this Viewpoint, they collaborate to discuss the guiding principles of successful wealth preservation. 

“Shirtsleeves to shirtsleeves in three generations.” This old saying describes the experience of many wealthy families: the first generation starts with nothing, but amasses wealth through ingenuity and hard work, only to have the wealth vanish by the time their great-grandchildren are in charge.

This scenario remains entirely too common today. Research from multiple sources confirms that approximately 70% of families lose their wealth within two generations and 90% within three.

Those sobering figures explain why wealth preservation is one of the hottest topics in the financial planning and investment management industry today. The interest is particularly intense among independent advisors and fiduciaries, who may feel they have let down their clients when wealth and assets dissipate too soon. For families whose wealth originated with family-owned businesses, preserving legacies and a sense of purpose may be nearly as important as protecting financial resources for future generations.

Truepoint recently published an eBook, Principles for Preserving Legacies Across Generations, outlining the different ways families can ensure that both wealth and values are sustained across generations. Several of these principles involve highly personal and even sensitive topics, like articulating family values and “de-toxing” conversations about money. But there are other high-impact practical steps families can take that will serve the goal of preserving both family wealth and legacies.

The Importance of Estate Planning

Fundamentally, estate planning documents serve as the “roadmap” to long-term wealth preservation. First and foremost, they must protect against the most common threats – divorce and/or creditors – that cause assets to move out of the bloodline. However, the best estate plans are also flexible in allowing surviving spouses to modify how and when assets are distributed, which may be necessary for families facing unique challenges.

Consider a situation where one child of a wealthy family commits to a relatively low-paying career (social work, for instance), while another earns a large salary (as a surgeon, for example). Over time, the family may decide not to distribute assets equally among their children, which is the typical default. A child or grandchild with special education or healthcare needs may also merit a tailored approach to asset distribution.

Tailoring the Right Estate Plan

Wealth preservation strategies are not one-size-fits-all. They can and should be tailored to each family’s circumstances. It’s also important to remember that the estate planning process can help preserve family legacies, too. For example, philanthropic giving may be an important topic during these discussions. What legacy does a family wish to leave in its community? Do parents want future generations to understand the causes and organizations that mattered most to them? If so, estate plans may specify planned giving to balance wealth preservation with the continuation of a family legacy.

Similar questions apply to family-owned businesses. If future generations are to participate or ultimately control the business, do they understand the values and principles that led to success in the past? Have they been raised to understand the work ethic, commitment to problem solving and succession planning requirements?

There may be other considerations regarding strategic tax planning to ensure future generations avoid inheritance taxes or estate taxes. And, in working on estate documents, parents may see an opportunity to explain to their children that annual gifts (the tax-free maximum is $14,000) should not be expected every year. In this sense, estate planning can help children and grandchildren avoid a sense of entitlement that is a real threat to wealth preservation.

Talking about Money

On multiple occasions, we have seen relatively straightforward estate planning conversations about the executor of a will or the designation healthcare power of attorney spark substantive conversations about end-of-life care, burial preferences or family heritage.

These topics are too important to leave to chance. That’s why we believe that the more conversation, communication and information sharing the better, as it increases the likelihood that families will preserve their wealth, and their relationships, for generations to come. Our Principles for Preserving Legacies Across Generations eBook explains why such conversations matter.

The bottom line is that the preservation of wealth – much like the creation of wealth – requires thoughtful planning, an intentional approach and open communication. That may sound like difficult work, but in our experience the rewards (both financial and emotional) are very much worth the effort.

Truepoint Wealth Counsel is a fee-only Registered Investment Adviser. Registration as an adviser does not connote a specific level of skill or training. More detail, including forms ADV Part 2A & 2B filed with the SEC, can be found at TruepointWealth.com. Neither the information, nor any opinion expressed, is to be construed as personalized investment, tax or legal advice. The accuracy and completeness of information presented from third-party sources cannot be guaranteed.

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