Research suggests that inherited wealth rarely endures. By the second generation, 70% of family fortunes have been depleted and by the third generation the figure is 90%.

What goes wrong when we transfer wealth to our kids?

There are three reasons why wealth does not survive down the generations:

1. The money’s unexpected

 You could be forgiven for thinking that inheriting money is a positive thing. But if you don’t know something’s coming and you haven’t had conversations with your beneficiaries about the money, they can’t be prepared.

Nobody wants to be surprised, so trust and communication are a big part of managing wealth transfer well. Have that open forum for communication and avoid those family squabbles after you’re gone. 

2. Your heirs are unprepared

 Typically, lottery winners spend their winnings quickly and many end up where they started. This can happen to your children if you don’t explain what’s coming their way.

Help your beneficiaries understand how they need to be involved in managing the money. Introduce your financial adviser. Help educate and involve them while you’re around.

3. They don’t understand the purpose of the money

 So much wealth gets lost by the third generation because heirs don’t understand your story – how you made the money, your struggles, your victories; they haven’t lived your life.

Share your family values, maybe create a family mission statement, so the money has a deeper meaning and purpose.

Take steps early

Over the years, I have observed clients’ frustration at how money that’s passed on whilst they’re alive has been spent. Rather than disinheriting our family simply follow the steps above to avoid shirtsleeves to shirtsleeves in three generations of your family.

To listen to a podcast on this topic, visit www.theretirementcafe.co.uk.

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