Transferring wealth from one generation to another can be complicated — so much so that only about 30 percent of estate transitions succeed, according to the book Preparing Heirs: Five Steps to a Successful Transition of Family Wealth and Values, by Roy Williams and Vic Priesser.
One challenge is a lack of communication and trust between generations. Williams and Priesser say that this accounts for the majority of estate planning failures. Another problem is that the younger generation often feels unprepared to manage wealth. According to a SunTrust/Forbes Insights survey, nearly three-fourths of potential heirs have a “high" or “very high" interest in wealth management — yet only half rate their ability to manage their family’s assets highly.
Yet with some work, families can overcome these roadblocks. Lauren Benenati, Director of Family Education at GenSpring, the ultra-high net worth offering for SunTrust Private Wealth clients, recommends heirs take advantage of every possible learning opportunity, including advice from family members.
If you're unprepared to do something, like sail a boat or drive a car or cook a meal, it's most likely not going to end well, she said. The same is true of the wealth transfer process. Financial literacy is a necessity for everyone, but adding wealth to the equation amplifies the need. The more you learn, the better your chances of successfully managing wealth.
“It’s not just a one-time thing,” Benenati said. “It’s something that should be consistent and ongoing throughout your whole life.”
Benenati recommends heirs start learning about wealth management by taking good care of their own finances. Regardless of how soon you might receive an inheritance, get a good understanding of where you stand financially. What are your financial goals? Where are your assets? What's your cash flow? Where is your money going each month? Is this where you want your money to go? Does this align with your goals?
Living a life with wealth presents unique challenges, Benenati said. Feeling in control of your finances before inheriting can make that transition a lot less overwhelming.
Communication with the senior generation is critical for a successful transfer of wealth. Benenati believes it's important for heirs to understand how the family intends for the wealth to be used: to support a lifestyle, pay for education, contribute to philanthropy, pass on to future generations—or all of the above.
GenSpring recommends 25 best practices for multi-generational families of wealth, based on lessons learned from families that successfully passed wealth from one generation to the next. One of these best practices is openly and explicitly discussing shared values, said Benenati.
Another best practice is to create a family mission statement based on these shared values. Having discussions like these has many benefits. They can serve as guidelines for family decision-making, provide a guiding light to steer family members during troubled times, and establish a clear direction for family wealth management. That enables the preservation and growth of the family assets for future generations.
If you can start discussing with family members your intentions for your wealth at an early point, you are less likely to encounter disconnects and disappointment, Benenati said. “The sooner you can talk about it, the better."
For some heirs, however, it may feel disrespectful to initiate a conversation about inheriting wealth. Talking about money can also be difficult for older generations, Benenati said. One way to start the conversation is to express a desire to uphold the family’s wishes.
“When you approach it that way, it's a more welcoming conversation for that senior generation," she said.
According to the SunTrust survey, many heirs are still on the fence about hiring a wealth management advisor, and less than 50 percent say they are likely to do so. However, it's important to seek advice before inheritance makes managing wealth more complex. “It gives you a runway," Benenati said. “It gives you some time to build up your financial knowledge level and your confidence."
Seeking advice early also gives you time to get to know your advisor and really develop a relationship in advance of receiving your inheritance.
An advisor can help you stay up-to-date on legal changes, tax changes, market changes and economic forecasts, Benenati said. Having an advisor doesn't mean abdicating responsibility for your wealth and just signing on the dotted line. It means you've got somebody who's focused on the details while you oversee and manage the decisions, she said.
To find a good advisor, start with recommendations from people that you know and you trust, such as your friends and family. Once you narrow down the possibilities, schedule in-person interviews to determine if you are a good fit for each other. The idea is to find someone whom you can make a connection with and whom you’ll want to work with for years to come.
Wealth is both a privilege and a responsibility, Benenati said. To successfully transfer family wealth, both generations should feel like they have a stake in the game.
“The goal in all of this is for the wealth to have a positive impact on your life," she said. “Remember that it's all a fluid process. You just need to get started."