Creating Responsible Caretakers for Family Wealth

Recently, a client shared a story with me that I will never forget. While skiing out west, he rode a chairlift with a young woman in her mid-twenties. As they chatted, he asked her what she did for a living. She replied, “Travel and ski.” When he inquired (in a not so subtle way) how she could afford to travel the world, she replied, “My great-grandfather’s trust.” Curious to know more about this tycoon great grandfather who built wealth spanning generations, he asked, “What did your great-grandfather do for a living?”  Her reply? “I have no idea.”

Over the course of just a few generations, how could there be such a disconnect between the sacrifice it took to create wealth, and respect for being the recipient of wealth created by that sacrifice? Does the lack of respect or an obligation to carry it forward mean the demise of family wealth? Each generation strives to create a better life for the next. We work tirelessly to build a solid foundation for our children. To provide them with the resources and opportunities we never had, while sparing them the pain we endured. But can there really be appreciation for something without the sacrifice? Can someone really be grateful for something they have not earned? The answer is yes, but the responsibility may just be on the wealth creator, not necessarily the wealth recipient.

Share the Story

In order to appreciate something, you need to have respect for where it came from. A family’s wealth can be a centennial farm, a first generation business or “old money” passed through generations. Each was built with a story. Not just a story of success, but one of heartache, loss and failure along the way. Share the stories with the next generation – both good and bad. There is always something to be learned from success, but there is even more to be learned from failure.

To Disclose or Not to Disclose

If a child knows they will inherit wealth, are they less motivated to make something of themselves? The fear of creating entitled, non-productive members of society leads the vast majority of families to keep their wealth a secret. The problem?  Wealth cannot be managed responsibly by someone who doesn’t know it exists. Change how wealth is viewed within your family. Discuss wealth as a privilege, not something that is expected, but something that is earned. If earned, wealth becomes a resource that creates opportunity.

Introduce the Concept

Education and preparation precede every successful transition of a family’s wealth, property or business. Engage the next generation in the transition plan. Involve them in the day-to-day management of that wealth and slowly increase their responsibilities over time. Introduce the skills they will need, but don’t hold their hand. Give them the tools, but let them struggle with how to use them. Be a sounding board for advice, not a dictator of the process. The first time your family learns to manage wealth should not come when you are no longer there to guide them.

Foster Relationships

Generational wealth is built and maintained with the help of key advisors. The relationship between an individual and their accountant, financial advisor and attorney can span decades. Inherent in these relationships is institutional knowledge about business decisions, historical planning and family dynamics. Unfortunately, wealth often dissipates between generations when relationships between these advisors and the next generation are not well-established. Make the introduction between your family and key advisors early and allow those relationships to evolve naturally. It will take time to build trust and develop mutual respect between them.

Create Caretakers

Children should feel they are part of something bigger. Gratitude for what they received, but also a sense of stewardship of that wealth for the next generation. Communicate your expectations, but listen, too. Develop a family mission statement together. Incorporate intergenerational ideas, values and beliefs, allowing each family member to play a role in the family story. Ultimately, you will have to have faith that you successfully prepared the next generation to continue that story. After all, they will be the caretakers of the legacy you created.

Cortney Danbrook is an attorney at Danbrook Adams Raymond PLC in Traverse City. She provides specialized counsel to individuals, families and businesses in the areas of estate planning and administration and advises business clients on liquor licensing and regulatory compliance.  She can be reached at (231) 714-0163 or cdanbrook@darlawyers.com.

 

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