The Risks Involved in Maintaining Intergenerational Wealth

A history of wealth is no guarantee that it will survive the next generation. Know the risks to create more durable assets.

The greatest wealth transfer in history is afoot. The next decade will see around $68 trillion passed from one generation to the next—and with that vast sum comes great responsibility.

It’s a sad fact that most family businesses don’t survive beyond the third generation, and the same may be said for some intergenerational wealth overall. Only awareness of the dangers these assets face can prevent a family’s financial worth from wearing out.

The complacency that “once rich, always rich” will magically ensure your heirs will prosper is only the first of many threats. Like all long-term financial strategies, protecting intergenerational wealth means preparing for hard possibilities to create a legacy that endures.

Teach heirs to value present wealth and future worth

Odd as it may sound, a wealthy individual’s financial responsibilities to their heirs don’t end upon death. The irony is that lifelong diligence by the first generation is effectively just “short-term” planning.

It’s not enough for the first generation to pass the financial torch and have settled any matters regarding their estate, such as wills, insurance policies, and so forth. Overconfidence that the next generation will be as financially diligent is where the danger lies. There’s no substitute for preparing beneficiaries ahead of time and teaching the family how to respect wealth and grow its worth.

Failing that, the appointment of a trusted family wealth advisor can lend an experienced and neutral voice to all future financial decisions. Such a party also ensures that asset allocation and investments occur according to a deceased person’s final wishes.

The unique burdens of being well-off

Intergenerational wealth solves many of life’s problems but creates others that are unique. Some inheritors experience emotional strain, leading to feelings of alienation, isolation, boredom, and a loss of purpose. And much like someone with a full pantry may eat to “fill a hole,” wealthy heirs can and do turn to spending the family money to ease personal discomfort.

Some may suffer a paralyzing loss of initiative, particularly if they’ve grown up wealthy and already carry a sense of entitlement. Thus, by doing nothing themselves to manage or increase their wealth, they may inexorably drain it to nothing.

It’s another irony that while wealth opens a vast array of options, those same options may freeze some inheritors faced by what David Lansky, Ph.D., termed “the paradox of choice.” And when some individuals are paralyzed and incapable of smart financial decisions, they may be exploited by those with no hesitation about where they think the money should go.

Values are invaluable to preserving intergenerational wealth

Heirs need firm personal values and a financial plan based on solid long-term goals. If your heirs lack these tools, they may well find themselves the last wealthy members of your family. Invest in your beneficiaries psychologically and emotionally as well as financially, and you’ll be ahead of the curve.

You may even consider drafting a family constitution. Such a document can help put every generation on the same page in terms of values and financial sensibilities. A constitution can also be invaluable when it comes to setting realistic expectations about who will inherit what and when. Confusion or conflict between family members over these details can often be enough to tear a family and their collective financial future apart.

Commingling assets courts disaster

Marriages take place, assets become commingled, and divorce sometimes happens—very possibly to one of your heirs. Divorce threatens intergenerational wealth in multiple ways. Basic drains are the obvious court fees, the division of assets, and any alimony plus possible child support.

Beyond this, divorces can wreak havoc on wills, insurance policies, trusts, and retirement accounts as once-favored beneficiaries lose this status. It’s all too common for wealthy individuals to fail to update the details in these documents, leading to undesired parties still being named as recipients. Debts may also be commingled and see one spouse’s liability sink the wealth of the other.

Keeping assets safely in the family for future generations may be achieved by several means, one of which is a dynasty trust. Not only can this give the first generation a great deal of control over to whom and where the money goes long after they pass, but divorced spouses and creditors may be denied access to the assets.

Dynasty trusts are also immune to transfer tax, meaning they can’t be diminished by estate, gift, or generation-skipping taxes.

Our team was built on family ties

The pitfalls for intergenerational wealth transfers are numerous. But Lindberg & Ripple is beating this trend by thriving as a third-generation family company. We take pride in passing our wealth management, investment, and insurance expertise along to our clients to help their family fortunes stand the test of time.

For more information on estate and financial planning, you can reach our team at the link below.

Lindberg & Ripple offers customized wealth management, investment, and insurance solutions to wealthy families and successful businesses. We help our clients craft a comprehensive wealth planning model to achieve their financial goals with minimum fuss and maximum savings. Connect with us to learn more.


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