Training the next generation is vital to protecting your family's wealth for the long term
Family wealth brings great advantages but also great challenges. Perhaps the most significant of these is ensuring the younger generation is well prepared to take the helm when the time comes.
Running a landed estate or taking over a family business is a huge responsibility, and the education process is likely to take at least a decade – many would say a lifetime. With life expectancy increasing, and many older people keeping control of their wealth until well into their 80s and 90s, children and grandchildren face a long apprenticeship before they are in a position to take up the reins themselves. Handling the process constructively is key if younger members of the family are to learn a responsible attitude to financial management.
Groundwork can begin early in life. In their teens, youngsters will become aware that they enjoy a lifestyle most others do not, and this is a natural moment to initiate general discussions about money. Most teenagers can grasp the distinction between capital assets and income, for example, and should begin to appreciate that although the family may have a large house and valuable paintings, this does not necessarily translate into disposable cash.
There is no need to disclose financial information to under-18s if you do not wish to do so. This changes at the age of 18, when children become legally responsible and consequently are required to sign their own tax returns, and can hold investments in their own right. Most wealthy individuals would, however, agree it's not a good idea to give your 18-year-old £10m. If youngsters know a generous allowance and eventually a large inheritance are coming their way, it can be a powerful disincentive to bother with exams or career aspirations.
Instead, parents may opt to begin a gradual and structured introduction to the family wealth from their children's early 20s, or when they graduate from university. Involvement and training can be scaled up until their early 30s, by which point they are likely to have a clearer career path and may have bought their own property.
Some measures you might want to consider include:
Involving younger members in family meetings
As children turn 18 and begin to ask more probing questions, consider inviting them to part of the family meeting. Your adviser will be able to help you decide which elements are appropriate. The aim is to provide insight into certain aspects of the family estate or business, and introduce youngsters to key members of your team.
Building skills
It's generally sensible to encourage children and grandchildren to undertake some professional or vocational training and find employment rather than relying on an allowance. Transferable skills from the wider commercial world can be of huge benefit to the future success of the estate or family business.
"The only downside is that if the younger generation chart their own path and become successful in their own right, they can lose their emotional connection with the estate, so if the house is sold off and becomes a hotel they don't care" says Jerry Barnes, partner and head of private client tax services at Smith & Williamson's Bristol office. "Going and doing their own thing is generally a good move, provided they keep in close touch."
Even if they stay within the family fold, 20-somethings can do 'work experience' in different divisions or geographies to build their awareness and skills.
Delegating responsibility
No one wants their children to be sheltered to the point where they become financially incompetent. To develop their confidence and abilities, they may need to be given some autonomy. Many families allocate their younger members a budget or pot of money with a specific task attached, such as a building or renovation scheme, a farming venture or a philanthropic project – they will learn a huge amount, within safe and structured parameters.
"We find this approach helps them find their own direction," says Rohan Armes, investment partner at Smith & Williamson. "As well as getting fulfillment, they will feel more included at family meetings if they have something to report on." Foundations and charity work can also provide a useful reminder that others are less fortunate.
Education is a lifelong journey, with the ultimate goal a smooth handover from one generation to the next. A good adviser will be with you every step of the way, helping you financially manage the nature and pace of your children's development.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
