Are the younger generations of your family prepared to manage and sustain the family's wealth? Do you have a plan to promote personal achievement, prevent complacency, provide a solid financial foundation and pass your values on to the rising generation?
These questions are more urgent than ever: Over the next two decades, an estimated $84.4 trillion in U.S. wealth will be transferred across generations and to charities. So when it comes to transferring wealth to younger generations, a well-thought-out plan is the most effective path to a smooth transition. This essential aspect of family governance can make the difference between wealth fading within a few generations or creating a lasting legacy.
While each family's approach should reflect its values and structure, there are several key areas to address when preparing rising generations.
1. Build financial literacy early
Start with age-appropriate lessons on budgeting, investing and managing personal wealth. Open checking and savings accounts for children and review them together. Teach them what a credit score is and, if applicable, how their trusts work.
As they grow older, financial professionals can introduce more advanced concepts tailored to your family's specific situation, goals and the values you want to pass on. Encourage open dialogue about past financial decisions, and be receptive to the younger generation's ideas — especially as investing, philanthropy and technology evolve.
Consider launching a family investment club or creating a "junior" investment committee to involve them in real decision-making. These hands-on experiences foster responsibility and financial acumen.
2. Encourage personal achievement and initiative
One common concern among high-net-worth families is that inherited wealth may diminish ambition. The antidote is to cultivate a culture that values personal purpose and effort.
Instill a sense of personal ambition and inspiration in younger generations by sharing stories about how your family's wealth was created and how your life is enriched by more than just money. Talk about work you find meaningful, whether it's a business, creative pursuit or philanthropy. Help the next generation explore what a fulfilling life might look like for them.
If a family business is part of the equation, establish clear expectations for younger generations: Who is encouraged to join the business? What outside experience is required? What's the pathway to leadership? Outside advisers can help guide these conversations and share best practices.
Finally, you should explore whether your family trust or enterprise can support entrepreneurial ventures or direct investments. Providing capital to fund passion projects or startups can help instill initiative and innovation.
3. Establish structure through family and personal mission statements
A family mission statement can articulate shared values, purpose, investment philosophy and philanthropic goals. When crafted thoughtfully, it becomes a meaningful guide that informs wealth decisions and long-term planning.
Some families go further by developing a wealth charter or constitution that formalizes governance structures and decision-making processes. You can also encourage each family member to create a personal mission statement, ideally with assistance from senior family members or advisers. These individual statements can clarify priorities and help align personal goals with the broader family vision.
4. Foster philanthropic involvement
Philanthropy is a powerful way to connect values with action.
Start by involving children in family volunteer activities or by
allocating annual charitable-giving budgets they can direct
themselves. As they grow older, bring them into family foundation
discussions or grantmaking decisions.
If you have a family foundation, you should establish a clear plan
for when and how younger members can take on leadership roles, such
as joining the board or managing initiatives.
5. Plan for succession with intention
Effective succession planning should begin well before leadership transitions are necessary. That means defining family roles across your business, office, and philanthropic efforts; and begin identifying strengths and interests from an early age.
Outside professionals can offer an objective view and help ensure fairness in the process. So consider creating opportunities for young family members to practice decision-making collaboratively—starting with low-stakes projects that grow in responsibility over time.
Create a plan that reflects your family's vision
Every family is different. A well-designed plan that reflects your family's values, priorities and goals is essential to preserving both wealth and unity. Working with experienced professionals, such as a family office services team, can help navigate the complexities and ensure continuity.
Taking action today can empower future generations to lead with confidence — and protect your legacy for years to come.
Read the full article at Crain Currency.
Originally published by Crain Currency.
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.
