By: Thomas Schulte | Director of Financial Planning
One of the most common concerns we hear affluent clients express: “I’m fearful that passing too much wealth to my inheritors will do more harm than good.”
It’s a well-founded concern. Far too many examples of wealth are those passed carelessly between generations, bringing out the worst in families instead of the best. The higher the estate’s value, the more extreme (and unpredictable) the reactions can be.
How about an example of a household that has done this very well? We recently had a remarkable case that personified this conversation. While working with an affiliate of the firm whose family we are fortunate to serve as clients, we had the chance to put thinking through these concerns into practice.
Preparing Successful Stewards
The family consists of a husband and wife in their (let’s say) 40s and 50s with several teenage children. They’ve done very well for themselves, accumulating a net worth well into 8 figures. Amidst their success, they have been wrestling with the uncomfortable question, “What if our last day is tomorrow? What if our children are not prepared to carry the weight of this wealth?”
In financial planning, a successful wealth transfer requires attention to each of these questions.
Protecting Inheritors by Protecting Capital
We often find that with these families, the most important things are not the dollars and cents–it’s the family. This client, in particular, is very cautious of what this money could potentially do to the family in a negative light.
While working with us, our discussion focused on “What’s the most thoughtful way to build out the estate plan?” It’s not that you’re not ruling from the grave, but you do have strings attached to have control over the way that their children receive, accept, and successfully steward the wealth.
Your inheritors have a massive responsibility when inheriting this type of wealth. It’s not as simple as receiving a large inheritance and becoming “wealthy” overnight. The ability to govern significant wealth requires an earned blend of knowledge, character, and trusted support.
Aligning Your Estate Plan With Your Intentions
In this case, we settled on a creative (yet clear) plan for their estate. The focal point of the plan was a designed curriculum around personal financial literacy. For their children (currently teenagers) to become their own trustees over increasing amounts, they have to complete parts of the curriculum and pass knowledge exams.
The successful completion of this ‘curriculum’ then provided increased access to other trust structures that would not otherwise be under their control without the demonstrated knowledge and financial maturity.
These topics included everything from:
- Conversations and collaborative relationships that you have with attorneys
- Working with financial planners and accountants
- Fiduciaries vs non-fiduciaries (trustees, professionals, family members)
- Dealing with wealth and potential predators to the estate
- Good, strong, healthy relationships with friends and business partners and accessibility to trust assets in this light
Essentially, it canonized the question, “What would we want to ensure our kids know about how an appropriate steward of wealth acts if we aren’t here to teach them?”
Helping to Prepare Your Inheritors
Of course, mom and dad are healthy, in their forties or fifties, and have no plans to leave this life anytime soon. That said, we never want our clients exposed to single points of failure in their estate plans.. It’s far better to roll up our sleeves occasionally and craft a durable solution.
We needed to create something that the parents feel extremely confident in. It’s not just about preventing the many dangers of sudden wealth–though that’s critical. They wanted to ensure that their kids would be well prepared to receive funds and do great things with that wealth, should it ever become necessary.
These detailed, open conversations with our clients are critical to establishing an ideal estate plan. What do you envision your passing of assets to look like? What fears are you facing about that process? What is your ultimate goal for wealth and its impact on your inheritors?
By leaning into your intent for your wealth, we can design a fully integrated financial plan to best accomplish your wishes. It all starts with the first conversation about what is possible.
