The “shirtsleeves” adage—declining family wealth across generations—is a common fear that’s often warranted. Research shows that 70% of family wealth is lost by the second generation, and 90% is lost by the third.
The skills that create wealth, including relentless drive, appetite for risk, and intense focus, may not be the same ones required to steward it for the long term. This leaves many families wondering how to prepare their children for a reality they’ve never known.
Families who defy these odds tend to do so intentionally. They may believe that a financial inheritance is only as strong as the foundation of values and capability it rests on. They can build this by focusing on three areas: defining shared values, developing financial competence, and creating a framework for stewardship. Let’s take a closer look.
The Foundation: Defining Shared Values
We believe the process should begin with purpose. Having a shared “why” can help create a family culture where wealth serves something larger than itself.
Here are two tools to help you build that foundation:
- The Family Mission Statement: This is a collaborative document that defines your family’s collective purpose. It’s a chance to articulate what you stand for, the impact you want to have, and the principles that guide you. This shared vision becomes a north star for all future financial decisions, from investments to philanthropy.
- The Legacy Letter: Less formal than a legal document, a Legacy Letter is a personal message to the next generation. It’s an opportunity to share the stories, life lessons, and hopes behind the wealth you’ve built. It explains the values you hope they carry forward.
The Skillset: Developing Financial Competence
It can be important to provide the next generation with the tools and confidence to become capable stewards. Consider these practical methods for building financial literacy:
- Age-Appropriate Transparency: We believe financial conversations should start early and evolve over time. For younger children, it might be discussing the family budget. For teenagers and young adults, it could mean reviewing a redacted investment statement or explaining the fundamentals of the family business. This demystifies money and creates a safe space to ask questions.
- Early Investing: Setting up small, supervised investment accounts can allow heirs to learn firsthand about research, risk, and long-term strategy. It’s a low-stakes environment to make mistakes and gain valuable experience.
- Regular Family Meetings: Formalizing financial discussions into regular meetings can signal their importance. These can be forums to review philanthropic goals, get updates on shared assets, or have a younger family member present on a financial topic they researched. This practice can build a shared language and collective confidence around wealth.
The Structure: Creating a Framework for Stewardship
We believe you should treat your collective assets like a “family enterprise” that requires thoughtful management and clear governance. This structure is designed to help your family’s mission be carried out efficiently and harmoniously.
This is where a concept like business succession planning fits into a much larger picture. For families with a business, it can be a critical component. But even for those without one, the principles of succession—ensuring a smooth transition of leadership, vision, and values—can apply to managing a large portfolio, a foundation, or other significant assets.
Some structural tools include:
- Family Governance Charters: These documents outline roles, responsibilities, and decision-making processes, helping to reduce confusion and conflict.
- Purpose-Driven Estate Plans: Trusts and other legal instruments actively support the family’s values—such as creating trusts that incentivize education, entrepreneurship, or charitable work.
An Inheritance of Empowerment
Ultimately, building multigenerational wealth may be an active process of preparing your children for the responsibilities and opportunities that accompany it. Bringing these conversations to life can feel daunting, especially while managing a career and family. The process often starts with guided conversations that help uncover what truly matters. An experienced advisor can act as a facilitator, helping your family build the framework.
At SignatureFD, we believe wealth should serve your deepest values and strengthen family bonds across generations. Contact us to learn more.
