Why affluent families can’t hold onto their wealth
- An estimated $80 trillion dollars will pass on to future generations in the U.S. over the next 30 to 40 years—and most families are woefully unprepared.
- Ninety percent of family wealth will disappear in just three generations.
- Lack of communication, trust and recipient planning—not bad investment results—is most often the cause of family wealth evaporation.
What parent out there doesn’t want a better life for his or her children or grandchildren? I don’t know of any. But research shows that 90 percent of family wealth will disappear in just three generations.
It’s not a new phenomenon. The ancient Chinese called it going from rice paddies to rice paddies in three generations. We call it shirt sleeves to shirt sleeves in three generations. The Iroquois believe that our actions today will affect the next seven generations, just as the actions of the seventh generation before us now affect us. That really expands your mind.
Why can‘t families hold onto their wealth?
Estate planners Roy Williams and Vic Preisser wrote a great book called Preparing Heirs based on interviews with over 3,000 affluent families. They found that 70 percent of family wealth is gone even by the second generation. Why? According to Williams and Preisser, 60 percent of the time it’s due to lack of communication and trust among the family members, and 25 percent of the time it’s from inadequate planning by the heirs. Only 3 percent of the time is it due to financial and investment results!
There are three important areas to focus on.
- Human capital. Educating and training each person within the family so they can distinguish themselves as unique and special individuals as they grow up.
- Intellectual capital. The collective capital and wisdom of the family unit drawing from the first, second, third, and even the fourth generation. Just as the Iroquois do.
- Financial capital. The businesses and investments that allow the family to move on down the road and have a more successful generation down the line.
We’re bringing this topic up because there are over 5 million people in the U.S. who have substantial wealth. Over the next 30 to 40 years, an estimated $80 trillion is going to be passed on to future generations. Even more eye-opening is the fact that 120 million Americans have not updated or do not have a formal estate plan. Pretty scary.
To that end, National Estate Planning Awareness Week is coming up October 20-26. It’s designed to help give (and receive) the vast amount of wealth that’s going to be transferred as the boomer generation retires and eventually passes on. It’s a major issue for many Americans and will have a profound impact on the next several generations.
Also this month we’re holding our annual Technology Open House on October 9th from 5 pm to 9 pm right here in our offices. We’re going to have 20-minute sessions on connecting family and finances, protecting yourself from identity theft, simplifying social media, video conferencing, accessing websites for custodians, and using technology to improve your health. You can register online here or all Karyn at 871-441-5644 to register.
We hope to see you there. Best, Gary
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