According to some statistics, in the United States, nearly 70% of wealthy families lose their wealth by the second generation, and 90% do so within three generations. The problem is so common that there is an old adage: “from shirtsleeves to shirtsleeves in three generations.”
In the worst case scenario, those adult kids, who may stand to receive a substantial inheritance, are ill-equipped to manage their financial “windfall”.
So how does a family who has worked to attain wealth, retain ‘dynastic’ wealth? In other words, how do they stay in the 10% who do not squander their wealth in future generations?
One strategy might be - start the education process about family finances early and ‘test the waters’ by gifting money to your kids on an annual basis. Establish some basic guidelines and goals about what to do with the funds... Then step back and see what happens.
Also, you can introduce your adult child to your financial adviser, or recommend their own financial adviser who can offer relevant guidance.
Opening candid discussions with adult children about expectations and getting their input in a family conference is another way to prepare for the time when they have to manage any larger portfolio that they might inherit.
Early education and preparation is the most meaningful way to have your children become good stewards of family wealth.
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