Family Wealth Planning: Sharing Your Legacy Effectively

Wealth is not just a measure of individual prosperity; it's a legacy that can benefit the future generations of your family. We say “can” because passing on your hard-earned wealth to future generations - in a way that preserves your wealth and your family’s sanity - is easier said than done. Family and wealth don’t always mix well, so family wealth planning is critical in passing on your wealth to the next and future generations. Ideally, you’ll consult with an expert in multi-generational wealth management, but to help get you started, we’ve outlined the common pitfalls and best practices in family wealth planning below.

Common Issues That Jeopardize Family Wealth

70% of families lose their wealth by the second generation and 90% by the third. While there are many reasons for this (and some unique situations), most of them boil down to these four common pitfalls:

• Communication Issues: Many families don't discuss money openly, leading to a lack of understanding and preparation for wealth management in future generations.
• Decision-Making Exclusion: Beneficiaries often need more skills and understanding to manage inherited wealth because previous generations excluded them from financial decision-making and wealth management processes.
• No Mediators/Impartial Trustees: An objective third party can help manage wealth and mediate potential family conflicts, especially when emotions run high. Failing to identify a fair mediator or trustee beforehand can lead to a breakdown in communication, a halt to correct money management, and worse.
• Lack of a Clear Plan: Without a structured plan for managing and investing wealth, families risk losing it to taxes, poor investments, and unprepared heirs.

Now that you know what you SHOULDN’T do when passing on family wealth, let’s get into what you SHOULD do.

Family Wealth Planning Best Practices

• Educate Yourself (and the Next Generation) Early:

1. 1. • Learn Financial Management: Understanding the basics of financial management and investment strategies is crucial. Knowledge is a critical factor in successful family and wealth management.
      • Family Discussions: Openly discussing financial matters, goals, and aspirations as a family ensures everyone is on the same page.
      • Financial Education for Children: Teach children about money management, saving, and investing from an early age.
      • Involvement in Family Financial Decisions: Involving the next generation prepares them for future responsibilities and aligns you all on family wealth goals.

• Invest in Long-Term Financial Growth:

1. 1. • Diversified Investments: Spread your investments across stocks, bonds, real estate, and other assets to minimize risks and maximize growth potential.
      • Consistent Saving Habits: Regular saving, even in small amounts, can accumulate significant wealth over time. 

• Implement Effective Estate Planning:

1. 1. • Create a Will and Trust: Well-structured wills and trusts (they’re not the same!) can efficiently pass wealth to future generations while minimizing taxes and legal complexities.
      • Choose the Right Executors and Trustees: Appoint individuals who are trustworthy and have a good understanding of your family’s financial goals.

• Charitable Giving and Social Responsibility:

1. 1. • Set Up Charitable Trusts: This helps the community and can be an efficient tax strategy.
      • Involve Family in Philanthropy: This can be a way to instill values and a sense of responsibility towards wealth.

• Consult with Financial and Legal Professionals (Regularly):

1. • Seek Professional Advice: Financial advisors and estate planners can provide valuable insights and strategies tailored to your family's unique needs.
   • Regular Review and Adjustment: As life circumstances change, so should your family wealth planning strategies.

Remember, building and sharing family wealth is not just about the present generation but about setting a foundation for future generations. By taking a proactive approach to family wealth planning now, you’ll help your family maintain the wealth AND understand the responsibility that comes with it (enabling them, in turn, to pass on the legacy to even further generations).

Interested in Creating Your Own Family Wealth Legacy?

Leslie Davis and her team at KPT are passionate about helping people make sound investments to help them build wealth and create a generational legacy. Leslie is a leading expert if you’re interested in using real estate to expand your wealth portfolio. Contact KPT today and start building wealth that can benefit your family for generations to come.