Common Wealth Transfer Mistakes Families Make

FAs Weigh In:

FA-IQ reached out to advisors to ask: What are the common wealth transfer mistakes that families make?

When you think of the transfer of wealth and mistakes that come from this, your mind drifts to news articles of famous people who died without a will or estate plan. This is definitely a mistake but not a common one.

There are three mistakes that we see routinely made by families.

01. Failure to talk openly with your adult children

The first is the patriarch or matriarch failing to have an open dialogue with their adult children about their level of wealth and how they are thinking of distributing it among their children, grandchildren and philanthropic organizations. When this type of ongoing conversation does not exist and worse — when they exclude the spouses of their children — they are in essence creating their own resistance. Instead, they should strive for annual family meetings to review the overall structure of family assets. This would include business entities, trusts, private direct investments and who the family’s core advisors are and how they fit together for the family.

More families need to view this type of work as an investment into the future success of their family.

02. Controls and Restrictions

The second is trying to control their wealth and family from beyond the grave. Trusts are a great structure for generational wealth transfer, but if they put too many restrictions on how they can invest, manage and spend funds, they will inevitably create tension among those that are still living.

This can be exacerbated if there is a family business involved and the equity is owned within the trust where beneficiaries have equal claim to the assets in the trust. There are many stories that have been told that all boil down to equal is not fair and fair is not equal, yet families choose equal distribution of everything because it is easy and allows them to avoid challenging conversations.

03. A Familial Mission with Structure

The third is not creating a family governance structure with a built-out vision and mission for the future of the family and its interests. This is the uniting factor among successful families. It helps to guide families through conflict among family members and keeps everyone united in the path that the collective family has chosen.

We have seen through working with families that this alone has the ability to significantly improve a family’s chances of success when transferring wealth across generations.

When I first started in this line of work, I would look at successful family companies and think to myself, ‘They have to have everything figured out.’ As I started talking with them and listening, I realized that they were really good at building and growing a business. The new challenges that came from that success were not a part of their skillset and, at times, reaching out to professionals just seems like a cost and not an investment into the future. It’s this type of thinking that tends to lead to the mistakes I shared. More families need to view this type of work as an investment into the future success of their family.




Article via Financial Advisor IQ May 5, 2021 Click Here