Preparing your family to be responsible with regards to family finances can prevent your hard-earned wealth from being frittered away in the future
According to research about 70% of second-generation families squander assets received from an estate transfer and 90% of the family wealth will be lost by the third generation.
The primary reason stated for the steady decline in generational family wealth is distrust and a lack of communication between family members. The secondary reason is a failure to prepare children to manage sudden windfalls responsibly, which is not surprising given the reluctance of many parents to discuss family finances with their children or grandchildren.
Fortunately, the main reasons for wealth deterioration can be addressed prior to the transfer of family wealth to the next generation. The phrase “Prevention is better than cure” could not ring more true, and with this thinking in mind, Sanlam Private Wealth has put together four steps to help achieve this.
- Initiate the conversation: Share the family history with the younger generation and initiate an open dialogue on the vision for the family going forward. This will instil pride in the family legacy and provide the younger generation with a greater sense of respect for the efforts it took to build up the family heritage.
- Involve the family in decision-making and management of family wealth: Include family members in meetings with the family’s financial advisers and technical specialists. This will provide them with a better understanding of why certain decisions were made, and will leave your family less vulnerable to inept or unscrupulous investment advice when you are no longer there.
- Ensure proper financial education: Financial education does not necessarily refer to degrees in finance and business. However, if, for example, your children serve as trustees on the family trust, providing them with proper trustee training – preferably by professionals – will better prepare them to manage the inherited family wealth.
- Execute proper estate and succession planning: Planning is essential to ensure that wealth is transferred to the next generation without incurring unexpected and unnecessarily high inheritance taxes or other costs relating to succession and estate administration issues. Proper planning in this regard may ensure that your estate is administered with the least amount of hassle and stress for your loved ones during a time that is already taxing for them. The Greek philosopher Epictetus wisely advised: Be careful to leave your sons well instructed rather than rich, for the hopes of the instructed are better than the wealth of the ignorant.
Important information
Sanlam Private Wealth (Pty) Ltd, registration number 2000/023234/07 is a member of the Johannesburg Stock Exchange, a licensed Financial Services Provider, number 37473 and a Registered Credit Provider, NCRCP1867.
The views expressed above are based on information which we believe to be reliable, but are not guaranteed as to accuracy or completeness by Sanlam Private Wealth, and any expressions of opinion are subject to change without notice. This article is for information purposes and should not be treated as advice to buy or sell any particular investment.
To contact Sanlam Private Wealth’s Durban office, please phone 031 560 3600