Our New York estate planning lawyers ran across a Forbes article last week that began with the provocative claim that “70% of intergenerational wealth transfers fail.” The story was discussing a new Williams Group study which examined the long-term effects of wealth transfers in 3,250 families. “Failure” in the study was characterized as situations where wealth was dissipated by heirs, often with the family assets becoming a source of disagreement and friction.
The researchers were quick to note that poor professional assistance was not to be blamed; estate planning attorneys, financial advisers, and tax experts were not found to play a role in the wealth transfer problems. In fact the researchers noted that “these professionals usually did well for their clients.” Instead, the transfers that ended with problems were usually caused by poor family transition planning. In other words, the authors explained that “no one in the unsuccessful transferring families was preparing their heirs for the multiple kinds of responsibilities they would face when having to take over the reins.”
To combat the problems that arise when large sums of wealth are given to unprepared children and grandchildren, it is important to identify long-term lessons and values that must pass on along with the assets. Some suggest identifying a “family mission” and a strategy to ensure that the family mission is carried out. The heirs should understand that mission and be aware of ways to honor it. For example, it is likely that the mission would include a range of philanthropic goals, family business development plans, and other targets. It is helpful for the heirs to have experience practicing those family duties well ahead of time, perhaps by assisting with a few family business matters or charity efforts.