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It is one of the single most asked questions, as we work with our clients to pass wealth on to their next generation. 

It seems like there should be a simple answer. Unfortunately, I always follow that question up with the ever so frustrating, “Well, it depends….” The biggest thing I stress to our families, is that the number is not what’s important. It’s the context around the number. What is the level of transparency? What is the child’s level of responsibility? What are the parent’s expectations? When we solve for these factors, we can then begin to explore specific amounts.

Numbers given out of context, have very little relevance to whether your next generation wealth planning will be effective or not. A parent can transfer $1,000,000 to their child and believe (for good reason) that this tremendous gesture will be greatly appreciated. However, if the child believes that their parents are worth $500 million, this .2% transfer of wealth might be perceived as a tremendous slap in the face, especially if the child was in the midst of trying to start a business and a family at the same time. Forget for a moment that the basis of this analysis was a simple internet search and personal observation. Adding another perceived insult, the parents want to transfer the assets in trust, to provide some level of asset and creditor protection, but the child thinks that it is “in trust” because his parents don’t “trust” him. To further muddy the waters, the parents have not told the child that there is an even bigger amount of wealth that is in the process of being transferred, but is pending the “break” of additional planning techniques. All of these compounding misunderstandings can be avoided with a simple sit down. We are big believers in facilitating a meeting that details and explains the amount of money that is being transferred now, and in the future, the method used for the transfer, why the money is being transferred, and what can prevent or cause any of the above to change. We believe this transparency is crucial to averting any miscommunication, or perceived ulterior motives.

Often times, these transfers are meant to support a parent’s legacy goal, but that goal is obscured by legal language, and neither generation really understands the other’s intentions or expectations. It is critical that the parents lay out the responsibilities being placed on the next generation. If the money is meant to help supplement income from employment, it should be stated. If the money is meant to create a charitable legacy within the community, it needs to be made clear. We often find ourselves mediating emotional conversations at points in the future, because of poor communication about expectations and responsibility at the outset. Families should set aside time once, twice, or three times a year, to discuss everyone’s responsibility, and set an agenda with follow-up action items, so that these important discussions are conducted, and contained within dedicated meetings. Otherwise you will run the risk of every family interaction turning into an unexpected and potentially messy exchange about the responsibilities of money, perceived insults and disappointment under the guise of “transparency.” Use these dedicated forums, with set formats your family agrees upon, so that every wedding or holiday doesn’t turn into a money session.

Interested in learning more about family wealth and next generation wealth planning? Click here to reach out to our wealth planning team with any questions you may have.  

Matthew Helfrich, CFP®

Partner and President

Barron's
Advisor
Hall of
Fame