It sounds counterintuitive but words rather than numbers are likely to dictate the success of your family’s transfer of wealth. Most people turn to a financial advisor simply for a tax-efficient estate plan to ensure their heirs inherit as much as possible. But what good is that if the next generation are ill-equipped to deal with it, either because the money comes as a surprise or because they’re too entitled to handle such a windfall?

The perils of inadequate preparation are glaringly evident in the cautionary tales of families like the Vanderbilts and the Rothschilds who accumulated riches in the 19th century. While Cornelius Vanderbilt excelled in financial planning, his failure to instill a sense of responsibility in his heirs led to the rapid depletion of the family fortune. When the Vanderbilt family held a reunion in 1973, there were no millionaires left. In stark contrast, the Rothschilds ensured the longevity of their wealth by fostering a culture of responsibility, philanthropy, and shared vision among heirs.

We are on the verge of one of the largest intergenerational wealth transfers in history, but the Rothschilds’ success bucks the trend. According to much-cited studies by Victor Preisser and Roy Williams in their book “Preparing Heirs”, almost 70% of wealth transfers fail, which is more significant now than at any other time in history.

Therefore, just as Sir Nathan Rothschild realized, your heirs don’t just need a financial plan, they need guidance and mentoring. Here are several ways you can help prepare them to manage your family inheritance.

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Communication

Effective communication serves as the cornerstone of successful wealth transfer. Open and transparent dialogue about estate planning, financial strategies, and family values ensures that heirs are not caught off guard and are better equipped to make informed decisions during emotionally challenging times. By involving heirs in discussions about the family's goals, values, and vision for the future, families can cultivate a sense of purpose and unity essential for preserving wealth across generations.

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Family goals

Getting the family round a table is not only important to share information and explain strategies but it’s also vital to establish something more intangible – shared goals and sense of purpose. What does the family believe in? What is the vision for the future? Despite the endless media coverage of the markets and returns, most of the time this does not involve beating the S&P 500 or racking up a minimum 12% annual returns.

Instead, this might involve recognizing family history, understanding the origins of its wealth or respecting certain personal relationships. Some families, of course, have religious or cultural values and/or philanthropic areas it wants to continue to be involved in. There are also more prosaic goals like maintaining a certain standard of living or ensuring education costs for the grandchildren are taken care of.

Every family will have a different philosophy on wealth and there is no right or wrong answer. However, it’s important everyone is on the same page to ensure future decisions stay true to these values.

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Teach gratitude

Wealth can shelter young people from critical life lessons and perspectives, which can give rise to a dangerous sense of entitlement. Teaching heirs the value of money, how to save and budget, and the skills and independence needed to contribute to society is important. There are many ways to do this, and each family will have a different approach, but encouraging your kids to earn their own money, pay for their own education or save for their gap year travelling, for example, can help instil these values and ensure family money is not taken for granted.

Many successful business leaders require their children to learn the ropes from the bottom up at the company, while others want to see they can “make it” in another profession, not only to teach self-sufficiency but also to show them how fortunate they are. Not every family will be able to do this, of course, but finding way to teach old-fashioned values like hard work and the value of money, married with an understanding they are also stewards, not owners, of their family’s wealth, can help engender a priceless sense of gratitude.

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Learn through failure

All the above are designed to engage the next generation and prepare them for managing money. Families who prepare the heirs for the money and the money for the heirs will stand a better chance of success. A big part of being able to handle wealth with grace and gratitude is by understanding the sacrifices that went into getting it in the first place. Real-life experience is, therefore, vital. Younger family members should work with an advisor to manage their money. Let them make portfolio choices so they know what it’s like to lose. Encourage a business venture - let them experience the trials and tribulations that involves. Failure is a part of life and will help them grow into a mature adult and a more responsible steward of wealth.

In essence, effective wealth transfer transcends financial planning; it requires a comprehensive approach that encompasses communication, shared values, gratitude, and resilience. By investing in the preparation and education of heirs, families can safeguard their legacy and ensure that wealth endures as a force for good in the generations to come.

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