One of the many challenges high net worth families face during the estate and legacy planning process is knowing when and how to educate and prepare their children for the wealth they are set to inherit. While today’s rising generations—Millennials in particular—may have a solid grasp of financial management concepts, wealth literacy is very different than financial literacy.
Helping younger family members understand the broad spectrum of wealth planning issues will not only prepare them for how to spend, invest and share their inherited wealth thoughtfully, but it may also remove some of the emotion and conflict that younger generations sometimes associate with money.
While every family has unique wealth transfer and legacy goals, instilling and preserving the family’s values throughout generations is often a common objective. Typically, families that are successful in developing the rising generation to be effective stewards of family wealth engage in three best practices.
They provide age-appropriate transparency. It’s natural to have fears about telling your children about the money you have set aside for them, as knowledge of their future wealth may have unintended consequences.
However, open conversations can help you frame the wealth they will inherit within your family’s values so that they better understand their roles as overseers of the family wealth and legacy.
Transparency can range from sharing all details of the family’s wealth and estate plans to limiting the information you share to a high-level framework, and ultimately depends on the culture your family has established. While some families are very open when it comes to discussing money, others may prefer to gradually disclose details as their children mature.
The age that you decide to begin discussing wealth with your children is up to you—a very general rule of thumb is to start these conversations when they are in their early 20s, possibly after they graduate from college and begin to achieve financial independence. It is often advantageous to focus on the family’s wealth goals, visions and plans rather than the transfer of assets when having these discussions.
They create a learning environment. Educating the younger generation does not have to be formal or instructional. Instead, actively engaging younger family members in discussions around how the family defines success and makes decisions regarding wealth can be more effective.
Often, philanthropic goals are a good starting point for discussing the family’s common vision, as discovering each family member’s passions can help reveal shared values.
Then, creating a plan for action that includes input from both older and younger family members allows the younger generation to have a feeling of ownership in the family’s goals.
As important as it is to learn to work together as a family, underpinning all of those discussions is a thorough understanding of investment, financial and wealth planning concepts. Financial education is critical to helping the rising generation prepare for their roles in the family, their career and their community.
They encourage opportunities for involvement. Many families have accumulated their wealth through savvy investment decisions and identify as a family through a culture of investing—this could be in a family business, real estate, stocks, private equity opportunities or even art. Your vision for your family’s legacy may be to continue creating wealth, either through business and investment opportunities, or by connecting your family’s investment strategy to your philanthropic goals (also known as sustainable and impact investing). Involving younger family members in these strategies can be an effective way to involve the next generation in responding to and furthering the family legacy.
Integrated wealth planning, evolving a healthy family wealth culture and developing the rising generation are all important steps along the legacy planning journey. Each step of the process is an opportunity for families to identify their unique goals and what wealth really means to them while engaging younger family members.
If you are developing your own legacy, consider discussing the best ways to integrate younger family members into the planning process with your wealth advisor. Firms like CIBC Private Wealth Management have programs in place to help the members of next generation prepare for management of their own wealth and to bring families together for meaningful and productive conversations. Your wealth advisor can help you educate younger family members so that they are prepared to receive, preserve and grow the family’s wealth while also protecting the family legacy you envision.
