Plan now to prevent your descendants from squandering your wealth after you die.
According to an ancient Chinese proverb, “Wealth does not pass three generations” -- the first generation builds the wealth; the second generation is inspired to preserve it by witnessing the hard work of their parents; and the third generation, having never witnessed the work that went into the creation of this wealth, squanders it.
We are perhaps even more pessimistic than the ancient Chinese -- our experience shows that wealth is usually gone before the third generation ever sees it, unless legacy planning is undertaken to preserve wealth across generations. The law limits your ability to restrict the disposition of your wealth beyond the second generation, however, through legacy planning, you can take advantage of other means of achieving the same goals.
Family values provide a powerful incentive.
Corporations issue “mission statements” which usually include fashionable buzzwords like “leveraging” and “synergy.” A family with significant assets should do the same, with input from all of the adult members of the family. What makes you proud to be a member of your family? What makes your offspring proud? A family mission statement should be dynamic and fluid (subject to change), and it should allow every adult member of the family to contribute.
A family mission statement should be simple enough for everyone to understand, but it should incorporate some level of detail. It should also transcend purely material considerations and be realistic. “Make enough money to buy Alaska” is probably not going to be an effective mission statement, for example. Are there any causes, such as environmentalism or medical research, that are important to family members? A family mission statement should address everyone’s concerns.
Appropriate management of expectations can head off problems before they arise.
History bears witness to the fact that a vast family fortune amassed by one generation carries with it two distinct dangers – (i) disincentivizing subsequent generations who see no need to work (the “spoiled rich kid” syndrome) and (ii) family disharmony after the death of an elder as family members fight over the inheritance.
Regular communication can help head off these dangers, as can clear expectations that apply to every family member. Hold regular family meetings to explain the family wealth preservation and enhancement strategy, clarify goals and outline each family member’s responsibilities.
Wealth management is a skill, and practical training makes a difference.
The preservation and enhancement of family wealth requires more than good intentions and a clear strategy. It takes practical financial management skills in areas such as tax and estate planning, insurance, trusteeship, investment advice, and foundation management. Like a recipe that is passed down from generation to generation, this knowledge needs to be passed down through regular, detailed instructions. Teach your children these skills and have them teach your grandchildren the same. This is the essence of legacy planning.
Altman & Associates will help you formulate an integrated, long-term wealth preservation plan.
Most people realize that their true best interests transcend their lifespan. Forward-thinking people, however, possess the vision to look three and even four generations ahead of their own lifetimes. If you need assistance with wealth planning of any sort, callus today at 301-468-3220, orfill out our online contact page, to schedule a consultation.
FAQs
Legacy planning is a financial strategy that prepares people to bequeath their assets to a loved one or next of kin after death. These affairs are usually planned and organized by a financial advisor.
What is the 3 generation rule wealth? ›
The Chinese proverb “Fu bu guo san dai” translates to “wealth does not pass three generations” and dates back thousands of years. The issue of generational wealth transfer is not a new one, nor is it uniquely American. Sixty% of wealth transfers are lost by the second generation, and 90% by the third.
What is the Chinese proverb about generations? ›
According to an ancient Chinese proverb, “Wealth does not pass three generations” -- the first generation builds the wealth; the second generation is inspired to preserve it by witnessing the hard work of their parents; and the third generation, having never witnessed the work that went into the creation of this wealth ...
What does Chinese say about wealth 3 generations? ›
The Chinese believe that family wealth will not last for three generations. The first generation makes the money, the second spends it, the third see nothing of the wealth. It is a 'rags to riches, and back to rags' story.
What are 3 examples of legacy? ›
He left his children a legacy of love and respect. The war left a legacy of pain and suffering. Her artistic legacy lives on through her children.
What is an example of a legacy plan? ›
An example of legacy planning could involve making arrangements for your family's needs, such as funding education, childcare, or pet care, in the event of your death.
What is the message of 7 generations? ›
The Seventh Generation Principle today is generally referred to in regards to decisions being made about our energy, water, and natural resources, and ensuring those decisions are sustainable for seven generations in the future.
What is the proverb of seven generations? ›
The Seventh Generation Principle is an Indigenous Concept, to think of the 7th generation coming after you in your words, work and actions, and to remember the seventh generation who came before you.
What is a short quote about generations? ›
Each generation imagines itself to be more intelligent than the one that went before it, and wiser than the one that comes after it. We want our legacy to stand upon the youth. We want to give knowledge to the younger generation and be a part of changing the game.
Which generation has the most wealth? ›
Baby boomers have the most wealth among four recorded generations. Other generations have less wealth, but it's not necessarily an indication of financial problems. Plan for upcoming economic issues such as higher housing and medical costs by investing early.
A Chinese saying that goes “Wealth does not last beyond three generations”, for example, is essentially stating the same belief as to the American expression, “Shirtsleeves to shirtsleeves in three generations”. And data does back up these aphorisms.
Why most families lose their wealth by the third generation? ›
One reason why this cycle occurs is due to a lack of financial education. Without proper guidance, subsequent generations may not have the knowledge or skills to manage the family's wealth effectively. Additionally, entitlement and family conflict can also contribute to the downfall of wealthy families.
What is another term for legacy planning? ›
Traditionally, the process of planning for the transfer of assets to your loved ones after your death is known as estate planning. You might also hear another term: legacy planning.
Who needs legacy planning? ›
Legacy Planning is the strategic approach to ensure your assets seamlessly transition to your loved ones after you're gone. Through effective legacy planning, you can prioritise leaving a meaningful legacy while still maintaining ample funds for a comfortable retirement, allowing you to cherish your golden years.
What are the three types of legacy? ›
[16] There are three types of legacies – general, demonstrative and specific.
How to plan a legacy? ›
Legacy planning involves envisioning how you want your money to be used and where it can make an impact. Strategies like charitable giving, impact investing and establishing a trust as part of your estate plan can ensure loved ones are taken care of, special causes are advanced and your legacy continues.
