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Creating an effective wealth plan for multiple generations

Elena M. Mortemore

By Elena M. Mortemore

Head of Trust and Wealth Planning - Americas

March 20, 2019Posted InWealth Advisory

A key concern of many family leaders is that the great wealth they have spent their lives building will erode within several generations. Despite this very common fear, not many families start making plans to transfer wealth to future generations until a change is imminent – for example, a turn for the worse of the family leader’s health. This rushed attempt can lead to an ineffective strategy and disappointed family members.

Planning to pass wealth to the next generation can often be a complicated, highly-sensitive, and emotional process. Family leaders understandably want to ensure their wealth is preserved for future generations. However, they have to face the realities of letting go of control – and entrust others to carry on the legacy they have created.

A family’s legacy, and wealth depend on its future family members. Therefore, it is vital families plan an efficient and effective transfer of wealth well in advance, ideally when there is little emotional impetus, and with the understanding this could take several years.

From our experience working with wealthy families around the world, we have identified several best practices used by those who have successfully transferred wealth to future generations. We believe both wealth creators and inheritors may find these considerations useful when creating their wealth plans.


1. Establish key values and aspirations

Before starting the journey, family leaders should decide what values they want to pass onto their families and how these should be implemented, for example in any particular business, philanthropic, or investment activities. These aspirations can be reflected in the wealth plan as long as there has been clear direction, which comes from a clear vision.

It is equally important that family leaders understand the values and aspirations of their younger family members. A family leader’s passion may be in his or her much-loved business, but his or her children may not share this interest. If this is known beforehand, for example, the leader can either hire an external candidate to take over the business or arrange a potential initial public offering. 


2. Create a balance between supporting family and preserving wealth

A strong wealth plan should ensure family members will lead prosperous lives with many opportunities available to fulfil their own ambitions. However, it is also important to implement thoughtful processes to avoid spendthrift beneficiaries so wealth does not dissipate within a few generations.

For example, a family leader who knows his or her family has a few budding entrepreneurs could set a rule within the wealth plan that all family members must present any new business ideas to a board of trustees.  Each member could be given three opportunities to be pitch their proposal before being encouraged to pursue other interests.


3. Trial next generation family members

Younger family members should go through a trial phase to determine how prepared they are for the added responsibilities and pressures of managing wealth.

Many families start involving next generation family members in some key decision-making activities in business, investment, and philanthropy several years before any planned transfer of wealth. Not only will this reveal how they perform, but also gives further training and education if necessary. Through this process, both wealth creators and inheritors can feel confident when changes occur.

For example, some families give next generation family members a small allocation of money to invest in an area of particular interest – for example, social investment – and have an investment advisor mentor them through the process.


4. Don’t forget the tax implications

Tax should be a key consideration to creating an effective wealth plan. Family leaders should seek the advice of an independent tax advisor to protect assets from unnecessary taxation and preserve wealth for future generations.


5. Strive for family unity

Establishing a plan to transfer wealth to future generations can cause family arguments or highlight deep-rooted issues. Even though each individual will have their own unique life goals and aspirations, it is integral a family stay united throughout.

All family members must remember the prosperity of the family lies at the heart of this entire process and work together for the plan to succeed. The smoothest transitions are the ones where family leaders accept there must be a compromise between the legacy they want to leave – and the future their families want to create.


The views expressed herein are for informational purposes only and are those of the author and do not necessarily reflect the views of Citigroup Inc. All opinions are subject to change without notice.