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Help Wealthy Clients Pass on Philanthropic Values to Their Children

It’s time to have uncomfortable conversations; advisors must step up .

For the first time in the history of the annual UBS study of billionaire ambitions, new billionaires accumulated more wealth through inheritance than they did through entrepreneurship (that is, hard work). As I’ll discuss in a minute, it’s not a matter of knowing how to run a business or even make their own money—it’s about getting properly prepared to handle the responsibility of inherited wealth.

With an estimated $30 trillion transferring to the next generation in the coming decades, it’s not just billionaire kids who need to be properly educated and prepared to handle their family’s wealth responsibly, it filters down to the seven- and eight-figure net-worth crowd.

Nothing is going to change until parents and their advisors start having those difficult conversations about wealth transfer with their kids. They can’t keep leaving kids in the dark about their wealth or avoiding the issue. Not surprisingly, the UBS study found nearly three in five surveyed billionaires (58%) believed one of their greatest challenges was to instill in their heirs “the necessary values, education and experience to take over.”

In the meantime, a huge education gap continues.

According to researchers, two-thirds of first-generation billionaires (68%) said that their main objective was to follow their philanthropic goals and to “make an impact on the world.” By contrast, only one-third (32%) of second-generation billionaires felt similarly inclined. The study found successor generations were often “reluctant to gift money that they have not earned.” In some cases, “they may simply carry on with existing family foundations” and lean toward impact investing or managing businesses in ways that address environmental and social issues, the study asserted.

It’s Not Just the Billionaires

Again, billionaires aren’t the only people of means who should be worrying about passing on the right philanthropic values to their children. One couple I work with has a net worth of about $20 million. They’ve been telling their attorney that they don’t want the kids to know how much money they have. Well, they have a magnificent home in Northern California and another one on Lake Tahoe. The kids aren't stupid. They know their family is well off. So, keeping the kids in the dark about money is idiotic. The best thing you can do for your kids is to prepare them to inherit responsibly one day – not keep them in the dark. The matriarch and patriarch of another well-off family in Florida told me point blank: “We don't trust our kids with the money.” So, I asked them: “When are you going to be able to trust them, and how are you going to get to a level of trust if you never talk to them? They couldn’t answer me.

I’ve found this uncomfortable silence to be just as common for families with seven- and eight-figure net worth as it is for billionaires. As I’ve said hundreds of times in my seminars, parents would rather talk to the kids about sex than money. And they don’t like to talk about sex. We're doing a disservice to our kids. We’re not schooling them about money. We’re not teaching them the right values. We’re teaching them how to ensure their charitable giving is making an impact for the causes and organizations the family supports. So, the kids start squabbling, or they end up helpless, hopeless and taken advantage of by all kinds of misguided people spreading misinformation in their social circles and social media accounts.

The problem gets magnified when you’re talking about billions of dollars. But billionaire heirs can afford to make a few big financial mistakes because there's still plenty more money left. But the stakes get higher when heirs of non-billionaire families make mistakes, because there could be nothing left of the estate. The advice at that level is much less sophisticated. They don't have the resources to pull from.

Uncomfortable Conversations

If you’re a wealth advisor, it’s time to start having uncomfortable conversations about wealth transfer with your clients and their kids. Don't allow the parents to say: “I don't want my kids to know what we have.” You need to push back. You need to ask them directly: “What's going to happen if you don’t prepare your kids to inherit your family’s wealth some day?”

You may want to ask the adult kids to meet with you (with or without the parents). I've facilitated many family meetings in which we've talked about the various trusts and entities that hold family assets and the amounts of money that have gone into those structures. Again, your clients aren’  fooling their kids by keeping their wealth hidden from them. The kids see your clients paying for everyone to fly first-class on family trips. They stay at nice resorts. The kids know there’s money. Either they're going to be prepared to receive it or they're not. It’s up to the parents to teach the kids about the methodology behind the inheritance plan and to instill their family values in them. What's the reasoning behind the planning? What are we trying to accomplish? Why is a trust located in Nevada? Why is money being distributed or not being distributed? How can we make the biggest impact with our wealth? That’s where you come in.

Again, with an estimated $30 trillion in wealth set to transfer over the coming decades, the need for this kind of intergenerational financial literacy and “wealth responsibility” will only become more pronounced for all types of successful families. I realize discussions about family wealth are uncomfortable for many parents, so they tend to back away. It’s not that they don’t care; they just don't know how to approach the conversation. So, they default to the “ignorance is bliss” mindset. Trust me, ignorance is NOT bliss. Ignorance causes problems. As a trusted advisor, it’s your job to prevent these important discussions from getting swept under the rug.

I've never once had a family leader tell me: “Randy, after I die, my hope is that my kids to never talk to each other.” But when you look at how their estate plans are set up, it’s no surprise the kids become estranged from each other. For instance, they name the eldest child as the trustee for the youngest. They seem to favor one child over the other. They specify who gets which assets and heirlooms without asking the children or discussing it with them. Or they make the child who runs the family business an equal shareholder with the non-working siblings. All of these decisions breed resentment.

All this anxiety and family discord comes back to parents not talking to their kids about the responsibility that comes with their family’s wealth. They haven't found a way to communicate with each other without causing friction or reminding them of childhood wounds.

Prepare the Next Gen

As advisors, we spend so much time helping clients protect and transfer their wealth to the next generations, but we too often forget to prepare next gen to receive it. Your team might have the best quarterback in the league, but if you don’t have receivers who can catch the ball when he throws it, you won’t make it very far down the field.

Randy A. Fox, CFP, AEP  is the founder of Two Hawks Consulting LLC. He is a nationally known wealth strategist, philanthropic estate planner, educator and speaker. 

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