4 ways to avoid failure in transferring family wealth

As many as 90% of wealthy families lose their wealth within three generations, largely due to poor interpersonal dynamics.

As many as 90% of wealthy families lose their wealth within three generations, largely due to poor interpersonal dynamics.

Is your family positioned to beat the odds? Take a look at four steps you can take to foster a healthy family culture.

1. Prioritize trust and communication

Of the families that fail to transfer their wealth to future generations, the majority fail due to poor trust and communication.

To build trust and create a culture of open communication, you need to ensure all your family members feel safe and acknowledged when they offer their opinions—even when their opinions differ from yours or the others’. Taking a few steps can help you achieve open communication:

  • Conduct family meetings. Setting appointed times to discuss family topics creates a culture of communication and provides an opportunity for family members to address issues in an appropriate setting. The right frequency depends on your family. You may need frequent meetings if you’re just starting out, or you may need less frequent but longer meetings if your family members are geographically dispersed.
  • Define family. In multigenerational families, creating a framework for who to include in which conversations may help prevent miscommunications and hurt feelings. Are all spouses included? Stepchildren? How early do you want to include children—and in which discussions?
  • Appoint or hire a neutral facilitator. Bringing in a third party, such as someone trained in family coaching or an attorney, can help foster understanding and communication. An independent party can help empower all your family members to participate and may mitigate concerns about the power dynamics at play.
  • Address unspoken or taboo topics. While some topics may be uncomfortable, you should address and resolve any underlying issues. In the long run, your family will be better equipped to handle thornier discussions if there is a feeling of mutual trust and respect. Hiring a professional skilled in family dynamics may be wise in this context. 
  • Acknowledge all viewpoints. Building trust across the family requires acknowledging everyone’s perspectives.

2. Create a sense of family purpose

If your family has a collective mission, you’re better equipped to transfer wealth down to younger generations. Talking about your family history, including how the family’s wealth was made, imparts a common understanding and a sense of legacy across generations.

You should also: 

  • Articulate your family values. Knowing what’s most important to your family can help you make better decisions. Identify those values you all agree on, and take a big-picture approach. Your family may not agree on a political ideology, but all members may agree that they value independence.
  • Inquire about passions and goals. Knowing the priorities and motivations of all family members, even those of young children, can help you see opportunities to nurture those interests through your family’s work or philanthropic activities.
  • Address expectations. Older generations may have expectations of younger generations, and vice versa. (You may want your daughter to join your family business, but is that really what she’s excited—and skilled—to do?) Candid discussions can help you ensure there are no unspoken or miscommunicated expectations.

3. Don’t shy away from discussing wealth

Many families struggle with talking about wealth. By avoiding the topic, individuals may believe they are protecting loved ones from hard truths. They may also worry about how knowledge of wealth will change behavior, especially among children.

But if your family has developed trust, communication and a sense of purpose, all members will be well positioned to candidly discuss the challenges and opportunities that come with wealth.

As you broach the topic:

  • Be aware of triggers. Discussing wealth can awaken feelings of inadequacy, fear or other emotions. A skilled professional can help family members uncover and address how they feel about wealth.
  • Look for opportunities to educate. A successful entrepreneur’s family may perceive itself to be wealthy, but if the wealth is based on equity in the entrepreneur’s company, the reality may be different. How you discuss family wealth can provide ways to manage expectations, instill values and groom future generations to responsibly steward the wealth.

4. Use philanthropy to strengthen family dynamics

Philanthropy is a useful tool to prompt these important conversations and can help strengthen your family’s trust and communication. It provides the opportunity to:

  • Engage and inspire younger family members. Even those family members whose passions don’t include family finances may be eager to establish a cause for the family to support. This provides a way for the entire family to collaborate on a shared purpose.
  • Reinforce family values. The causes your family supports should reflect your family values and can help various family members express their passions.
  • Impart important attributes and behaviors. Giving as a family may help you reinforce such good practices as decision making, accountability and responsibility.
  • Broach future discussions and decisions. Philanthropy can lead to conversations about your family’s legacy, traditions and future roles for younger members.

Aside from monetary gifts, consider volunteering or collectively visiting a program you are funding or considering funding. Volunteering also provides a way to meet people outside a family’s normal social structure and gain exposure to new perspectives. You might even take a family vacation to explore an issue or culture that interests a family member.

You can learn more about what to expect when family members of different generations are involved in your family’s philanthropy in How Different Generations Approach Philanthropy.

To learn more about how you can optimize your strategy for giving, please contact your J.P. Morgan advisor.


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