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Investing

Preparing young adults for wealth takes a runway

For young adults to emerge as family leaders, ages 20-35 are crucial. And during this time, there’s much you can do to help them succeed.


We’ve witnessed it many times: High net worth families assuming that a trust, family business or foundation will naturally create the structures and opportunities for the next generation to emerge as mature leaders. Yet entities alone do not prepare heirs for handling wealth judiciously. They don’t necessarily address what a majority of our clients cite as the biggest threat to a successful wealth transfer (even above investment and economic concerns): family dynamics.

So how might families achieve a more successful and strategic wealth transfer across generations? With a few simple steps, you can build a runway for adult children, enhancing the likelihood that your descendants will sustain your family’s wealth.

The importance of building a runway for adult children—a thoughtful process, not one conversation—became more stark this pandemic year as a widely shared sense of mortality reminded many decision-makers of the need to chart a course beyond their own lifetimes. We have found that the thoughtful use of estate planning structures—combined with clear and consistent family communication—sets up the next generation for the opportunities and challenges ahead, while helping parents realize their own intentions.

As you gather with family this summer, it’s an opportune time to begin. Here’s how.

Understanding “money silence”

Before we discuss building a wealth preparation runway, let’s consider a potential example without one. In the final, busiest days of wedding planning, a bride-to-be’s parents told her, “We need to talk.” She would soon be signing a prenuptial agreement requiring financial disclosures. “There are some things you should know about certain trust income,” her father said. When she responded, “What trust?” her father handed her an envelope of complex tax forms listing her share of trust income, indicating significant wealth. (As her father's CPA prepared all the family member's tax returns, she did not personally monitor these items.)  “Everything’s in here,” the father answered, leaving his daughter with more questions than answers and without enough time to process this important financial information.

Time to learn and digest is one reason for discussing family resources earlier rather than later. Another reason: to allow children to plan for vocations of their choosing, and to pursue their passions. (We’ve heard from clients who didn’t because they hadn’t been told about their inheritance.)

Yet money silence is common, and understandable. Among the many reasons for this is the fear it could disincentivize children and young adults. Yet imagine a medical emergency incapacitating a family decision-maker, thrusting the next generation into ‘power’ unexpectedly and unprepared to lead. How would the family’s entities fare with a young adult making the investment decisions, or hiring advisors under duress—after never learned how to make them wisely?

Think of it this way: You’ve prepared your wealth for your family. Have you prepared your family for its wealth?

Step 1: Envision the desired destination and guide your children toward wealth literacy

The ages from 20 to 35 are often when young people emerge professionally, intellectually and emotionally. In addition to providing financial education sessions and timely articles (such as this one on sustainable investing), creating a “runway” can allow you to accompany and guide your adult children on their holistic journey to wealth literacy. It need not be burdensome and can include guidance every step of the way from your J.P. Morgan team.

We’re not proposing that first steps include exposing the full balance sheet or handing over the leadership reins. Instead, three questions have helped clients define their long-term aspirations for their family:

  • What would success look like for your family in 10 years, and in 20 years?
  • How do you expect your family to use its wealth? Does that align with your intent?
  • What personal values do you want to pass on to your children and grandchildren?

Step 2: Clarify the intended use of your family resources

An affirmation of values, expressed as a family motto or mission statement, can help articulate how the family intends to use its resources (e.g., “We value experiences, not things”). Prioritizing the values you’d like your family to live by builds a foundation for the next generation’s decision making, whether parents and grandparents are around or not.

Perhaps it’s a belief in character development, an entrepreneurial spirit, and an intention to better one’s community via charitable giving. What are you setting aside wealth for? (What are your dreams and aspirations, and what do you want to avoid?) Communicating values to your children helps them understand what the family will and won’t underwrite, and to plan accordingly

Step 3: Establish baseline skills to be cultivated over time

To identify a set of wealth education milestones, we suggest asking yourself:

  • What behaviors, attributes and values do I want my children to exhibit, now and in the future?
  • What concerns, if any, do I have about each child’s ability to manage resources independently?
  • What financial, investment and philanthropic topics do I want each child to learn more about and understand?

Then you can map out a customized runway. Here’s one family’s example:

A couple, about to establish substantial trusts, asked to meet with their J.P. Morgan team to discuss wealth education for the beneficiaries (at present, their two college-aged children). Before the J.P. Morgan team mapped out a runway, they asked first about the family’s desired destination. The parents noted that their daughter was an inquisitive, active and even competitive investor while their younger son preferred volunteering in the community. The parents intended to leave wealth not only to their son and daughter, but to set them up for success to support future generations, as well.

Above all, the couple wanted to transmit the same core values and skills to both adult children: recognition and appreciation for the family’s resources; happiness in the pursuit of their passions; baseline competency working with financial and other advisors.

After establishing this destination, the J.P. Morgan team helped the couple lay out their children’s runway to wealth stewardship and a plan to educate them. In their own words:

1.  Family fundamentals and values—How our family came to be in a fortunate position and what a significant responsibility it is to have access to this level of wealth and opportunity.

2.  Finance fundamentals—A working understanding of financial terms, how markets work, the theories behind them, and a general understanding of macroeconomic factors and how they impact one’s portfolio.

3.  The link between family and finances—An understanding of the family’s investments, what other types of opportunities exist in the investment universe, and how maximizing philanthropic intent is an important piece to incorporate into their plans.

By following the plan above (and with no pressure to disclose their balance sheet), the parents could begin passing down their long-term vision and, in turn, the steps that will help their children to reach it.

And if you’re a young adult reading this, consider sharing with your parents your interest in starting your wealth education runway. It may be top of mind, but they haven’t found the right moment to bring it up.

How your J.P. Morgan team can help

Consistent communication can align families and enable all members to reach their desired outcomes. Responding to the next generation’s wish for transparency, and to participate in regular, open dialogue are critical components of family cohesiveness and success.

Once you lay out your family goals and vision for the future, your J.P. Morgan team can activate a plan quickly to help achieve them. With our Tomorrow’s Investor educational series, next-generation networking events and personalized guidance by your dedicated team, we stand ready to help map out an education runway to equip your adult children to not just manage but to optimize your family’s wealth across generations.

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