Very rich clients always ask how they can pass on their wealth while also keeping their families intact. It’s a good question.

Estate plans are usually designed to take care of assets, not relationships. Yet when relationships are frayed, the wealth can be dissipated. Research by our firm, the Williams Group, says only three in 10 family businesses make it through the second generation, and after three generations, that number drops to one in 10.

Families who want to pass along their wealth need three things, the research suggests: 1) an atmosphere of trust, 2) heirs who are prepared and 3) family values (best articulated in a mission statement) that forge longer relationships.

How Much Do I Give Them?
One of the most common questions wealthy parents ask is “How much do I give my kids, and when?” Essentially this is a question about trust, not money. Parents may not trust the next generation to responsibly manage wealth, so they design trusts and other governance structures to manage the money for the kids, kicking the can of responsibility down the road in the hopes their children will be “ready” when they hit the magic age.

One of our clients, the patriarch of a wealthy family, was unwilling to disclose his estate plan or his hopes for his legacy to other family members. His concern was that if they knew how much was coming their way, they would become “waiters”—waiting on a trust to provide for them.

Although the dad had tight control over all aspects of his wealth, he could not predict the future. He died of a sudden heart attack. This left his wife and family to deal not only with their grief but with unexpected greed, as each of them started fighting over what they thought was theirs.

Mom knew little about their financial situation and was unprepared for her children’s reactions. Dad’s dreams of providing a better future for his family and a long-lasting legacy were shattered along with the family relationships and their mother’s heart.

You can help families navigate the issue of trust by reminding them about one of its key components: competence. It’s not just a child’s age that will help the parents determine his or her readiness to receive wealth. The child must also have certain demonstrable skills and qualities. Perhaps these are even things you can measure.

You can open the conversation by asking the parents the following questions: “How will you know your kids are able to be responsible with wealth?” “In what areas do you trust them, and in what areas do you not?” “What do they need to do to have you trust them more?” “If you had more trust that they could manage the wealth responsibly now, what would you do differently?”

When you hold family meetings, include the kids and ask them how they know they will be ready to receive wealth. Would it be after they have held a job for some amount of time? Would they need to complete some financial education? Do they have to demonstrate that they can consistently save some amount of money? Should they be meeting with you quarterly to ask questions?

When the family itself creates the standards, they reveal to you their hidden expectations and take the guesswork out of what it means for their children to be “ready and competent” to manage money. Rather than hoping they got their kids’ age right when handing over trust access, they’ll use clearly established goals and standards of competence.

A Healthy Relationship To Wealth
Another frustration we commonly hear from elders about the next generation is that the kids live in a bubble. “They don’t know the value of a dollar,” is the refrain.

A 2007 survey by the U.S. Trust Company (now the Bank of America Private Bank) found that more than half of very wealthy parents didn’t believe their children were prepared to manage wealth. Yet another study by RBC Wealth Management found that less than 10% of parents had taken action to prepare their children.

Children who have grown up with affluence and abundance did not have to earn their lifestyles. That life shielded them from any sense of need—and therefore motivation. Furthermore, the families have often developed a tolerance for that disconnect, seeing it as a mere difference in generational values. That is, until the children become adults and are suddenly expected to pay their own way. The kids may even be asked to take on roles like estate executor or to make decisions about the family fortune, things they know nothing about.

Here’s another way of looking at the problem: A highly successful patriarch of a very wealthy family once said to me of his kids, “I can give them anything, but I can’t give them desperation.” The kids have learned to expect a certain standard of living without understanding what was required to create or maintain it.

But the way they were raised might offer hidden virtues. To find out, advisors can ask a wealthy family’s next generation how they think they can contribute to family wealth and expand the definition of what that wealth means. For example, if wealth is narrowly defined as money or assets, the next generation can be stymied by the overwhelming success of their parents. But if they have a broader definition of wealth—as the ability to pursue charitable efforts, to forge relationships and networks and provide education for others, etc.—that may give the children more avenues to contribute and find their place.

Our firm’s founder, Roy Williams, used to say, “The two most important days in your life are the day you are born and the day you find out why.” If the next generation is to find a direction that interests them, they must feel safe enough to express themselves openly and honestly without judgment.

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