Plan now to prevent your descendants from squandering your wealth after you die.
According to an ancient Chinese proverb, “Wealth does not pass three generations” -- the first generation builds the wealth; the second generation is inspired to preserve it by witnessing the hard work of their parents; and the third generation, having never witnessed the work that went into the creation of this wealth, squanders it.
We are perhaps even more pessimistic than the ancient Chinese -- our experience shows that wealth is usually gone before the third generation ever sees it, unless legacy planning is undertaken to preserve wealth across generations. The law limits your ability to restrict the disposition of your wealth beyond the second generation, however, through legacy planning, you can take advantage of other means of achieving the same goals.
Family values provide a powerful incentive.
Corporations issue “mission statements” which usually include fashionable buzzwords like “leveraging” and “synergy.” A family with significant assets should do the same, with input from all of the adult members of the family. What makes you proud to be a member of your family? What makes your offspring proud? A family mission statement should be dynamic and fluid (subject to change), and it should allow every adult member of the family to contribute.
A family mission statement should be simple enough for everyone to understand, but it should incorporate some level of detail. It should also transcend purely material considerations and be realistic. “Make enough money to buy Alaska” is probably not going to be an effective mission statement, for example. Are there any causes, such as environmentalism or medical research, that are important to family members? A family mission statement should address everyone’s concerns.
Appropriate management of expectations can head off problems before they arise.
History bears witness to the fact that a vast family fortune amassed by one generation carries with it two distinct dangers – (i) disincentivizing subsequent generations who see no need to work (the “spoiled rich kid” syndrome) and (ii) family disharmony after the death of an elder as family members fight over the inheritance.
Regular communication can help head off these dangers, as can clear expectations that apply to every family member. Hold regular family meetings to explain the family wealth preservation and enhancement strategy, clarify goals and outline each family member’s responsibilities.
Wealth management is a skill, and practical training makes a difference.
The preservation and enhancement of family wealth requires more than good intentions and a clear strategy. It takes practical financial management skills in areas such as tax and estate planning, insurance, trusteeship, investment advice, and foundation management. Like a recipe that is passed down from generation to generation, this knowledge needs to be passed down through regular, detailed instructions. Teach your children these skills and have them teach your grandchildren the same. This is the essence of legacy planning.
Altman & Associates will help you formulate an integrated, long-term wealth preservation plan.
Most people realize that their true best interests transcend their lifespan. Forward-thinking people, however, possess the vision to look three and even four generations ahead of their own lifetimes. If you need assistance with wealth planning of any sort, callus today at 301-468-3220, orfill out our online contact page, to schedule a consultation.
FAQs
An example of legacy planning could involve making arrangements for your family's needs, such as funding education, childcare, or pet care, in the event of your death.
What is the meaning of legacy planning? ›
Legacy planning is a financial strategy that prepares people to bequeath their assets to a loved one or next of kin after death. These affairs are usually planned and organized by a financial advisor.
What is the 3 generation rule wealth? ›
Sixty% of wealth transfers are lost by the second generation, and 90% by the third. Only 10% of wealth passes beyond the third generation. The overall financial environment, income tax regulations, and estate tax laws fluctuate dramatically over a three-generation time-span.
What are legacy strategies? ›
Legacy planning involves envisioning how you want your money to be used and where it can make an impact. Strategies like charitable giving, impact investing and establishing a trust as part of your estate plan can ensure loved ones are taken care of, special causes are advanced and your legacy continues.
What are 3 examples of legacy? ›
Noun She left us a legacy of a million dollars. He left his children a legacy of love and respect. The war left a legacy of pain and suffering. Her artistic legacy lives on through her children.
How to make a legacy plan? ›
Steps for building a legacy plan
- Get organized. Start by gathering a full picture of everything you own and everything you owe. ...
- Determine beneficiaries, powers of attorney and guardians. ...
- Put your team together. ...
- Communicate your legacy plan with the right people. ...
- Review and reassess regularly.
Traditionally, the process of planning for the transfer of assets to your loved ones after your death is known as estate planning. As you approach this process, you might also hear another term: Legacy planning.
What are the benefits of legacy planning? ›
The benefits of having a well-designed legacy plan are (1) it provides financial security for future generations, (2) it reduces the tax burden for heirs, and (3) it allows for charitable giving.
What is a legacy plan at work? ›
Legacy planning involves preparing how the creator of the plan will bequeath their assets and properties to their beneficiaries. Proper legacy planning will enable your beneficiaries to obtain maximum value from the assets and properties that you leave behind for them.
How many generations is considered old money? ›
But despite this tremendous inherited wealth, the Walton family are not considered “old money people.” Most social scientists state wealth must be sustained through more than three generations before being considered “old money”.
This is known as generational wealth. Figures from Gobankingrates show that 70% of wealthy families lose their wealth by the next generation, with 90% losing it the generation after that.
What is the 3 generation curse? ›
The 3 Generation Curse is a cycle of poverty, debt, and financial illiteracy that can be passed down through generations. Identifying the signs of this curse early on can help break it before it has an opportunity to take hold.
What is an example of a legacy plan? ›
For example, one can make use of legacy planning to ensure the needs of their family (such as education, childcare, and pet care) are handled, even if they have passed away. One can also prioritize charitable giving and business succession via a legacy plan.
What is the meaning of legacy plan? ›
What is legacy planning? Legacy planning is the process of deciding how to distribute your assets after you pass away. Over a lifetime, you may be fortunate enough to accumulate various assets—your home, property, retirement savings and family heirlooms all are considered part of your estate.
What is an example of a positive legacy? ›
Positive legacies involve family traditions we have experienced in our family of origin and want to bring into our own relationships, ways we celebrate: holidays, birthdays, anniversaries, take care of sick family members, approach vacations, etc.
What are examples of specific legacy? ›
They are usually phrased along the lines of 'I give £10,000 to my nephew John Brown'. Specific legacies are used for specific items. For example, 'I leave my blue Wedgwood china vase to my neighbour James Brown'.
Which of the following is an example of legacy model? ›
1. Mainframe Computers Mainframes are a classic example of legacy hardware. While they still power critical functions for many organizations, their technology is decades old.
What are the three types of legacy? ›
There are three types of legacies: general, demonstrative, and specific.
